Albert v. Oshkosh Corp., 2022 WL 3714638 (7th Cir. 2022)

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The Seventh Circuit affirmed a trial court’s denial of a participant’s ERISA fiduciary claims against a 401(k) plan. Participant sued his former employer and other plan fiduciaries, alleging, among other things, that they breached their fiduciary duties by allowing the plan to pay unreasonably high recordkeeping and administration fees, failing to ensure that each investment option was reasonable, and unreasonably supporting investments by advisers and consultants where similar service providers were available at lower costs or a better performance history. The trial court dismissed the claim, noting that the bidder had not alleged that the fee was excessive in relation to the services provided or that a lower cost alternative would have provided comparable services.

In affirming the dismissal, the Seventh Circuit found that the participant had identified “comparable plans” with similar participant demographics and asset values. Because the fees charged by the comparison plans were significantly lower ($32 to $35 per participant compared to $87 per participant for the plan at issue), the participant argued that the employer and other plan fiduciaries breached the duty of care. However, there were no allegations regarding the quality or type of services provided under the comparator plans. Regarding the participant’s claim that the investment management fees were unreasonably high compared to the amount of such fees disclosed on the Form 5500s of other comparable plans, the appeals court noted that the Form 5500s relied on by the participant did not require the plans to disclose information exactly where the income-sharing money went, so the participant did not understand what fees were actually paid under the comparison plans. It was not enough to simply point to lower fees paid by another plan – even with the same number of members or size of assets – without including allegations about the quality and types of services provided.

EBIA Comment: ERISA is absolutely clear that fiduciaries must not only choose investments carefully, but must also systematically and regularly monitor them, remove imprudent ones, and ensure that they do not pay excessive fees. This case gives plan sponsors and fiduciaries some respite, as it makes clear that members will not automatically prevail in a fiduciary breach claim based on fees that are higher than comparable plans—the member must also determine the quality and types of service provided in these plans. This effectively limits participants’ ability to choose scenarios where similarly stated fees are lower in other plans to prove that the fiduciary breached the duty of care. Members must determine not only the amount of fees paid by other plans, but also the services provided in exchange for those fees, before using a scenario as a comparison in a claim for excessive fees. For more information, see EBIA 401(k) Plans guidance in Chapters XXIV (“ERISA Fiduciary Rules: An Overview”), XXV.D (“Selecting Plan Investment Funds”), and XXV.E (“Monitoring Investment Performance”).

Contributing editors: EBIA staff.

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