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(Another) Excessive Fee Suit Treads Familiar Ground

Litigation

A new excessive fee suit is long on explanations and short on allegations, but makes some familiar arguments from a relative newcomer to ERISA litigation.

This particular suit (Mator v. Wesco Distrib., Inc., W.D. Pa., No. 2:21-cv-00403, complaint 3/26/21) was filed on behalf of current participants Robert Mator and Nancy Mator against the fiduciaries of the Wesco Distribution, Inc. Retirement Savings Plan, a plan with 8,870 participants and some $750 million in net assets. The suit claims, as most do, that as a “large” retirement plan, the fiduciaries “…had tremendous bargaining power to demand low-cost administrative and investment management services,” but that “instead of leveraging the Plan’s substantial bargaining power to benefit Plan participants and beneficiaries, Defendants caused the Plan to imprudently pay unreasonable and excessive fees….”

As for the specifics, what the suit refers to as “the objectively unreasonable RPS fees charged to the Plan by Defendants” were between $159 and $194 per participant annually for recordkeeping services, whereas the plaintiffs state that during the period in question (2015-2019), “reasonable RPS fees for a plan of this size would have averaged $41 per participant annually.”

Despite that cited level of specificity, the suit states (as these all do now) that “Mator did not have knowledge of all material facts (including, among other things, the retirement plan services and total cost comparisons to similarly-sized plans) necessary to understand that Defendants breached (and continue to breach) their fiduciary duties and engaged in other unlawful conduct in violation of ERISA until shortly before this suit was filed. Mr. Mator lacked actual knowledge of reasonable fee levels and prudent fee alternatives available to the Plan.”

That said, and however the Mators did eventually have their fee epiphany, the suit claims that the average $178 per person per year, was not only “imprudent,” but that “this high per-participant RPS expense is not in line with the fees paid by participants in other similar plans administered by prudent fiduciaries.” By way of backing up their claims, the suit provides a table that purports to show the “effective annual per-participant RPS fees paid in 2018 by other comparable plans with similar numbers of participants derived from Form 5500 filings, compared to the average effective annual per-participant retirement plan service fee paid by the Plan from 2015 through 2019…” and, at least according to the table included in the suit, the per participant fee for those other plans ranged from $28/participant to $53/participant. 

The plaintiffs state that while “the Plan’s fiduciaries were required to continuously monitor RPS fees, and to regularly solicit competitive bids to ensure fees being paid to Wells Fargo were reasonable,” they claim that the defendants “…failed to employ prudent processes for ensuring that fees were and remained reasonable,” and that “to the extent there was a process in place that was followed by Defendants, it was imprudent and ineffective given the objectively unreasonable RPS fees paid.”

Without any specific examples, the suit just flat alleges that “the level and quality of service provided by Wells Fargo as the Plan RPS provider did not justify paying on average more than two-and-a-half times the reasonable market rate for retirement plan services.” Moreover, as other suits have, it challenges the plan’s use of:

  • revenue sharing (because those “payments are asset-based, the already-excessive compensation paid to the Plan’s RPS provider became even more excessive as the Plan’s assets grew, even though the administrative services provided to the Plan remained the same”); and 
  • higher-priced share classes (“the Defendants consistently chose mutual fund share classes with higher operating expenses when identical lower-cost shares of the same funds were available”).

The suit goes on to state that, “upon information and belief, the Plan fiduciaries did not conduct a prudent evaluation of reasonable market rates for RPS services when it transitioned to Fidelity Investments and, as a result, is now continuing to pay unreasonable RPS fees to Fidelity.”

So, all in all, the suit charges the plan fiduciaries with:

  • allowing the Plan to pay multiples of the reasonable per-participant amount for the Plan’s retirement plan service fees;
  • failing to properly disclose the fees charged to Plan participants in their quarterly statements or fee disclosures;
  • failing to defray reasonable expenses of administering the Plan;
  • failing to investigate the availability of lower-cost share classes of certain mutual funds in the Plan; and 
  • ultimately failing to act with the care, skill, diligence and prudence required by ERISA.

Oh—as for the law firm(s) representing the plaintiffs, that would be Franklin D. Azar & Associates PC (and Chimicles Schwartz Kriner & Donaldson-Smith LLP). The former brought suit unsuccessfully against the CenturyLink Dollars & Sense 401(k) Plan, had mixed results in litigation against Voya, while also filing suit against the fiduciaries of Pioneer Natural Resources USA, Inc., a suit that was eventually settled for $500,000. The firm has previously held itself out as a personal injury law firm that specializes in motor vehicle accidents, defective products and slip-and-fall accidents, according to its website. But clearly it’s since branched out… 

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