September 19, 2021

Volume XI, Number 262

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September 17, 2021

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September 16, 2021

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Class Actions Challenging 401(k) Plan Fees Increase Sharply

There has been a dramatic spike in proposed class actions challenging 401(k) plan fees. While only 20 of these cases were filed in 2019, more than 90 of them were filed in 2020, and this trend shows no sign of abating in 2021. The increase has been driven by copycat-style complaints filed by a handful of plaintiff’s law firms.

Generally, these complaints include claims alleging:

  • Excessive administrative fees (based on use of more than one recordkeeper; absence of competitive bidding; use of asset-based fees and revenue-sharing instead of, or in addition to fixed-dollar fees; failure to monitor fee payments to recordkeepers; and/or, occasionally, kickbacks);

  • Excessive management fees and performance losses (duplicative investment options for each asset class, which underperformed and charged higher fees than lower-cost share classes of certain investments);

  • and A failure to monitor and evaluate appointees.

In addition, recent actions challenging the inclusion of affiliated funds include claims that:

  • The funds charge excessive fees;

  • The funds are imprudent investment options because, net of fees, they offer inferior performance to available alternatives; and

  • The payment of fees to an affiliate constitutes a prohibited transaction. In 2020, the outcome in fee cases was mixed.

Some district courts rejected these claims, while others denied motions to dismiss or for summary judgment in full or in part. Some of these cases settled in 2020 in amounts ranging from several million dollars to almost $40 million.

The law is expected to “smooth down” in defendants’ favor, tracking what occurred in the past when plaintiffs challenged employer stock funds held in 401(k) plans.

Jackson Lewis P.C. © 2021National Law Review, Volume XI, Number 33
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About this Author

Principal

Howard Shapiro is a Principal in the New Orleans, Louisiana, office of Jackson Lewis P.C., and is Co-Leader of the firm’s ERISA Complex Litigation Group. Mr. Shapiro focuses his practice on the defense of large, sophisticated ERISA class actions.

Mr. Shapiro defends “bet-the-company” litigation where damages are potentially material. His cases involve the defense of Defined Benefit plans, 401(k) Plans, and 403(b) Plans. Mr. Shapiro also defends litigation involving health and welfare plan issues. His practice is nationwide, and throughout his career, Mr....

504-208-5835
René E. Thorne, Jackson Lewis, Employment Litigation, ERISA Attorney"
Office Managing Principal and Office Litigation Manager

René E. Thorne is Office Managing Principal of the New Orleans, Louisiana, office of Jackson Lewis P.C. Her practice covers the full range of employee benefit litigation matters, including representation of employers, plans, plan fiduciaries, and trustees.

In that regard, she has handled numerous ERISA class actions for clients such as Nortel Networks, Target, Krispy Kreme Doughnuts, Owens Healthcare, United Airlines ESOP Committee, Dunbar Armored, United Companies, Benefits Administration Corporation, and Beverly Enterprises. Ms. Thorne also has handled...

504-208-1755
Associate

Lindsey H. Chopin is an Associate in the New Orleans, Louisiana, office of Jackson Lewis P.C. and a member of the firm’s ERISA Complex Class Action, Employee Benefits and Class Action groups.

Ms. Chopin focuses her practice on the defense of complex ERISA class-actions filed against public and private single employer ERISA plan sponsors and fiduciaries, as well as multi-employer plans and fiduciaries and ERISA plan services providers.  She has litigated a wide variety of class action claims, including 401(k) fee claims,...

504-208-1755
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