Judge Finds Fault in Fee Comparisons, Dismisses Suit

Finding that, as in baseball, “three strikes and you’re out,” an excessive fee suit has been dismissed—with prejudice.

Participant-plaintiff Drew Mateya[i] had filed suit against Cook Group Incorporated and Cook Group Profit Sharing Plan Advisory Committee for violating 29 U.S.C. § 1104(a)(1)(B)—more specifically that the Advisory Committee selected a recordkeeper to help manage the administrative side of its Employee Retirement Income Security Act retirement program—a recordkeeper (Fidelity Investments Institutional) that he alleged “charged unreasonable administrative fees for its services.” 

Perhaps more to the point, in reviewing a motion to dismiss by the Cook defendants, U.S. District Judge Richard L. Young noted (Mateya v. Cook Group Inc. et al., case number 1:22-cv-01271, in the U.S. District Court for the Southern District of Illinois) that “Mateya's claim for imprudently selecting and maintaining an expensive recordkeeper turns on the allegation that the average administrative fee of the Cook Plan was $64 per person, when it should have been around $33 per person had the Cook Plan been administered prudently.” Judge Young went on to note that plaintiff Mateya arrived at that figure “by averaging the total administrative fees from 2016 to 2022 and dividing that number by the average number of participants over the same period,” and then comparing that to “a variety of comparator plans to imply the Cook Plan had unreasonably high administrative fees.”

Why ‘Knots’

Judge Young then stated the fiduciary arguments as to why those allegations failed to state a claim. First, he explained that the plaintiff failed to “contextualize the amount paid by the comparator plans by failing to describe the services they provided at the amount the comparator plans paid, which is fatal under the operative pleading standard. Second, they point to multiple methodological errors in Mateya's calculation of the plans' fees that prevent him from stating a claim.”

In response to that response, plaintiff Mateya asserted that differences in fees paid by plans are predominantly due to plan size, not services purchased, and that Fidelity previously stated its recordkeeping services were worth between $14 and $21. Oh, and separately, he articulated a theory that the Advisory Committee breached its duty of prudence by “failing to solicit bids for recordkeeping services.”

Compare ‘Ables’

Right off the bat, Judge Young cited the ruling in Albert v. Oshkosh Corp. for the premise that, “To raise a plausible inference that a plan's administrator breached its duty of prudence by paying too much for a mix of recordkeeping services, a plaintiff must ‘identify similar plans offering the same services for less.’”  However, Judge Young commented that Mateya “did not undertake an analysis of the services each plan provided and only alleged the prices each plan charged to participants”—instead relying on the notion that “all plans purchase recordkeeping services, which makes the plans comparable.” And then, referencing a table that purported to show plans of comparable sizes with varying fees, Judge Young noted “This is insufficient to state a claim.”

As for those services, Judge Young noted that the plaintiff submitted articles that backed the notion that "virtually every major recordkeeper provide[s] the same core service[s]." But Judge Young countered that “the services a recordkeeper provides and the services a plan purchases are different: all mechanics might provide emissions checks, tire rotations, and oil changes, but a given customer might only purchase a tire rotation while another purchases all three for more.” He continued, “In short, alleging every recordkeeper in the national market provides the same services and that the Cook Plan is more expensive than other plans is not sufficient to state a claim that the Cook Plan paid an unreasonable amount for the services it received.” Beyond that, Judge Young also noted that, “Out of circuit courts have routinely rejected allegations that only compare prices, without a description of the services provided as insufficient to state a claim.”

Different ‘Says’

Indeed, Judge Young noted that, “While recordkeepers may offer the same services to all plans, that does not mean every plan purchases those services.” Rather than embrace the premise that the differential in fees was imprudent, Judge Young cited “this obvious alternative explanation—the Cook Plan and its comparators paid different amounts because they purchased different services”—and said it “is borne out by the plans' Form 5500s.” More specifically, he noted that Cook identified costs detailed in the 5500 as going toward “investment advisory, participant loan processing, sub-transfer agency fees, recordkeeping fees, and account maintenance fees,” while one comparator identified the fees it paid as being for “sub-transfer agency fees, recordkeeping fees, and account maintenance fees.” And then he proceeded to draw further distinctions with other comparator plans and the services they listed for the fees. 

In fact, Judge Young found “…no observable trend from the information pled that larger plans pay less in recordkeeping and administrative fees than smaller plans. Nor does there seem to be any correlation between the asset size of a plan and its recordkeeping and administrative fees.” He similarly dismissed the reference to what Fidelity had been charged for the recordkeeping on its own plan as also being attributable to different services. “The ‘plaintiff must provide enough facts to show that a prudent alternative action was plausibly available’ to defendants,” Judge Young wrote. “Yet Mateya does not allege facts plausibly suggesting a different recordkeeper could provide the same mix of services purchased by the Cook Plan for less.”

While that was apparently sufficient to warrant the dismissal, Judge Young noted that “three methodological errors prevent him from stating a claim. First, he inconsistently counts money paid toward secondary recordkeepers as part of the total recordkeeping fee paid by a plan. Second, he inconsistently adds indirect compensation to his calculations. Third, he compares the Cook Plan's average cost over seven years against the single year cost of the comparators. These errors prevent any like-for-like comparisons between the different plans, which fatally undermines any inference that Fidelity's fees were unreasonable.” And then Judge Young proceeded to outline a series of errors made in the calculations and comparisons, including comparing a seven-year average of Cook fees to a single year of the comparator plans.

“At bottom, the problem with Mateya's complaint is that it attempts to compare numbers that mean different things,” Judge Young wrote. “To state a claim, Mateya needs to compare, within a given year, direct fees to direct fees, indirect fees to indirect fees, or a combination of direct and indirect fees to a combination of direct and indirect fees. Comparing the direct and indirect fees of the Cook Plan over multiple years to just a single year of direct fees from other plans will not suffice.”

As for the failure to conduct an RFP, Judge Young noted that “the Seventh Circuit has ‘rejected the notion that a failure to regularly solicit quotes or competitive bids from service providers breaches the duty of prudence.’” And that took out/down the claims about failure to adequately monitor the plan fiduciaries as well.

And while there are "no hard and fast rules for denying leave to amend 'in court, as in baseball, three strikes and you're out,'" Judge Young wrote. "Mateya has now proffered three complaints, and has tried 16 different comparators, none of which are meaningful benchmarks for the Cook plan," he continued. "Moreover, Mateya has not requested further leave to amend as an alternative to dismissal, nor has he attempted to demonstrate how he would cure the deficiencies present in his complaint”—and Judge Young dismissed the claims with prejudice.

What This Means

Add this one to the (growing) list of courts that want more than a mere list of allegedly comparable plans (based solely on plan/participant size) in order to make a “plausible” argument sufficient to withstand a motion to dismiss. While the differential in services provided has certainly been implied in other decisions, Judge Young spent more time outlining those differences and correlating them to fee differences than has typically been the case.

All in all, requiring a detailed analysis of fees and services compared to similar plans is certainly a higher burden on plaintiffs. On the other hand, requiring nothing more than rough fee comparisons aligned against plans of allegedly similar size is arguably a pretty low bar.