District Courts Reach Opposite Conclusions on 401(k) Excessive Fee Claims
Thursday, March 16, 2023

A district court in the Southern District of Ohio and one in the Western District of Wisconsin reached opposite conclusions on motions to dismiss claims for fiduciary breach based on allegations that recordkeeping fees were unreasonably high.  Dismissal was granted in Sigetich v. The Kroger Co., No. 21-cv-697, 2023 WL 2431667 (S.D. Oh. Mar. 9, 2023); dismissal was denied in Lucero v. Credit Union Retirement Plan Association, No. 22-cv-208, 2023 WL 2424787 (W.D. Wis. Mar. 9, 2023).  Although the disparate results can arguably be rationalized by the underlying facts in each case, the opinions show that district courts continue to apply inconsistent principles in adjudicating these claims at the motion to dismiss stage.


In both cases, the complaint alleged that the defendants breached the fiduciary duty of prudence by permitting their respective plans to pay excessive amounts for recordkeeping. As is typical, the plaintiffs in both cases attempted to support their claims by comparing the recordkeeping cost per year per participant for the target plans to the costs in comparable plans.  In the Ohio case, where the plan had approximately 90,000 participants, the alleged cost was $32 per participant, of which the plan sponsor absorbed $27 (an employer subsidy that is not legally required).  In the Wisconsin case, where the plan had between 9,000 and 20,000 participants, the alleged cost was between $235 and $271 per participant.

The Sixth and Seventh Circuits, which cover the district courts here, both issued decisions last year rejecting excessive recordkeeping fees claims in large part because of plaintiffs’ failure to allege information showing the comparability of services provided by the plan’s recordkeeper and the recordkeeper for other allegedly comparable plans that paid less for recordkeeping.  We discussed the Sixth Circuit’s decision here and the Seventh Circuit’s here.  These and other recent circuit court decisions have directed the district courts to engage in “careful, context-sensitive scrutiny” to ensure that plaintiffs have made comparisons to meaningful benchmarks.  Meaningful comparisons account for variables such as plan size, participant count, and the nature and quality of services.

The Courts’ Decisions

The Ohio court dismissed the complaint, explaining that the plaintiffs failed to provide necessary context to support the comparisons on which their complaint was premised. In so ruling, the court found implausible plaintiffs’ contention that evaluation of the services rendered was unnecessary because the recordkeeping services across plans are basically the same and minor variations have no material impact on price. The court also found plaintiffs’ comparisons unhelpful because many comparator plans had substantially different amounts of assets and participants as compared to the target plan.

In denying the motion to dismiss, the Wisconsin court held that, although the question was a “close one” the plaintiffs provided enough context to support their claims. In direct opposition to the Ohio court, this court credited plaintiffs’ allegation that recordkeeping services across plans are basically the same and minor variations have no impact on price. Further, the court found that any differences between services rendered to the plan and comparators could not account for the plan’s high fees. The court explained that the fees of the target plan were about ten times higher than the fees of similarly sized plans, and were also substantially higher than even much smaller plans.  The court acknowledged defendants’ explanation that as a multiple-employer plan, it did not scale as efficiently as the single-employer plans to which it was compared, but found the explanation could not account for the plan’s high fees.

Proskauer’s Perspective

While recent circuit court decisions suggest an increased likelihood of dismissal of bare-boned recordkeeping claims, the contrasting results in these two litigations show that the outcomes are still fact specific and court specific. Clearly, a key driver of the Wisconsin decision was the very high per participant fee. But it is nevertheless discouraging to see the court reach its result based on rationales that directly conflict with the rationales applied by the Ohio court. Ultimately, the same principles should apply to all such claims.


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