Alert May 18, 2010

Federal District Court Dismisses 401(k) Excessive Fee Litigation

In Renfro, et al. v. Unisys Corp., et al., Case No. 2:07-cv-02098 (E.D. Pa. Apr. 26, 2010), the U.S. District Court for the Eastern District of Pennsylvania granted defendants’ motions to dismiss claims under the Employee Retirement Income and Security Act of 1974, as amended, (“ERISA”) challenging the fees charged to a large 401(k) plan.

One of more than a dozen similar lawsuits filed around the country by the same plaintiffs’ law firm, the case involved allegations that the plan sponsor and the plan’s service providers (the trustee, recordkeeper and the investment adviser to the plan investment options) breached duties owed under ERISA by charging excessive administrative and investment management fees to the plan, and by failing to take advantage of the plan’s large size to negotiate lower fees for plan participants.  In dismissing the claims, the court held that the service provider defendants were not relevant ERISA fiduciaries of the plan because they did not possess relevant fiduciary authority such that they could be liable under ERISA for any alleged breaches of duty.  Specifically, the court held that the service providers did not have discretionary authority with respect to administration of the plan where the plan sponsor retained sole authority to determine what investment options were offered to the plan. 

With respect to claims against the plan sponsor and named fiduciary, the court held that the plan offered a sufficient mix of investments to participants and that no rational trier of fact could find, based on the pleaded facts, that the named fiduciary breached an ERISA fiduciary duty by offering this particular array of investment vehicles.  In support of this holding, the court cited to the Seventh Circuit’s decision in Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009), petition for cert denied, 130 S.Ct. 1141, 2010 WL 154965 (U.S. Jan. 19, 2010), in which the Seventh Circuit affirmed dismissal of similar claims involving another large 401(k) plan on the ground that a plan fiduciary is not obligated to select the cheapest funds available, and that where the plan offered sufficient range of options to afford participants control over their risk of loss, any loss to participants was attributable to their individual choice and could not form the basis for fiduciary liability.  The Hecker decision was discussed in the February 17, 2009 Alert.  Citing the Hecker decision, among other authorities, the court dismissed plaintiffs’ second amended complaint in its entirety.