Lennar Corporation Hit with Class Action Over Alleged Mismanagement of Employee Retirement Plan

New to ClassAction.org? Read our Newswire Disclaimer

Lennar Corporation faces a proposed class action lawsuit that claims the homebuilder has mismanaged its employee 401(k) plan and caused plan participants and beneficiaries to lose millions in retirement savings.

The 38-page lawsuit claims more specifically that Lennar has caused its employee retirement plan to pay excessive recordkeeping fees to Prudential Retirement Insurance and Annuity Company, and selected and retained the Prudential Stable Value Fund as an investment option despite its history of underperformance. Moreover, the case alleges Lennar has failed to monitor and keep track of the “float” income earned by Prudential on participant funds kept in its clearing account.

In sum, the lawsuit contests that Lennar has either ineffectively or wholly failed to ensure that Prudential was paid reasonable amounts by plan participants through recordkeeping expenses, their investment in the Prudential Stable Value Fund and float income. Per the case, Lennar has run afoul of the Employee Retirement Income Security Act (ERISA) by failing to act “solely in the interest” of plan participants and beneficiaries and execute its duties as the plan sponsor with the “care, skill, prudence, and diligence” expected in managing such a plan.

The lawsuit relays that the Lennar employee 401(k) plan, with more than $1.2 billion in assets and nearly 13,000 participants as of December 2020, is one of the largest plans in the country and thus has “tremendous leverage” to secure low recordkeeping fees. Despite this bargaining power, however, the plan has paid Prudential “more than triple the market rate” for administrative services, according to the complaint.

The suit says that based on the amounts paid by similar plans, the Lennar plan should have been able to negotiate recordkeeping costs ranging anywhere from $14 to $30 per participant during the timeframe at issue. Instead, plan participants paid Prudential more than $250 in direct and indirect compensation, according to the case.

The suit claims that had Lennar kept an eye on the market to ensure plan participants were paying reasonable fees, it could have obtained administrative services that were equal to or superior to those provided by Prudential but “at a fraction of the cost.” The case says Lennar’s failure to monitor and rein in the plan’s administrative fees caused the plan to lose at least $450,000 per year.

The lawsuit goes on to claim that Lennar imprudently selected and retained the Prudential Stable Value Fund as an investment option despite its history of underperformance and the availability of better-performing stable value funds on the market. According to the case, Prudential’s stable value fund consistently underperformed industry benchmarks, the funds offered by other investment companies, and even “virtually identical” stable value funds offered by Prudential to other retirement plans. The lawsuit says Lennar could have easily found a better investment option to replace the Prudential Stable Value Fund had it only “ma[d]e an effort” to do so.

Per the suit, Lennar’s failure to replace the Prudential Stable Value Fund was made worse by the company’s use of a Prudential asset allocation service called GoalMaker that automatically funneled plan participants’ contributions into Prudential’s proprietary investment products, including its stable value fund, when they did not specify otherwise. The case claims Prudential earned at least $5 million per year through the Lennar plan’s “massive investment” in its stable value fund. According to the case, this “wildly excessive compensation” to Prudential has caused the Lennar plan to lose at least $4 million per year.

Finally, the case says that Lennar has failed to monitor the float income Prudential receives on funds transferred to its clearing account when a plan participant deposits or withdraws money from their plan account. As the suit tells it, this money remains in Prudential’s possession for several days until it is eventually directed to wherever the plan participant indicated. In the meantime, Prudential earns income and interest on these funds, i.e., float income, that Lennar allows it to keep, the suit relays. The lawsuit argues that although this agreement in itself is not imprudent, Lennar has allegedly failed to track the amount Prudential receives in float income and factor this into the compensation it’s paid.  

“In essence, Defendant allowed Prudential to make money with Plan participant money without any corresponding benefit, and Defendant was clueless to the amount of money Prudential was taking from Plan participants,” the complaint contends.

The suit claims this “breach” of Lennar’s duty of prudence caused the plan to lose roughly $200,000 per year.

In all, the lawsuit alleges Lennar’s failure to act in plan participants’ best interests as a prudent fiduciary has caused plan participants to lose millions of dollars in retirement savings.

The case looks to represent anyone who was a participant or beneficiary of the Lennar 401(k) employee retirement plan at any time since September 30, 2016.

Get class action lawsuit news sent to your inbox – sign up for ClassAction.org’s free weekly newsletter here.