Individuals in a “mega” 401(ok) plan (i.e., a plan with over $500 million in property) introduced this lawsuit claiming that their employer and plan advantages committee breached their fiduciary responsibility of prudence by permitting the plan to pay extreme bundled recordkeeping and administrative charges, and that the employer and its board of administrators breached their responsibility to watch these charges. The courtroom denied the employer’s movement to dismiss the case below the Seventh Circuit’s “newly formulated pleading normal” for such a fiduciary breach declare (see our Checkpoint article).

The members asserted that the plan acquired a “normal package deal” of bundled providers “of an almost an identical stage and high quality to different recordkeepers who service different mega plans,” however paid charges larger than these paid by different 401(ok) plans with comparable participant counts and related quantities of cash below administration. To bolster their claims, the members produced tables exhibiting that, from 2014 to 2020, the plan paid a median of greater than twice (typically 2.5 occasions) what comparable plans paid per participant for bundled providers. The courtroom defined that, below the brand new pleading normal, to maintain an ERISA fiduciary breach declare primarily based on extreme charges, events should merely present sufficient details to indicate {that a} prudent different motion was plausibly accessible, relatively than really accessible. The courtroom concluded that the members had plausibly alleged that comparable plans acquired bundled providers with almost an identical providers and that, because of the aggressive market, comparable providers might be obtained for much less.

EBIA Remark: The brand new pleading normal has opened the door to elevated litigation as a result of a participant pleading a breach of ERISA’s fiduciary responsibility of prudence want solely plausibly allege fiduciary choices exterior a variety of reasonableness. It stays to be seen whether or not these members can show their declare and win at trial. However, plan sponsors of mega 401(ok) plans could also be below elevated stress to search out the most affordable recordkeeping service choices, now that members could simply meet the pleading normal for a fiduciary breach declare by arguing that recordkeeping providers for mega 401(ok) plans are fungible and that the identical bundled providers may have been supplied by different comparable recordkeepers at decrease price. For extra info, see EBIA’s 401(ok) Plans guide at Sections XXIV.G (“Fiduciary Responsibility #2: Procedural Prudence”), XXV.F (“Funding Charges and Bills”), and XXVI (“ERISA Fiduciary Guidelines: Participant-Directed Investments”). See additionally EBIA’s ERISA Compliance guide at Part XXVIII.I.8 (“Litigating a Breach of Fiduciary Responsibility Declare”).

Contributing Editors: EBIA Workers.