The latest excessive fee suit is light on details, but comes from a familiar source.
The suit (Kinder v. Koch Indus. Inc., N.D. Ga., No. 1:20-cv-02973-MHC, 7/16/20) is a mere 31 pages long, most of it cookie-cutter text restatement of ERISA’s requirements of fiduciaries and the roles of various parties supporting plan administration. It takes to task several “Koch-affiliated” defined contribution plans—Georgia-Pacific LLC Hourly 401(k) Plan, the Georgia-Pacific LLC 401(k) Retirement Savings Plan, the Koch Industries Inc. Employees’ Savings Plan, and the Flint Hills Resources Chemicals Salary Deferral Plan—all part of a master trust arrangement that covers some 60,000 participants and about $8 billion in plan assets.
The two named plaintiffs—both residents of Arkadelphia, AR—one a participant, the other a former participant, in the Georgia-Pacific Hourly Plan—are represented by Austin & Sparks PC, Sanford Law Firm PLLC, and Nichols Kaster PLLP.[i]
Allegations Made
Not that there aren’t any allegations. The suit claims that “defendants failed to prudently and loyally monitor and control the Plans’ recordkeeping expenses, and instead allowed the Plans to pay up to six times more than what similarly-sized plans would have paid for such services”—and alleges that these “ERISA violations have resulted in millions of dollars in excessive fees to the Plans and their participants since the beginning of the statutory period.”
And, after noting that “Koch Industries has a close relationship with Alight,” citing its role not only as recordkeeper for the plans in question, but its administration of the Koch Industries Employees’ Pension Plan since 2009, and Koch Industries’ online benefits portal “through which all employee benefits are managed,” it turns to Form 5500 filings to note that the recordkeeping fees for the plans were at least: $58-146 per participant in 2014;
- $72-95 per participant in 2015;
- $64-84 per participant in 2016;
- $59-83 per participant in 2017; and
- $53-86 per participant in 2018.
The suit claims that “based on Plaintiffs’ investigation, a prudent and loyal fiduciary of a similarly-sized plan could have obtained comparable recordkeeping services of like quality for as low as $14 per participant during that same time period.” Though exactly where and how isn’t noted.
‘Know’ How?
Of course, and as the suit acknowledges, “this is based on the information currently available to Plaintiffs.” But they go on to state that “these calculations are likely conservative as they only account for the direct compensation paid to Alight, and do not account for indirect compensation such as revenue sharing.” However, that will apparently have to wait—as they note that “discovery will show how much additional revenue participants paid for recordkeeping through revenue sharing.”
That said, having stated the recordkeeping charges and alleged that they should have done “better,” the suit states as fact that “the Plans’ excessive recordkeeping expenses demonstrate that Defendants either failed to engage in prudent monitoring of the Plans’ recordkeeping expenses and engage in prudent practices to keep recordkeeping expenses at competitive levels, or that Defendants allowed participants to be charged excessive recordkeeping fees in exchange for discounts on the other services Alight was providing that Koch Industries itself should have been paying for.
“Either way,” they continue, “the process by which Defendants managed the Plans’ recordkeeping services “would have been tainted by failure of effort, competence, or loyalty,” each of which constitutes a “breach of fiduciary duty.”
‘Actual’ Knowledge
Those allegations and assertions notwithstanding, the suit admits that “plaintiffs did not have knowledge of all material facts (including, among other things, the cost of the Plans’ recordkeeping services compared to similarly-sized plans and the Plans’ leverage to negotiate lower recordkeeping expenses) necessary to understand that Defendants breached their fiduciary duties and engaged in other unlawful conduct in violation of ERISA, until shortly before this suit was filed” (setting a marker for a statute of limitations claim).
Moreover, the suit admits that the “Plaintiffs did not have actual knowledge of the specifics of Defendants’ decision-making processes with respect to the Plans (including Defendants’ process for selecting and monitoring the Plans’ recordkeeper and monitoring the Plans’ expenses) because this information is solely within the possession of Defendants prior to discovery”—“actual knowledge” a very specific reference key to starting the “clock” on ERISA’s statute of limitations (see Supremes Rein In ‘Actual Knowledge’ Standard). However, the suit continues, “for purposes of this Complaint, Plaintiffs have drawn reasonable inferences regarding these processes based upon (among other things) the facts set forth above.”
‘Failing’ Grades
In sum, the suit closes with an allegation that “Koch Industries breached its fiduciary monitoring duties by, among other things:
“a. Failing to monitor and evaluate the performance of its appointees or have a system in place for doing so, standing idly by as the Plans suffered significant losses as a result of its appointees’ imprudent actions and omissions with respect to the Plans;
“b. Failing to monitor its appointees’ fiduciary processes, which would have alerted a prudent fiduciary to the breaches of fiduciary duties described herein; and
“c. Failing to remove appointees whose performance was inadequate in that it continued to allow the Plans to pay excessive costs for recordkeeping services, to the detriment of the Plans and the retirement savings of the Plans’ participants.”
And that, “as a consequence of the foregoing breaches of the duty to monitor, the Plans suffered millions of dollars of losses due to excessive fees.”
The question now is—will this somewhat cursory list of accusations and allegations be sufficient for a judge to permit it to go to the next step? Or will the defendants be able to obtain a dismissal or summary judgment?
Time will, of course, tell.
[i]Nichols Kaster PLLP has appeared with striking regularity in this type of litigation, most recently involving Oklahoma’s BOKF NA, but also John Hancock, M&T Bank, MFS, SEI and Goldman Sachs, as well as suits involving Deutsche Bank Americas Holding Corp., BB&T and American Airlines. Nichols Kaster was also one of three litigation firms specifically noted in a recent property and casualty renewal template that has reportedly showed up in a number of cases.
