Vitally important for plan sponsors may be what the court decided in reference to the plaintiffs’ expert, named VeronicaBray. Sponsors may note that merely comparing fees between plans was not deemed a sufficient basis of comparison. Instead, comparator plans (for benchmarking) should include all services requested.
In late May of 2024, a federal court in Kentucky granted Humana’s motion for summary judgment, effectively disposing claims against that company based on imprudent management and recordkeeping fees. The class proposed by the Plaintiffs in the case would have included all of 48,000 of the plan participants in Humana’s plan. Humana’s earlier motion to dismiss, submitted at the beginning of the case, was denied.
Sponsors may want to pay attention to this case based on the treatment of several claims in the case. Two key points that sponsors may want to hone in on include the process used by the plan managers and that the judge found plaintiffs’ expert’s opinions on recordkeeping fees to be flawed. These issues depart slightly from other cases that have been decided in favor of plan sponsors since the Hughes case, which may have instigated a so called firestorm of litigation.
First, as to the process used by the plan managers, the opinion includes important details about the process used. “Plaintiffs allege that Defendants used an “imprudent process” to administer the Plan which led to excessive recordkeeping fees. Plaintiffs also contend that, even though Defendants engaged in requests for proposals (“RFP”) for the Plan and performed annual benchmarking using reports from third-party consultants, Schwab's recordkeeping fees were unreasonably high.”[1] Yet, Plaintiffs went a step further, they claimed that the growth of Humana’s plan should have tripped a renegotiation of those fees as the plan grew, regardless of the industry practice to only renegotiate fees when the time for renegotiating a contract arose. “Plaintiffs' theory of the case [was] that Defendants had a duty to continuously negotiate lower recordkeeping fees.”[2]
Vitally important for plan sponsors may be what the court decided in reference to the plaintiffs’ expert, named VeronicaBray. Sponsors may note that merely comparing fees between plans was not deemed a sufficient basis of comparison. Instead, comparator plans (for benchmarking) should include all services requested.
While Bray may have admitted in her deposition that the six plans analyzed in her report-which she relied on to reach the $12-$20 figure that she says would have been reasonable for the Humana Plan to pay-were not comparable plans, the implicit logic of her opinion is that because “the Plan [had] greater bargaining power to negotiate lower recordkeeping fees than the comparator plans,” it should have had fees at least “in line” with the plans cited by Bray.[3]The judge further ruled that to be comparable the points of comparison must include more than just the size of the plan or the funds offered, but the services provided by the recordkeeper. Similar claims, that the size of a plan should allow plan managers to obtain a discount on fees, also was thrown out by the judge in Stengl et al. v. L3Harris Technologies, Inc.[4]
It is unclear as to whether the Plaintiffs may appeal the decision. Under the rules for an appeal in this kind of case, the time to appeal could be several weeks to a few months. We will continue to watch this case.
Other recent cases, such as Davis v. Old Dominion Freight Line Inc., tightened the grounds on which a plan participant can bring a case for excessive fees. In that case, the judge dismissed the Plaintiffs’ claim based on standing, a rule that the person suing must be personally involved in the harm at issue. The judge noted that the lead plaintiff “failed to assert that he invested in ‘any of the eleven challenged funds, or even in any actively managed funds.’ They also commented that Davis did not invest in any of these funds but rather ‘invested solely in the Plan's stable value funds’—which weren’t at issue here.”[5]
Rulings from other courts have made clear that the plaintiff’s pleadings must be explicit in their claims of unreasonableness. The judge in Guyes v. Nestle USA Inc et al. found that the plaintiffs’ complaint lacked details about the recordkeeping involved that would have created context for whether the fees were reasonable.[6] Importantly, the complaint did allege the services the plan paid for by its recordkeepers, but not of the comparable plans.
Legal experts predict that plaintiffs must be clear in their complaints that the comparator plans they include are of similar size and services.[7] If that is true, then plan sponsors may want to discuss how they are benchmarking their plan with legal and compliance counsel.
[1] https://casetext.com/case/moore-v-humana-inc
[2] https://casetext.com/case/moore-v-humana-inc
[3] https://casetext.com/case/moore-v-humana-inc
[4] https://www.napa-net.org/news-info/daily-news/multi-billion-dollar-401k-settles-excessive-fee-suit
[5] https://www.napa-net.org/news-info/daily-news/fiduciaries-fend-excessive-fee-claims-401k-suit
[6] https://www.asppa.org/news/401k-excessive-fee-suit-finally-dismissed%E2%80%94-good
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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