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Seventh Circuit Affirms Dismissal of Excessive Fee Claims Where Quality and Extent of Services Relating to Fees Were Ignored

EBIA  

EBIA  

Albert v. Oshkosh Corp., 2022 WL 3714638 (7th Cir. 2022)

Available at http://media.ca7.uscourts.gov/cgi-bin/rssExec.pl?Submit=Display&Path=Y2022/D08-29/C:21-2789:J:St__Eve:aut:T:fnOp:N:2924449:S:0

The Seventh Circuit has affirmed a trial court’s dismissal of a participant’s ERISA fiduciary claims against a 401(k) plan. The participant sued his former employer and other plan fiduciaries alleging, among other things, that they had breached their fiduciary duties by authorizing the plan to pay unreasonably high recordkeeping and administration fees, failing to ensure that each investment option was prudent, and unreasonably maintaining investment advisors and consultants where similar service providers were available with lower costs or better performance histories. The trial court dismissed the suit, observing that the participant had failed to allege that the fees were excessive in relation to the services provided or that a lower-cost alternative would have provided comparable services.

In affirming the dismissal, the Seventh Circuit acknowledged that the participant had identified “comparator plans” with similar participant demographics and asset values. Because the fees charged under the comparator plans were significantly lower (between $32 and $35 per participant, compared to $87 per participant for the plan at issue), the participant alleged that the employer and other plan fiduciaries had violated their duty of prudence. However, there were no allegations as to the quality or type of services provided under the comparator plans. With respect to the participant’s claim that investment management fees were unreasonably high compared to the amount of such fees disclosed in the Form 5500s of other comparable plans, the appellate court observed that the Form 5500s on which the participant was relying did not require plans to disclose exactly where money from revenue sharing went, and therefore the participant had not figured out what fees actually had been paid under the comparator plans. It was not enough to simply point to lower fees paid under another plan—even one with a similar number of participants or amount of assets—without also including allegations regarding the quality and types of services being provided.

EBIA Comment: ERISA is crystal clear that fiduciaries must not only select investments prudently, but must also systematically and regularly monitor them, remove imprudent ones, and make sure not to pay excessive fees. This case gives plan sponsors and fiduciaries some breathing room, as it makes it clear that participants will not automatically prevail in a claim for fiduciary breach based on fees that are higher than those under comparable plans—the participant must also determine the quality and types of services provided in those plans. This effectively limits participants’ ability to cherry-pick scenarios where similarly named fees are lower in other plans to prove that the fiduciary violated the duty of prudence. Participants must ascertain not only the amount of fees paid by other plans, but the services provided in exchange for those fees, before using the scenario as a comparison in an excessive fee claim. For more information, see EBIA’s 401(k) Plans manual at Sections XXIV (“ERISA Fiduciary Rules: Overview”), XXV.D (“Selecting the Plan’s Investment Funds”), and XXV.E (“Monitoring Investment Performance”).

Contributing Editors: EBIA Staff.

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