Wal-Mart Sued for Not Using Vanguard

I just ran across an interesting article that talks about a lawsuit against Wal-Mart over their 401(k) investment selections. The suit claims that Wal-Mart harmed their employees by offering high-cost retail funds instead of the cheaper institutional funds for which they surely qualify, and by only offering actively-managed (and thus costly) fund options rather than choosing a company such as Vanguard that offers low-cost index funds. Overall, the suit claims that if the Wal-Mart 401(k) had been invested in Vanguard funds, it would have been worth an additional $140 million over the six year period under consideration.

This is an interesting case. While I’m not a big fan of lawsuits of this nature, the lack of affordable investment options in many 401(k) plans is a real issue that needs to be dealt with.

9 Responses to “Wal-Mart Sued for Not Using Vanguard”

  1. Anonymous

    i think the question is whether 401k is a right. it is a voluntary program, and as such you can volunteer not to contribute if the plan sucks and buy vanguard roth and/or after tax towards retirement, or get a job some place else with better funds. so what happens if vanguard tanks. the supreme court ruling just opened the flood gates for these stupid lawsuits, although i believe that the ruling was narrow in its scope. i also have serious concerns about so much money being monopolized into one company like vanguard and everyone rushing to vanguard. i think you need competition and definitely need to ensure that not just one company is getting to control everyone’s retirement money.

    i also would say that lawsuits don’t help and only eat up resources if the lawsuit is stupid. i think that the employees should have put pressure on walmart first, because now if there was a match, in order to make up for lawsuit costs, walmart may decide not to match any more. if you don’t like walmart’s 401k, then use the money to buy walmart stock in the employee stock purchase plan rather than the 401k. in the end, i think the issue will go back some how to the supreme court which will have to better define fiduciary responsibility other than what it did in the ruling that opened up for these types of lawsuits. since it was a narrow scope, you can see that all the lawsuits are focusing on the high fees.

  2. Anonymous

    I worked for walmart over a holiday season one year. Pretty much everyone hired was strong armed into buying into their employee stock purchase program. At the time, I felt that if I did not participate, I would not be hired. I don’t know if it was true, as I caved. One thing I did notice tho… their stock prices always had a significant increase in value right around the time that stock purchases were made, then would fall immediately after.

  3. Anonymous

    I become more and more convinced that Wal-Mart just wants to spit on their employees… Well, I hope they get the Vanguard plan. In theory, all it should take is a mass protest from employees for Wal-Mart to say “Oh, if that’s what you want we can do that, it’s your retirement.” But since they oppose any hint of unions or respect for employees…yeah.

  4. Anonymous

    As more and more Americans are responsible for their own retirement (i.e. 401ks) I see these types of lawsuits as necessary to make sure that employers are being responsible to their plan participants.

    As others have mentioned tons of money in fees, costs, management, etc. are at stake when running a 401k and most employees are not necessarily aware of those costs.

    If employees are responsible for funding and picking investment options, costs/fees/etc. must be clearly disclosed.

  5. Anonymous

    I see it everyday where employers have lame investment choices in their qualified plan. The question is are they meeting their fiduciary obligations to the plan participants. The “lowest cost” option is not always the best choice…but it certainly is a good place to start!

  6. Anonymous

    While I won’t defend Wal-Mart for a number of reasons, there are a few things to consider that this story conveniently leaves out.

    Choosing a 401k provider isn’t as simple as just calling up a company like Vanguard and signing up. Especially with large employers, they go through a comprehensive process that starts by soliciting a number of providers who then put together proposals. Then the employer has to determine which plan to go with based on a number of factors.

    401k plans, especially in terms of a company with nearly 1.5 million employees and over 9 billion in existing assets, are not inexpensive. Expense ratios of the investments are certainly a factor, but it hardly stops there.

    You have record keeping fees, trustee fees, audit fees, legal fees, employee communication fees, and so on. According to the Department of Labor, in the last survey, total annual cost to administer a 401k plan ranged from around $100 – $400+ per participant in 1997.

    Clearly, I’m guessing things have come down in price from 10 years ago, but clearly, with 1.4 M employees, even if only 50% were participating, and using the $100 per participant number, that is $75 million a year. If more people participate, or the cost is higher, you’re well into the hundreds of millions just to OFFER this benefit.

    What happens is a lot of the proposals from the plan sponsors will involve wrapping these fees into the actual expense ratios that the employees end up paying. What we don’t know is whether Wal-Mart’s plan is being paid for entirely, or if part of the expense ratios they listed include the passing down of some of the administration fees.

    Again, not making excuses for them, and I honestly don’t know why they aren’t offering institutional class funds, but there is far more to the story and the decision that was made on who to run the plan through than what these types of stories make it out to be.

    You have a handful of investors who know that there are cheaper funds out there and they are making a stink about it, but the average person has little knowledge of what goes into managing one of these funds, so the lawsuit may or may not have merit. We’ll only know after it goes through the process.

    Anyway, kudos for people paying enough attention to question their plan, but it is probably too soon to jump on the bashing evil wal-mart train based on the announcement of the suit.

  7. Anonymous

    Stupidity? It’s not ignorance that they picked those options. I’m sure it was calculated. This isn’t the first time they’ve decided against what was best for their employees.

    Wal-Mart does need to be held to a higher standard.

  8. Anonymous

    You’ve got a point, Blaine: they are larger. They’re the largest employer in the nation, they’re raking in money hand over fist even as other sectors of our economy slip into decline, and their failure to provide the barebones minimum standard of benefits to their employees results in a massive drain on our tax infrastructure.

    You’re right to say that Wal-Mart is being stupid… it’s not so much whether we blame them, as whether we choose to hold them up to the standard they are capable of reaching.

    I’m working with Wake-Up Wal-Mart to promote awareness of the role this company plays in our national and global economy. We need to do all we can to hold Wal-Mart to a higher standard.

  9. Anonymous

    I agree with the sentiment that cheaper options should be available, but I fail to see how Wal-Mart should be blamed for being stupid. The only difference between them and 10,000 other companies in this country are that they are larger and are a more favorite whipping post.

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