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‘Short’ Suit Makes ‘Astronomical’ Claims Against (Another) Jumbo 401(k)

Litigation

Capozzi Adler has filed yet another excessive fee suit–this one targeting an $8.5 billion 401(k) plan.

The plaintiffs here were a geographically diverse set of former workers—Paul M. Seibert, Thomas F. Solury, Dana Molineaux, Henry Worcester, Stephanie Schnepp, John Strong, Jr. and Scott C. Allen—on behalf of the Nokia Savings/401(k) Plan.

Deja View?

Now, if you’ve read any of the multitude of suits filed by Capozzi Adler (who represents the plaintiffs in this case)—well, you’ll definitely get a feeling of déjà vu. The “good” news is, they aren’t very long (30-ish pages). Here we’re talking about an $8.5 billion plan (at the end of 2020), with more than 10,000 employees—which, of course, qualifies it as a “jumbo” plan in the words of the suit. 

The first half of the suit—filed in the U.S. District Court for the District of New Jersey (Seibert v. Nokia of Am. Corp., D.N.J., No. 2:21-cv-20478, complaint 12/13/21)—lays the groundwork for the law’s requirements of ERISA fiduciaries, the particulars of the plan design, some details about the plaintiffs named, and the statement that, “Like other companies that sponsor 401(k) plans for their employees, Nokia enjoys both direct and indirect benefits by providing matching contributions to Plan participants”—specifically the tax deduction for these contributions, not to mention the benefit they derive from the plan’s contribution to attracting and retaining a valuable workforce.

The suit proceeds to familiar grounds—that while they “…did not have and do not have actual knowledge of the specifics of Defendants’ decision-making process with respect to the Plan, including Defendants’ processes (and execution of such) for selecting, monitoring, and removing Plan investments or monitoring recordkeeping and administration costs, because this information is solely within the possession of Defendants prior to discovery,” they’ve made what they claim are “reasonable inferences based upon several factors.” 

They note that they have written to Nokia requesting meeting minutes, which are, by the plaintiffs’ admission “the bare minimum needed to peek into a fiduciary’s monitoring process”—but that request was, not surprisingly, rebuffed. 

Median ‘Well’

But as for the allegations that relate to this plan specifically, the suit alleges—based on ICI Median averages—that “in some cases, expense ratios for the Plan’s funds were 364% above the ICI Median (in the case of Customized Real Asset Fund) and 252% above the ICI Median (in the case of Balanced Real Asset Fund) in the same category.” 

Having drawn this conclusion, the suit proceeds to claim that “defendants’ failure to obtain reasonably-priced investments is circumstantial evidence of their imprudent process to review and control the Plan’s costs and is indicative of Defendants’ breaches of their fiduciary duties, relating to their overall decision-making, which resulted in the payment of excessive recordkeeping and administration fees—the crux of this lawsuit…”

After a recitation of what is involved in recordkeeping services, including a brief discussion of cost drivers and revenue-sharing practices, the suit claims in this case that “using a combination of an asset based fee with revenue sharing used to cover that fee resulted in a worst-case scenario for the Plan’s participants because it saddled Plan participants with above-market recordkeeping fees.”

Speaking of “inferences,” the suit claims that “because the Plan paid yearly amounts in recordkeeping fees that increased each year over the Class Period, there is little to suggest that Defendants conducted a RFP at reasonable intervals—or certainly at any time prior to 2015 through the present—to determine whether the Plan could obtain better recordkeeping and administrative fee pricing from other service providers given that the market for recordkeeping is highly competitive, with many vendors equally capable of providing a high-level service.”

‘Long’ Division

The specifics alleged for the Nokia plan (according to the suit) were that the plan “stuck with a charge to participants based on .04% of the Plan’s assets up to 2018 and then moved to .03% of the Plan’s assets from 2019 and forward.” But then the suit argues that, “given the size of the Plan, an asset-based charge made little sense,” proceeding to some math that takes 0.004% of the Plan’s assets of $8,509,660,000 to produce a total administration and recordkeeping cost of $3,403,864, and which—divided by the participant counts, “…left the Plan with an unreasonably high per participant cost of $116.” They then assert that “an asset-based approach with a multi-billion dollar plan such as the Plan makes little sense,” noting that “…as plan size increases so does the per participant cost. In this case the costs appear to have been unchecked and had devastating effects on the participants.”

Oh—and yes—once again, they labeled the fees paid by the plan as “astronomical.”[i]

Now, the source of comparisons varies from suit to suit—this one relies upon the NEPC 2020 Defined Contribution Progress Report that the plaintiffs argue found that the majority of plans with over 15,000 participants paid “slightly under $40 per participant recordkeeping, trust and custody fees.” This suit then proceeds to compare those rates to that of what the plaintiffs claim are “comparable” plans, at least with regard to assets and participant count, drawing their assumptions on fees paid from Form 5500s. Oh, and while we’re casting about for comparisons, the suit invokes “Some authorities cited in case law dating as far back as six years ago recognized that reasonable rates for jumbo plans typically average around $35 per participant, with costs coming down every day,” going on to comment that “…even the $35 mark is a conservative figure.”

Ultimately, the plaintiffs here allege that “the failure to engage in an appropriate and prudent process resulted in saddling the Plan and its participants with excessive Plan recordkeeping and administration costs,” and that “as a direct and proximate result of the breaches of fiduciary duties alleged herein, the Plan suffered millions of dollars of losses due to excessive costs. Had Defendants complied with their fiduciary obligations, the Plan would not have suffered these losses, and the Plan’s participants would have had more money available to them for their retirement.”

So, deploying the structure, allegations, and “inferences” deployed in a large (and increasing) number of lawsuits (roughly 50 over the past two years, according to Bloomberg Law), Capozzi Adler has slapped another large (“jumbo?”) plan with a big excessive fee lawsuit. 

Will the court be sympathetic? We’ll have to see what… develops.

Stay tuned.

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