Skip to main content

You are here


(Another) Excessive Fee Suit Fails to Make its Case


A mammoth 401(k) plan has prevailed in an excessive fee suit, as another federal judge found plenty of factual evidence that plan fiduciaries had, in fact, made prudent decisions. 

As it turns out, these plaintiffs (Julio C. Alas, Robert J. Bugielski, and Chad S. Simecek[i]) had already had one run at this, falling short back in 2018. At that time, Judge Chief U.S. District Judge Virginia Phillips of the U.S. District Court for the Central District of California (the same judge who ruled this time) concluded that the suit involving the $35 billion AT&T Retirement Savings Plan “…lacks any allegation regarding when Plaintiffs discovered Defendants’ alleged misconduct and the Court is unable to determine whether the statute of limitations applies.” However, she noted that this “defect” does “not appear incurable, and while the Court GRANTS Defendants’ Motion on timeliness grounds, the Court will allow Plaintiff leave to amend.”

And now, apparently, they have, albeit not successfully. 

The Case

In essence the plaintiffs here alleged that the AT&T failed to implement a process to control the administrative expenses that participants in the AT&T Retirement Savings Plan paid to the plan recordkeeper (Fidelity), that they failed to analyze and evaluate compensation paid to Fidelity from Financial Engines Advisors L.L.C., and that as a result of these failures, participants “paid grossly excessive fees to Fidelity,” that they engaged in a prohibited transaction with Fidelity in defiance of ERISA § 406(a), failed to obtain from Fidelity the required disclosures of direct and indirect compensation in connection with all the services that Fidelity was providing—which, in turn, resulted in Defendants failing to ascertain whether Fidelity’s total compensation was reasonable. They further claimed that the AT&T defendants failed to report Fidelity’s compensation accurately on the required annual Form 5500—a violation of the duty of candor set forth in ERISA § 404(a).

The Standard for Review

Noting that “a motion for summary judgment or partial summary judgment shall be granted when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law,” and that “generally, the burden is on the moving party to demonstrate that it is entitled to summary judgment,” Judge Phillips also noted that the nonmoving party (here the participant-plaintiffs) must “do more than simply show that there is some metaphysical doubt as to the material facts but must show specific facts which raise a genuine issue for trial.” Finally, she reiterated the standard that “a genuine issue of material fact will exist if the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Oh, and that “In ruling on a motion for summary judgment, a court construes the evidence in the light most favorable to the non-moving party.”

Early in the ruling (Alas v. AT&T Servs., Inc., C.D. Cal., No. 2:17-cv-08106, 9/28/21), Judge Phillips pushed back on the AT&T defendants’ claims that there was no factual dispute regarding whether they had a fiduciary duty regarding the plan’s recordkeeping expenses. However, in considering the issues (and facts) presented, Judge Phillips commented that the defendants presented “extensive evidence that they acted prudently in monitoring the Plan’s recordkeeping expenses,” that “the facts show that members of AT&T Services Benefits team periodically reviewed 408(b)(2) disclosures and invoices from Fidelity to ensure the compensation for recordkeeping was reasonable,” and that they “also hired[ii] outside experts to evaluate the reasonableness of Fidelity’s compensation.” Oh, and if that weren’t enough, she noted that AT&T’s contracts with Fidelity included a “most favored customer” clause, which ensured that Fidelity’s fees were “not less favorable than those currently extended to any other similarly situated Customer.” Leading her to conclude that (as the finding was not denied by the plaintiffs) the AT&T defendants “have met their burden of showing no factual dispute exists as to whether they breached their duty of prudence in evaluating and monitoring the recordkeeping fees paid to Fidelity, as required by ERISA § 1104(a)(1).”

Advice ‘Slice’

On the issue of fiduciary oversight of the arrangement between the recordkeeper (Fidelity) and advice provider Financial Engines, the AT&T defendants cited—and Judge Phillips was inclined to embrace—the findings of Marshall v. Northrop Grumman Corp., which she noted foreclosed Plaintiffs’ claim because it held that fees paid by Financial Engines to the recordkeeper “are not subject to fiduciary control” under ERISA. “Just as in Marshall, Plaintiffs here cannot maintain an ERISA claim based on the fiduciaries’ purported failure to consider compensation between Fidelity and Financial Engines, because that compensation exists independent of the Plan and stems from an agreement to which the Plan is not a party,” she wrote. “Plaintiffs’ claim therefore fails as a matter of law, and there is no triable issue of fact for a jury to consider.”

Another issue involved allegations of violation of a “duty of candor claim concerning Defendants’ purported failure to report all direct and indirect compensation received by Fidelity on Form 5500”—but here too Judge Phillips aligned with the AT&T defendants that the payments by Financial Engines to Fidelity were “eligible indirect compensation” that need not be reported on item 2(g) of Form 5500.

Reasonable Recordkeeping

One of the big issues was, of course, the issue of the reasonableness of the fees for recordkeeping. This, Judge Phillips noted, “…turns largely on the parties' disagreement about how to evaluate Fidelity’s total compensation.” She explained that for recordkeeping and administrative services, AT&T claimed that the plan paid $31 per participant to Fidelity in 2011, negotiated to $29 as of August 1, 2012, and further down to $20 per participant.

So, was that reasonable? Judge Phillips noted that the plaintiffs failed to present “competent evidence of other companies' recordkeeping expense reporting practices, or evidence showing that companies routinely factor in the wide variety of services that Plaintiffs allege should be included.” She went on to note that “…plaintiffs draw broad conclusions about other companies’ recordkeeping expenses based on their Form 5500s, but they produce no credible evidence showing how those expenses were computed.” She went on to note that “Plaintiffs cannot draw such conclusions based on the Form 5500s alone. Plaintiffs fail to produce any other evidence showing how recordkeeping expenses are generally evaluated or reported as an industry practice. As Defendants note, ‘Plaintiffs did not take any discovery from Apart from debating the method of calculation, Plaintiffs present no other evidence disputing the reasonableness of the Plan’s recordkeeping fees.’ The recordkeeping expenses that Defendants report, ranging from between $31 to $20, fall within the range that Plaintiffs themselves suggest is reasonable.” In contrast, she pointed to evidence presented by the defendants of the fees paid, and comparisons, and concluded that “Defendants have met their burden of showing that no factual dispute exists as to whether the Plan’s recordkeeping compensation was reasonable.”

Ultimately, “the Court has already addressed each of these arguments in ruling on Defendants’ Motion”—that “the evidence presented in support of, and in opposition to, Defendants’ Motion” was “the same as that presented with respect to Plaintiffs’ Motion,” wrote Judge Phillips. “As no new arguments or evidence have been raised in support of, or in opposition to, Plaintiffs’ Motion that the Court did not already consider above, the Court DENIES Plaintiffs’ Motion for the same reasons that it rejected Plaintiffs’ arguments that Defendants breached their fiduciary duties or engaged in prohibited transactions.”

What This Means 

Here again a federal judge wasn’t willing to accept claims of unreasonable acts, or at least those violative of fiduciary standards, without more. Is this beginning of a new trend? Time will tell.

[i] Solouki Savoy LLP, Schneider Wallace Cottrell Konecky LLP, Berger Montague PC, and Edelson Lechtzin LLP represent the class.

[ii] “Specifically, in 2016 Defendants hired Deloitte to consult on the negotiation of a new contract with Fidelity, at which time Deloitte confirmed that the Plan had a lower recordkeeping rate than other plans. (Id. at no. 22). After new negotiations in 2017, AT&T obtained an even lower price for record keeping services, with an annual rate of $20 per participant.”