The plan size somewhat smaller, the plaintiff’s law firm relatively unknown in these matters—but the claims are familiar.
This time the plaintiff bringing suit is Grace Angelo—the targeted plan, the NCLC 401(k) Plan, as well as NCL Corporation LTD, and the Plan’s administrator, NCL (BAHAMAS) LTD, a Bermuda Company for breaching their fiduciary duties in violation of the Employee Retirement Income Security Act (ERISA). The plan is relatively small for such actions—$218,255,089 in assets and 2,357 participants at year-end 2020. That said, the allegations are familiar—that rather than “leveraging the Plan’s tremendous bargaining power to benefit participants and beneficiaries, Defendants chose poorly performing investments, inappropriate, high-cost mutual fund share classes, and caused the Plan to pay unreasonable and excessive fees for recordkeeping and other administrative services.”
The lawsuit, filed on behalf of the plaintiff in the U.S. District Court for the Southern District of Florida (Angelo v. NCL Corp. Ltd., S.D. Fla., No. 1:22-cv-22962, complaint 9/16/22) by Wenzel Fenton Cabassa PA (they’ve filed similar retirement plan suits Gerdau Ameristeel US Inc. and Laboratory Corp. of America Holdings over the past month).
The suit claimed that “based on reasonable inferences from the facts set forth in this Complaint, during the Class Period Defendants failed to have a proper system of review in place to ensure that participants in the Plan were being charged appropriate and reasonable fees for each of the Plan’s investment options. Additionally, Defendants failed to leverage the size of the Plan to negotiate the lowest expense ratio available for certain investment options maintained and/or added to the Plan during the Class Period. Defendants also caused the Plan and its participants to pay excessive administration fees and excessive compensation to service providers.
The suit claims that “Defendants should have known of the existence and availability of lower-cost share classes of identical funds and should have promptly transferred the Plan’s investments in such funds to the prudent share classes. However, Defendants failed to do so in a prudent manner.” Moreover, that “a prudent fiduciary conducting an impartial review of the Plan’s investments would have identified the cheaper share classes available and transferred the Plan’s investments in the above-referenced funds into institutional shares at the earliest opportunity. Yet, despite the availability of lower-cost shares, Defendants did not transfer Plan holdings in any of these funds from higher-priced share classes into the lowest-cost institutional share classes, in breach of their fiduciary duties.”
As have other such suits, this one states that, “upon information and belief Defendants have failed to undertake an RFP during the class period. If Defendants had undertaken an RFP to compare Prudential Retirement Insurance and Annuity Company’s costs with those of others in the marketplace, Defendants would have recognized that Prudential Retirement Insurance and Annuity Company’s compensation for recordkeeping services during the Class Period has been (and remains) unreasonable and excessive.” How excessive? Well, turning to the 401k Averages Book (20th ed. 2020), and looking to fees for plans with less $200 million in assets (i.e., substantially smaller than the Plan), they found that as plan assets increased, the costs of recordkeeping generally decrease on a per participant basis. “But here the opposite is happening. As Plan assets increase so are recordkeeping fees,” the suit alleges. They claim that for a plan with 200 participants and $20 million in assets, the average recordkeeping and administration cost (through direct compensation) is $12 per participant—and that for a plan with 2,000 participants and $200 million in assets, the average recordkeeping and administration cost (through direct compensation) is $5 per participant. Instead, the suit claims that during the class period the plan paid between $22.04 and $80.41/participant.
Beyond that, the suit claims that “Prudential Retirement Insurance and Annuity Company did not receive only the direct compensation set forth above—it received far more compensation for recordkeeping and other administrative services through revenue sharing payments.” All in all, the suit claims that “the total amount of recordkeeping fees (both through direct and indirect payments) currently is at least $150 per participant annually (or more), when a reasonable fee ought to be no more than $25 per participant annually.”
Perhaps more to the point, the suit claims that “Defendants agreed Prudential could keep all of the interest earned on Plan participant accounts while participant money is in Prudential’s clearing account,” but that “Prudential has not tracked, monitored, or negotiated the amount of compensation Prudential receives from income it earns on Participant money. Defendants breached their fiduciary duty of prudence by allowing Prudential to receive compensation from Plan participants without even knowing the amount of compensation Prudential collects from interest on participant money.”
“In sum, given the size of the Plan’s assets during the Class Period and total number of participants, in addition to the general trend towards lower recordkeeping expenses in the marketplace as a whole, Defendants could have obtained for the Plan recordkeeping services that were comparable to or superior to the typical services provided by the Plan’s recordkeeper at a lower cost. Defendants failed to do so and, as a result, violated their fiduciary duties under ERISA.”
Think the court will be persuaded? We shall see…