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Life, Health & Disability Law
in harm to plan participants. Further, the fact that a plan pays higher than average fees for services does not suggest a breach of fiduciary duty without comparing the services provided by the vendor in question with those offered by others in the market. The Albert plaintiffs failed to address how the services purchased at higher-than-market rates compared with those of other vendors.
The Albert plaintiffs proposed a novel theory not normally seen in excessive fee class actions: that the plan should have offered higher-cost share classes of certain mutual funds. Plaintiffs suggested that the net expense of those funds could be lower in light of revenue sharing agreements between the plan and service providers. The Albert court found no basis in ERISA to allow this theory to proceed and was reluctant to do so, reasoning the fees associated with any specific plan investment option cannot be the sole factor considered when determining whether the option is appropriate for the plan.
The Albert plaintiffs also charged that the fees charged with respect to some of the plan’s actively managed funds were too high. The court dismissed this claim summarily. “[A] complaint cannot simply make a bare allegation that costs are too high, or returns too low.... Rather, it ‘must provide a sound basis for comparison – a meaningful benchmark.’” 47 F.4th at 581 (quoting Davis v. Washington Univ. in St. Louis, 960 F.3d 478, 484 (8th Cir. 2020)).
The Albert plaintiffs attempted to repackage their claims of overpaying for investment advice in terms of a breach of the duty of loyalty. This too the court rejected where the plaintiffs failed to identify any comparator investment advisors by which the court could assess the reasonableness of fees charged.
The Albert plaintiffs also suggested that the plan administrator’s payment of excessive fees to an investment manager and advisor constituted a prohibited transaction under 29 U.S.C. §1106(a)(1). While the court acknowledged that a literal reading of §1106(a)(1) could bar the transactions addressed by Albert, that section has been interpreted to prevent uses of plan assets that are harmful to the plan. 47 F.4th at 584-85 (citing Lockheed Corp. v. Spink, 517 U.S. 882 (1996)). Because the Albert plaintiffs hat yet to plead sufficient harm to the plan, the prohibited transaction claims were properly dismissed.
Finally, the Albert plaintiffs alleged that the administrators failed to disclose fees charged to participants and, specifically, the method of calculating revenue-sharing fees. The court affirmed the dismissal of these claims because DOL regulations do not clearly require the disclosure of such information.
At bottom, Albert supports that an excessive fee ERISA class action cannot survive a motion to dismiss on threadbare allegations. Pleadings must be specific and provide evidence of comparative vendors providing similar services for lower fees. Further, an investment option is not necessarily imprudent simply because its expense ratio is at the higher end of the spectrum.
Brooks Magratten is a Partner at Pierce Atwood, LLP in Providence, RI and Boston, MA. Contact him at: bmagratten@pierceatwood.com.
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FDCC ANNUAL INSIGHTS 2023