November 30, 2021

Volume XI, Number 334

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November 29, 2021

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Ohio District Court Dismisses ERISA 401(k) Performance and Fee Putative Class Action

The District Court for the Southern District of Ohio recently dismissed an ERISA putative class action lawsuit asserting fiduciary duty claims based on allegations of unreasonably high administrative fees and relatively higher-cost, underperforming funds offered in TriHealth, Inc.’s 401(k) plan (the “Plan”).

Plaintiffs were TriHealth 401(k) Plan participants and beneficiaries. On behalf of a putative class, they alleged that TriHealth and the Plan’s Retirement Committee breached their duties of prudence and loyalty to Plaintiffs in two ways: (1) permitting the Plan to incur high administrative fees; and (2) offering, and failing to remove, underperforming funds with higher fees when there were other, similar funds that charged lower fees and achieved higher returns. Plaintiffs alleged that for every year between 2013 and 2017, the administrative fees charged to Plan participants were greater than the fees of more than 90 percent of comparable 401(k) plans. Plaintiffs further alleged that the issuers of many of the funds included in the Plan offered alternative share classes that charged lower fees and had materially better rates of return, but were otherwise identical to the funds in the Plan. Plaintiffs alleged that Defendants “failed to employ a prudent and loyal process by failing to critically or objectively evaluate the cost and performance of the Plan’s investments and fees in comparison to other investment options.”

The court found both claims lacking. With respect to administrative fees, the court reasoned that Plaintiffs had “simply not provided the Court with sufficient factual allegations to permit an inference of imprudence.” While Plaintiffs alleged that the administrative fees were higher than 90% of “comparable” plans, they did not describe what services the Plan received in exchange for these administrative fees or what services the “comparable 401(k) plans” received in exchange for their less costly fees. Plaintiffs also did not identify what a reasonable cost would have been based on the services offered to the Plan or how much the Plan actually paid.

With regard to the allegedly underperforming funds with unreasonably high fees, the court found that Plaintiffs failed to adequately describe any meaningful benchmark funds or sufficiently allege actionable underperformance. Although Plaintiffs identified several funds that they characterized as “lower-cost share classes” and stated that the only difference was the fees, they provided no other information to permit an apples-to-apples comparison of the challenged funds against their proffered benchmarks.  Moreover, Plaintiffs alleged that the funds in question underperformed “comparable” funds by 0.5% to just over 2% over a three-year period. The court held that this variance, without more, was too small and the period too short to raise a plausible breach of fiduciary duty.

Finally, addressing the claim for breach of duty of loyalty, the court noted that Plaintiffs’ allegations essentially reincorporated their breach of the duty of prudence allegations. The claim failed because Plaintiffs did not assert any allegations of self-dealing and did not sufficiently allege facts to show that Defendants’ actions were for their own benefit or for the benefit of someone else other than the beneficiaries.

The case is Forman v. TriHealth, Inc., No. 1:19-cv-613 (S.D. Ohio Sep. 24, 2021).

Jackson Lewis P.C. © 2021National Law Review, Volume XI, Number 278
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About this Author

Charles Seeman, Jackson Lewis, ERISA, Employment Lawyer, Benefits Attorney
Principal

Charles F. Seemann, III, is a Principal in the New Orleans, Louisiana, office of Jackson Lewis P.C. His practice emphasizes ERISA and employment law, but encompasses a wide variety of litigation and counseling matters as well.

Mr. Seemann's primary practice focus includes the defense of ERISA plans and plan fiduciaries at both public and private companies, multi-employer plans and plan fiduciaries, and financial institutions providing services to ERISA plans. In addition to ERISA, Mr. Seemann has extensive experience in a wide range of employment matters,...

504-208-5843
Phillip C. Thompson Attorney ERISA Litigation Jackson Lewis Overland Park
Associate

Phillip C. Thompson is an associate in the Overland Park, Kansas, office of Jackson Lewis P.C. His practice is focused on the defense of complex ERISA actions and other employment litigation in state and federal courts, as well as representing his clients before administrative agencies.

Phillip represents ERISA plan fiduciaries at both public and private companies, multi-employer plans and plan fiduciaries, and financial institutions providing services to ERISA plans. He also represents employers in all matters concerning...

913-981-1018
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