A number of recent excessive fee suits have failed to state a “plausible” claim to move past a motion to dismiss — but a federal judge in Massachusetts embraced what seems to be a lower threshold and is allowing one of those cases to proceed to trial.
This suit involved participants in the MITRE Corporation Tax Sheltered Annuity Plan (“TSA Plan”) and the Qualified Retirement Plan (“QRP Plan”) — which had originally been sued in 2021 by participant Aaron Brown — but that case was dismissed not quite a year ago because Brown turned out to have been invested in a single fund of the plan — and one that belonged to the lowest-cost share class and paid no revenue-sharing fees. Undeterred, the plaintiffs’ attorneys (Capozzi Adler PC) added to their roster of participant plaints (Peter A. Young, Nina Daniel, Russell S. Crabtree, Kimberly L. Nesbitt and Erin N. Wheeler) and refiled in the same U.S. District Court for the District of Massachusetts.
Now the plans in question are large — more than 23,000 participants and more than $8 billion in assets between them — and the suit here, as others have before it, alleges that “from at least 2015, preceding the start of the Class Period, to at least 2020, there was an unreasonably high revenue requirement to pay for RKA costs that was tacked onto the Plans’ funds in the form of an increased expense ratio” — an increased ratio the suit claims “ranged from .10 basis points in 2015 to .039 basis points in 2020.” Moreover, the suit asserts that “each of the Plaintiffs were invested in funds that had this tacked-on expense ratio that was unreasonably high.”
If there was anything different in the arguments or the positioning, it was the focus on the particulars of the revenue-sharing arrangement, though this suit acknowledged (as have others that raised the issue) that those arrangements are not, per se, a fiduciary breach.
That said, in considering this new filing U.S. District Judge Denise Casper adopted (Brown et al. v. the Mitre Corp. et al., case number 1:22-cv-10976, in the U.S. District Court for the District of Massachusetts) what seems, by comparison to recent decisions in other jurisdictions, a pretty modest threshold of plausibility.
Not that Judge Casper was unaware of those other cases and jurisdictions. She differentiated Smith v. CommonSpirit Health, which had prevailed in its defense by arguing that the plaintiffs had not alleged that the fees were excessive relative to the services rendered, noting that in this case "plaintiffs have plausibly alleged that there are two types of record-keeping services provided by all national record-keepers for large plans.” Yep — that, in conjunction with an allegation that MITRE had not used the "substantial bargaining power" it possessed due to its “massive size in terms of the number of participants” to obtain the same services at a lower cost seemed to be sufficient for Judge Casper.
Oh — as for those two types of essential recordkeeping services for large plans? Casper noted “One option is an overall suite of recordkeeping services provided to large plans as part of a ‘bundled’ fee for an ‘all-you-can-eat’ style service offered at one price regardless of the services chosen or utilized by a plan. The other option is an ‘a la carte’ style service that often has separate, additional fees based on the conduct of individual participants and the usage of the services by individual participants.” Yes, that seems to have been enough here.
There was an unusual level of detail about the specifics of agreements with TIAA and Fidelity Investments Institutional Operations Company, Inc., with the former providing recordkeeping services based on a percentage of the assets in the Plans (“the Revenue Requirement”) — and perhaps this made a difference. She explained that the plaintiffs here “directly criticize the process” by which the Plans’ investment allocation was elected. Regardless, she explained that “the Court has no basis at this stage ‘to doubt the plausibility’ of Plaintiffs’ allegations that there are ‘two types of essential recordkeeping services provided by all national recordkeepers for large plans with substantial bargaining power (like the Plans)’ and that ‘the Plans could have obtained recordkeeping services that were comparable to or superior to the typical services provided by the Plans’ recordkeeper at a lower cost.’” But didn’t really explain why those assertions without more were sufficient.
Additionally, she cited other cases — notably Albert v. Oshkosh (which set out the precedent for a number of the cases that rejected allegations of this type) stating that “Plaintiffs here have compared the Plans’ fees to a sufficient number of similarly-sized plans,” and that “Albert can be distinguished because, there, the plaintiff’s recordkeeping claim was based on the allegation that the fiduciary ‘fail[ed] to regularly solicit quotes and/or competitive bids.’” She continued by explaining that “although the court concluded that the plaintiff failed to allege that the recordkeeping fees were excessive relative to the services rendered, the plaintiff in Albert does not appear to have alleged, as Plaintiffs do here, that there are two types of recordkeeping services provided by all national recordkeepers for large plans and that the fiduciary failed to use its substantial bargaining power to obtain these same services at a lower cost.”
That’s right — for reasons that elude me, this statement regarding no more than that two types of services seems to have cleared the plausibility threshold for Judge Casper. Or did, alongside the allegation that the Committee failed to conduct an RFP at reasonable intervals — which Judge Casper determined were “…sufficient to infer imprudence.”
Indeed, she concluded that the plaintiffs here plausibly alleged that the Committee was imprudent because it did not conduct a Request for Proposal (“RFP”) at reasonable intervals, and went on to observe that “given that the Plans remained with the same two recordkeepers for at least fourteen years despite an alleged increase in recordkeeping costs, it is plausible that the Committee was imprudent for not conducting an RFP at reasonable intervals during that time period.”
Judge Casper also concluded that the “plaintiffs also plausibly allege that the Committee’s decision to retain multiple recordkeepers caused the Plans to incur excessive fees.” She continued noting “While the Committee’s use of two recordkeepers alone is not sufficient to state a claim of imprudence, the Court finds, in light of the complaint’s other allegations, that the use of the same two recordkeepers for at least fourteen years despite relatively high recordkeeping fees is sufficient to infer imprudence.”
Oh, and “given that the Court has already determined that Plaintiffs alleged sufficient facts to infer that Defendants breached the duty of prudence, the Court concludes that Plaintiffs have also plausibly alleged that they breached their monitoring duties.”
What This Means
It’s really hard to reconcile the standard articulated here with a reading of the cases like CommonSpirit, TriHealth and Oshkosh. There are times, of course, where knowing how this industry works may mean that certain assertions mean less to “us” than to the judiciary.
The reality is that for a long time now, multiple jurisdictions seemed willing to simply accept plaintiffs’ assertions of disparate fees based on comparisons with allegedly comparable plans at face value. Then a series of cases (like CommonSpirit, TriHealth and Oshkosh) come along and appear to reset the bar.
And then a case like this comes along, acknowledges the cases you thought had reset the bar — and says “this one is different.”
Even if those differences aren’t as obvious as you might hope.