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Gosh! Oshkosh Wins Dismissal of Excessive Fee Suit


A federal judge explained that “in the ERISA context, a motion to dismiss is an important mechanism for weeding out meritless claims”—and took that admonition to heart in dismissing an excessive fee suit.

The suit was brought by participant-plaintiff Andrew Albert, who alleged that the $1.1 billion Oshkosh Corp. 401(k) subjected participants to excessive fees because it retained higher-cost actively managed funds, failed to retain only the lowest-cost share class of funds it offered, and paid excessive fees for recordkeeping services (to Fidelity). All told, the suit, filed in the U.S. District Court for the Eastern District of Wisconsin, claimed those practices resulted in $15.9 million in unnecessary losses to plan participants.

More specifically, the suit alleged that from the years 2014 through 2018, “the Plan had, on average, 11,496 participants and paid an average effective annual recordkeeping and administration fee of at least approximately $1,004,305, which equates to an average of at least approximately $87 per participant,” compared with the “fees paid by other plans of similar sizes with similar amounts of money under management ranged from $30 to $45”—rather than the $40/participant the plaintiff asserted was reasonable.

Early in his assessment of the case (Albert v. Oshkosh Corp., E.D. Wis., No. 20-C-901, 9/2/21) Judge William C. Griesbach made a distinction between the role of an employer and a personal financial advisor, commenting that “employers, such as Oshkosh, have neither the desire, nor the ability, to serve as personal investment advisors to their employees,” and that they “do not have enough information about an employee’s other assets, family circumstances, risk tolerance, and so on, to provide such individual advice.”

He then proceeded to explain that since ERISA plaintiffs generally do not have “inside information” regarding the fiduciary’s process, the Seventh Circuit has recognized that “an ERISA plaintiff alleging breach of fiduciary duty does not need to plead details to which she has no access, as long as the facts alleged tell a plausible story.” He then noted, however, that the plaintiff must still “plausibly allege action that was objectively unreasonable.”

Judge Griesbach noted that the plaintiff here had backed up his assertions about recordkeeping costs with “charts, graphs, and tables that the same or different recordkeepers have accepted lower recordkeeping fees from similar plans with approximately the same number of participants and the same amount of assets under management during the statutory time period”—data that the plaintiff asserted provided a “plausible inference of a flawed process and imprudence.” That was not, however, enough for Judge Griesbach.

Reasonable Refined?

“Plaintiff does not allege any facts as to what would constitute a reasonable fee or any facts suggesting that the fee charged by Fidelity is excessive in relation to the services provided,” he wrote. “Although Plaintiff alleges that the recordkeeping fee is twice the amount of other fees, Plaintiff fails to state why the fee is unreasonable. The mere existence of purportedly lower fees paid by other plans says nothing about the reasonableness of the Plan’s fee, and it does not make it plausible that another recordkeeper would have offered to provide the Plan with services at a lower cost.” Judge Griesbach went on to note that the plaintiff here (drawing references to the decision in Divane v. Northwestern University) had “identified no alternative recordkeeper that would have accepted such a low fee or any fee lower than what was paid” and “failed to explain how a hypothetical lower-cost recordkeeper would perform at the same level necessary to serve the best interests of the plans’ participants.” He went on to note that that allegation was “even less plausible here than in Divane, because Defendants’ Plan is smaller and has fewer participants,” meaning fewer economies of scale, and less clout to negotiate. “Without plausible allegations about Defendants’ process, the Court cannot infer imprudence merely because the Plan’s recordkeeping fees were at the amounts alleged,” he wrote. 

As for the share class allegations, Judge Griesbach stated that those fared “no better.” Explaining that the “Seventh Circuit has not addressed imprudence based on a net investment expense to retirement plans theory”—noting in parenthesis “primarily because it is a novel concept created by Plaintiff”—he noted that “the crux of Plaintiff’s argument is that Defendants should have selected share classes that would have cost participants less”—a proposition that he commented “…has been rejected by the Seventh Circuit,” concluding that “Plaintiff’s preference for different share classes of certain investments is not enough to state a plausible claim for breach of fiduciary duty.”

On the issue of allegedly retaining “high-cost actively managed investments,” Judge Griesbach noted that the plaintiff didn’t allege that the plan “should have only offered passively managed investments or that it was imprudent for the Plan to offer any actively managed investments,” and in fact he had acknowledged that even though actively managed funds “can be part of the mix of investments of a Plan if a prudent process has been followed in selecting them,” the defendants breached their duty “by failing to make a specific and informed finding regarding the cost of the investment options in the Plan.” Moreover, the suit alleged that there was a flawed process, even though “he concedes that he does not have knowledge of Defendants’ process for selecting and monitoring investments.” Not surprisingly, Judge Griesbach stated that “the Court is not required to accept these “unsupported conclusory factual allegations.”

As for fee disclosure, Judge Griesbach explained that “the Seventh Circuit has recognized that fiduciaries are not required to disclose “information about the revenue-sharing arrangement,” citing the findings in Hecker v. Deere, which—“although Plaintiff asserts that ‘citations to Hecker for disclosure purposes are both outdated and completely irrelevant,’ Hecker remains the law of this circuit which, of course, is binding on this Court,” he wrote. “In short, Defendants are not required to disclose fees charged or credited to the Plan investments with the level of detail sought by Plaintiff.”

Recordkeeping ‘Charges’

On the issue of excessive recordkeeping fees, while the plaintiff alleged that there was no bid solicitation process to determine “whether other service providers could provide the same or superior benefits and services provided by SAI at a lower cost to the plan participants.” Here again, however, Judge Griesbach commented that “the existence of a lower-cost alternative service provider says nothing about Defendants’ prudence in selecting SAI as a service provider and does not make it plausible that another service provider would offer the same service at a lower cost. Without plausible allegations regarding Defendants’ process, the Court cannot infer imprudence merely because the service provider fees were at the amounts alleged.”

Having made short order of the claims, Judge Griesbach granted the defendants motion to dismiss with prejudice, noting that the “plaintiff has already amended his complaint once and has not requested leave to do so again in the face of the motion to dismiss.”

What This Means

Having seen so many cases move past this stage with no more data than was presented here, it’s a bit eye-opening to have a judge actually push back on these types of allegations. Granted, the Seventh Circuit has evidenced a propensity to be friendlier to fiduciary defendants than are some federal court districts, and yet…

At present the judge’s perspective on making a sufficient case seems a bit of an outlier—but, who knows? That could change.