Tyson Foods Targeted in 401(k) Excessive Fee Suit

Yet another multi-billion dollar 401(k) plan finds itself in the cross-hairs of the plaintiffs’ bar.

The suit—brought by participant-plaintiffs Randall W. Ruebel, Mario Hudson, and Tammy L. Johnson (all of whom are said to still be participants in the $3.2 billion Tyson Foods 401(k) plan), who are represented by  Walcheske & Luzi LLC, Carney Bates & Pulliam PLLC—alleges that “defendants, as fiduciaries of the Plan” breached their duty of prudence they owed to the Plan by requiring the Plan to “pay[ ] excessive recordkeeping [and administrative (RKA)] fees,” and “by failing to remove their high-cost recordkeeper, Northwest Plan Services, Inc.” 

With regard to the latter point, the suit (Ruebel v. Tyson Foods, Inc., W.D. Ark., No. 5:23-cv-05216, complaint 11/30/23) claims that “among other things, Defendants paid over a 75% premium per-participant for Total RKA fees for the Plan to the Plan recordkeeper, Northwest, during the Class Period.”  The suit also alleges “a breach of fiduciary duty by Defendants for failing to monitor those individuals responsible for paying these unreasonable Total RKA fees.”

No ‘New’?

All in all, there’s nothing really different or extraordinary here in terms of the allegations—other than the naming of Northwest Plan Services as the recordkeeper. Beyond that, it’s another multi-billion dollar plan ($3.2 billion, to be exact) that is alleged to have failed to use its size to leverage a better deal, and to have failed to make any real effort to “mitigate excessive fees—such as by adjusting fee arrangements, soliciting bids, consolidating recordkeepers, negotiating for rebates with existing recordkeepers, or other means—may violate their duty of prudence.” While the suit acknowledges that “ERISA’s duty of prudence applies to the conduct of the plan fiduciaries in negotiating Total RKA fees based on what is reasonable (not the cheapest or average) in the applicable market,” it goes on to comment that “the unreasonable Total RKA fees paid inferentially and plausibly establishes that an adequate investigation would have revealed to a reasonable fiduciary that the Plan Total RKA services, given their level and quality, were improvident.”

The suit further claims that there is no “obvious alternative explanation that suggests [that Defendants’] conduct falls within the range of reasonable judgments a fiduciary may make based on [their] experience and expertise,” and that “defendants’ fiduciary decisions fall outside the range of reasonableness.” The suit also claims that “these breaches of fiduciary duty caused Plaintiff and Class Members millions of dol-lars of harm in the form of lower retirement account balances than they otherwise should have had in the absence of these unreasonable Plan fees.” 

A Pleading ‘Buffer’?

That said, the plaintiffs also put forth a bit of a pleading “buffer,” noting that “there is no requirement to allege the actual inappropriate fiduciary actions taken because (in the words of a decision in Braden v. Wal-Mart) “[i]t would be perverse to require plaintiffs bringing [ERISA] claims to plead facts that remain in the sole control of the parties who stand accused of wrongdoing.”

The suit takes pains to note both the continued employment of the plaintiffs at Tyson, as well as the various fund(s) in which they were invested, by way of establishing their standing to bring suit. That said, they also note that “the Plaintiffs and all participants in the Plan did not have knowledge of all material facts (including, among other things, the excessive Total RKA fees necessary to understand that Defendants breached their fiduciary duties until shortly before this suit was filed)—setting a timeclock for the possibility of a statute of limitations to bring this action (the point at which they had actual knowledge). They also state that, “having never managed a massive 401(k) Plan, Plaintiffs, and all participants in the Plan, lacked actual knowledge of reasonable fee levels available to the Plan.”

‘Exceptional, Unusual or Customized’

Perhaps taking note of a number of cases that had failed to survive a motion to dismiss for failure to tie fees paid to services rendered, the plaintiffs here state that the recordkeeping services provided are fungible. “There is nothing in the Fee Disclosure Notice provided to Plan participants to suggest that there is anything exceptional, unusual, or customized about the Bundled RKA services provided to Tyson Foods Plan participants by Northwest,” they note. 

