Employment Law Firm Files Another Excessive Fee Suit

Another multi-billion-dollar 401(k) plan has been sued for “grossly excessive” fees.

This time the target is the 16,000-participant, $2 billion plan of NCR Corporation. The plaintiffs in this case—Alan Schoenbeck, a current Plan participant, and Jorge Mirabal, a former Plan participant—claim that “over the past six years, Plan participants have paid more than $20,000,000.00 (twenty million) in administrative fees”—a sum that they allege is “nearly eight times what they should be.” Beyond that, this suit, filed in U.S. District Court for the Northern District of Georgia, claims that “the account statements that NCR provides to its Plan participants do not disclose the fees paid to third party service providers by Plan participants,” and while “the Plan’s Annual Form 5500 Department of Labor reports are supposed to identify the fees paid to third parties…they do not.”

The issue here is recordkeeping fees, both direct and indirect, paid to the plan’s recordkeeper, Fidelity.  The plaintiffs[i] do some quick math and determine that, according to the plan’s annual fee disclosure, “Fidelity receives direct compensation of at least $53.00 annually from Plan participants,” whereas the plaintiffs assert that “a reasonable total fee for recordkeeping ought to be no more than $25.00 annually”—“more than double what it ought to be. But it gets much worse,” they continue. 

‘Indirect’ Claims

Worse in this case (according to the plaintiffs) were indirect fees, which the suit (Mirabal v. NCR Corp., N.D. Ga., No. 1:22-cv-04879, complaint docketed 12/13/22) alleges comes in two different forms—float on participant money, and via revenue sharing. Regarding the former, the suit states that NCR agreed that, anytime Plan participants deposit or withdraw money from their individual accounts in the Plan, the money will first pass through a Fidelity clearing account, and that participant money “typically sits in Fidelity’s clearing account for 2-3 days”—during which time any income earned on that money is kept by Fidelity. The suit continues, “the Plan’s Annual Form 5500 for the year ending 2021 shows that more than $1 billion dollars were transferred in and out of the Plan”—and by the plaintiffs; math (“if Fidelity earned 1% on $1 billion, then Fidelity pocketed $10 million in float income for 2021 alone”). 

As for revenue-sharing, after the typical (for this type of suit) explanation as to what it means, and how it works (and the customary acknowledgement that it isn’t “per se” illegal), the plaintiffs note that it “can lead to massively excessive fees if not properly understood, monitored, and capped.” And after a short recitation[ii] of what a fiduciary is required to do if it decides to use revenue sharing to pay for recordkeeping, the plaintiffs note that “recordkeepers often tout the direct fees they collect as being ‘reasonable’ while they surreptitiously pocket excessive fees from Plan participants via indirect fees. Such is the case here (although the direct compensation is also excessive).”

Table ‘Manners’

As is common in such cases, the plaintiffs present a table of allegedly comparable plans (at least based on participant count and asset size)—and in this case, they all share Fidelity as recordkeeper—all to make the point that “NCR caused its Plan to pay Fidelity excessive fees for the same services that Fidelity offered comparator plans for much less.” They go on to note that “plaintiffs anticipate expert witness reports will expand on the benchmarking herein and demonstrate conclusively that the Plan paid excessive and unreasonable fees.”

That said, and unlike other, similar positioning, this suit steps through each of the comparator plans not just noting the comparable sizes but referencing service codes from the Form 5500 which they claim indicates that the services provided for those fees were, in fact, comparable. However, and as the suit states, those codes cover some pretty broad categorizations.[iii]

But, when all is said and done, the plaintiffs claim that when you add the indirect compensation and direct compensation, “the true total compensation paid to Fidelity was approximately $157 per participant, per year. The Plan, due to its number of participants and assets, had the leverage to negotiate much better costs, but imprudently failed to do so.” 

The plaintiffs wrap it all up by noting that “Fidelity served as NCR’s Plan’s recordkeeper during the same  time period from the Moitoso case when Fidelity admitted: (a) its own plan did not offer services broader or more valuable than any of the plans it served and, more importantly, (b) the value of those services ranged from between $14.00 to $17.00 per participant annually. Thus, for NCR to permit Fidelity to charge its Plan $53.00 per participant annually in direct compensation (or more) is both imprudent and a violation of its fiduciary duty. When coupled with the indirect compensation, NCR permitted Fidelity to charge the Plan upwards of $157.00 per year for recordkeeping, or more. To be clear, even the $53.00 in direct compensation NCR’s documents prove that it caused the Plan to pay for recordkeeping and administrative services is, in fact, excessive for the specific services performed by Fidelity in this case, and as to this Plan.”

Will that be enough to get past the expected motion to dismiss? Stay tuned.