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ADP Responds to Excessive Fee, Participant Data Usage Suit


Plan fiduciaries have responded to allegations in an excessive fee suit involving a multiple employer plan (MEP)—and the issue of participant data usage unrelated to the plan.

The suit was filed in mid-May in the U.S. District Court of the District of New Jersey against the fiduciaries of the $4.4 billion ADP TotalSource Retirement Savings Plan (including third-party investment consultant NFP Retirement Inc.) on behalf of participants in the MEP by the law firm of Schlichter Bogard & Denton.

In its response (Berkelhammer et al. v. ADP TotalSource Group Inc. et al., case number 2:20-cv-05696) ADP sums up the plaintiffs’ issues as being that the ADP defendants’ breached ERISA’s duty of prudence because the ADP TotalSource Retirement Savings Plan “…should have paid less for services and offered better performing and less expensive investments,” and then “repackaged” the claims as constituting breaches of ERISA’s duty of loyalty and “transactions that are allegedly per-se prohibited by ERISA.”

Dismiss All

In response, ADP argues that the court should “dismiss all of the Prudence Claims because Plaintiffs’ Complaint fundamentally misconstrues ERISA’s duty of prudence, which judges a fiduciary’s process for making decisions, not the results,” and that “plaintiffs’ allegations do not plausibly support an inference that the ADP Defendants’ process was imprudent.”

ADP pushes back on the allegations that “a few single-employer plans paid lower recordkeeping fees” as an “inappropriate comparison as those plans are much easier to administer and operate than this Plan, which is a 'multiple employer plan' and the complaint … fails to address the significant differences[i] in the cost to administer[ii] a 'multiple employer plan' and provides no relevant comparison…”

ADP goes on to restate points that have been made—and made successfully—in other cases; specifically that “nothing in ERISA requires that plans offer only passively-managed index funds, or offer the best-performing or least-expensive investment options.” ADP also stated that “Plaintiffs’ 20/20 hindsight allegations that a handful of the Plan’s investment options slightly underperformed their benchmarks in certain cherry-picked periods of time do not plausibly support the inference that the ADP Defendants’ employed an imprudent process.” 

Data Minding 

And then there’s the “new” claim that has found its way into suits filed by the Schlichter law firm—the use of participant data—but on that count, the ADP defendants respond that it “should be dismissed because Plaintiffs lack standing to assert that claim, and every court that has considered a similar claim has rejected it.”

More specifically, the ADP defendants argued that the data claim should be dismissed because the plaintiffs hadn’t alleged that they had “suffered any cognizable ‘injury in fact.’” They argued that it was not sufficient to argue that the plan might have been injured, but that the plaintiffs had to establish that they had suffered an injury—and not just any injury, but one that is “concrete and particularized,” and “actual or imminent, not conjectural or hypothetical...”

On that front, ADP comments that “although the Complaint contains numerous paragraphs alleging that Plan participants might buy allegedly inferior products following a marketing pitch, Plaintiffs do not allege that they were subjected to any marketing pitches or that they succumbed to and purchased any such products”—and thus, “plaintiffs’ general allegations are insufficient to establish their individualized ‘concrete stake’ in each claim.”

The ADP defendants then proceed to argue that the plaintiffs failed to “plausibly allege that any ADP Defendant acted as a fiduciary for the purpose of Voya’s use of participant data,” annulling one count, and secondly to state that “there is no statutory, regulatory, or case law support for Plaintiffs’ claim that the failure to prohibit a recordkeeper from using Plan participant data is a breach of fiduciary duty.” They proceed to cite the recent case of Divane v. Northwestern University, where, they note, the district court “explained and the Seventh Circuit affirmed on appeal: ‘Plaintiff has not . . . cited a single case in which a court has held that releasing confidential information or allowing someone to use confidential information constitutes a breach of fiduciary duty under ERISA. This Court will not be the first[.]’” 

‘No’ How

ADP goes on to point out that “Plaintiffs offer no reason why this Court should be the first,” and that “…even if using Plan participant data could support a claim for breach of fiduciary duty, Plaintiffs plead no facts to support their conclusory allegations,” that they “…plead no facts in the Complaint regarding how ADP Defendants’ allegedly ‘allow[ed]’ Voya to use participant data, or gave Voya ‘access’ to participant data to market additional services.” Oh, and of course that “Plaintiffs fail to allege that they (or any participant) suffered any loss.”

But essentially, their argument boils down to “Plaintiffs do not allege any such loss. They do not allege that they purchased any non-Plan product, or that they or anyone else ever suffered any harm regarding alleged marketing of non-Plan products.”

As for the claims regarding loyalty, ADP responded that “plaintiffs do not allege any plausible facts indicating that any of the ADP Defendants benefitted, financially or otherwise, from any decisions related to the Plan or that they engaged in any disloyal conduct to benefit themselves or someone other than the Plan’s participants and beneficiaries. Courts routinely dismiss Loyalty Claims, like these, that simply recast purported breaches of the duty of prudence as disloyal acts without alleging any plausible facts that support the inference that the defendants acted for the purpose of benefitting themselves or someone else. This Court should do the same.”

Will these arguments be persuasive? We shall see.

[i]Indeed, the uniqueness of the MEP structure was put forth as a prima facie case that the plaintiffs’ hadn’t made a case. “Plaintiffs’ recordkeeping fee claim is based on the fundamental misconception that the Plan is comparable to and requires the same services as a traditional, single-employer plan,” they responded. “Plaintiffs admit that ‘[t]he cost of recordkeeping depends on the number of participants’ so that the cost of providing recordkeeping services to smaller, individual plans is greater than for large plans. Yet Plaintiffs’ claim implausibly ignores that the Plan (1) allows each of the thousands of adopting employers to design unique plan terms that apply only to its employees, (2) is required by the IRS to be operated and administered like a collection of thousands of small, individual plans, and (3) has thousands of employers and hundreds of thousands of worksite employees and Plan participants moving in and out of the Plan each year. The Plan is therefore far more difficult and expensive to administer and recordkeep than the single-employer plans that Plaintiffs use as comparisons.”

[ii]The response explained that “because the Plan is a multiple employer plan, it is “treated as” thousands of separate plans for many purposes, including the very detailed and complex rules imposed by the Internal Revenue Code and the regulations thereunder. For example, administration and recordkeeping of the Plan require the collection of records for numerous detailed and complex mathematical tests for each of the thousands of individual client-employers on an annual basis, including (i) a test for nondiscrimination in the amount of employee salary deferral contributions; (ii) a test for nondiscrimination in the amount of employer matching contributions; (iii) a test for nondiscrimination in the amount of employer non-matching contributions; and (iv) a test for compliance with minimum coverage requirements. In addition, the Plan’s administrator must annually determine whether the Plan is “top-heavy” under complex IRS rules on a client-by-client basis for each of the over 5,000 clients, and, if so, engage in communications with the client-employer and provide additional contributions with unique vesting provisions just to the employees of that individual client employer. The Plan’s administrator must also determine annually for each of the thousands of client-employers whether its employees should be classified as “highly compensated” under IRS rules. Further, the Plan’s administrator must determine, annually, the deductibility of contributions for income tax purposes for each of the thousands of individual client-employers.”


All comments
Kelton Collopy
3 years 1 month ago
It seems like ADP points out that that consolidating 5,000 plans under a MEP arrangement are more complex (and therefore more expensive) than 5,000 individual plans. I thought we were all told that MEPs were the solution to bring bring more plans to more companies at cheaper prices? If the investment fees are so much cheaper with the MEP solution, why not highlight those savings and show it is worth the added administrative cost?