And then goes on to state that “the Plan provided participants all the commoditized and fungible Bundled RKA services provided to all other massive 401(k) plan participants. The quality or type of RKA services provided by competitor recordkeepers are comparable to that provided by Northwest. Any differences in these Bundled RKA services are immaterial to the price quoted by recordkeepers for such services.” And then, “given the fungibility and commoditization of these Bundled RKA services for massive plans like the Tyson Foods Plan, failing to adjust fee arrangements, solicit bids, or negotiate for rebates with existing recordkeepers, all violate a fiduciary’s duty of prudence under ERISA.”

The suit states that “custody and recordkeeping are ‘commodity’ services. Like any commodity, given equal quality, the key benchmark for these services is price. The cheaper you can find competent custody and recordkeeping services, the better for participants.” And that as commodities, the suit asserts that “recordkeepers primarily differentiate themselves based on price, and will aggressively bid to offer the best price in an effort to win the business, particularly for massive plans like the Tyson Foods Plan.” 

It then concludes that “given the mammoth size of the Tyson Foods Plan, the same price paid by the Tyson Foods Plan for Bundled RKA over the Class Period, and the trend of price compression for Bundled RKA over the last six years, it is possible to infer that Defendants did not engage in any competitive solicitation of RKA bids, or only ineffective ones, breaching their fiduciary duties of prudence.”

The suit goes on to state that “based on the previous year’s expenses [participants] could expect an annual fee of $36 to $53. Since the fees charged to participants are based on actual expenses this estimate can change”—but that “based on Plan 5500 Forms[i] between 2017 and 2022, Northwest in fact charged Plaintiffs and Class Members between $40 and $46 annually per year deducted quarterly per participant for Total RKA.”

As others have before it, the suit here points to the fees paid by Fidelity for its own plan—a source of litigation itself—whereupon they assert that “the value of the record-keeping services that Fidelity provided to the Plan in 2014 was $21 per participant; the value of the recordkeeping services that Fidelity provided to the Plan in 2015 and 2016 was $17 per participant, per year, and the value of the recordkeeping services that Fidelity has provided to the Plan since January 1, 2017 is $14 per participant, per year.”

Solicit ‘Actions’

The suit also alleges as fact that “it is the standard of care prevailing among industry experts to solicit competitive bids every three to five years.” And the plaintiffs assert that “prudent fiduciaries implement three related processes to prudently manage and control a plan’s RKA fees; by tracking the recordkeeper’s expenses by demanding documents that summarize and contextualize the recordkeeper’s compensation (such as fee transparencies, fee analyses, fee summaries, relationship pricing analyses, cost-competitiveness analyses, and multi-practice and standalone pricing reports), they “must identify all fees, including direct compensation and revenue sharing being paid to the plan’s recordkeeper,” and finally they “must remain informed about overall trends in the marketplace regarding the fees being paid by other plans, as well as the recordkeeping rates that are available. By soliciting bids from other recordkeepers, a prudent plan fiduciary can quickly and easily gain an understanding of the current market for the same level and quality of recordkeeping services.”

That said, the plaintiffs here say that the fees paid by Tyson were “objectively unreasonable,” that “the level and quality of Total RKA services it received…were materially similar to services available through other recordkeepers and provided to other massive plans,” and that for those services plan participants paid an effective average annual Total RKA fee of $42 per participant. It then proceeds to outline the rationale behind the comparability of several comparator plans (again, likely by way of forestalling arguments in a motion to dismiss that the comparators have no similarity in the services provided. 

Will this court be persuaded? We shall see.

 

NOTE: In litigation there are always (at least) two sides to every story. However factual it may turn out to be, the initial lawsuit in any action is only one side, and one generally crafted toward a particular result. In our coverage you'll see descriptions of events qualified with statements such as “the suit says,” or “the plaintiffs allege”—and qualifiers should serve as a reminder of that reality.