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Who Says Only Big Plans Get Sued?

Participants in the 401(k) of an auto body repair shop may represent the smallest plan yet to file an excessive fee lawsuit.

Over the past decade, the vast majority of the so-called “excessive fee” revenue-sharing lawsuits have been filed against multi-billion dollar 401(k) plans — and little wonder since, as bank robber Willy Sutton once opined, “That’s where the money is” — in this case, the assets and fees make for multi-million dollar contingency fees for plaintiff’s lawyers.

But in Damberg v. LaMettry's Collision, Inc., D. Minn., No. 0:16-cv-01335, the participant-plaintiffs are part of a 114-participant plan that had (in 2014) less than $10 million in plan assets.

The plaintiffs in this case, filed in the United States District Court for the District of Minnesota, argued that the plan fiduciaries breached their fiduciary duty by selecting an unduly expensive structure for its 401(k) plan (in this case a one that bundled recordkeeping and investment management), failing to conduct an RFP for the structure to minimize expenses, failing to evaluate whether an unbundled or alternative fee structure was a better option, failing to conduct due diligence regarding whether the assessed fees were appropriate, and failing to actively monitor the selected structure’s fees and expenses.

This complaint, as with others before it, argued that the share classes made available to participants in the plan were more expensive than otherwise identical funds associated with lower-priced share classes of which the plan was eligible to take advantage.

Bundled Arrangement Challenged

Moreover, noting that “the cost of a service provider providing recordkeeping services to a retirement plan depends on the number of participants, not on the amount of money in participants’ accounts,” the plaintiffs asserted not only that “prudent fiduciaries to retirement plans establish a fixed fee arrangement that does not vary depending on the size of plan assets or individual participant accounts,” but that for retirement plans with over 100 participants, a reasonable annual per capita fee paid by retirement plan participants should not exceed $18. That said, they alleged that the plan “paid almost $886, or 4900% higher than a reasonable fee for these services.”

The investment options in the plan include approximately 11 mutual funds, 7 pooled separate accounts, and a guaranteed investment contract offered by Voya, which also provided recordkeeping services to the plan. The complaint alleges that in 2014, “defendants imprudently provided dramatically higher cost share classes for nearly every one of the Mutual Fund Plan investment options. Indeed in some instances, the retail fees for the Mutual Funds were more than 100% higher than identical institutional share class equivalents.”

‘Separate’ Account

The complaint also invoked concerns that “defendants also failed to consider how lower-cost institutional funds could be used to avoid excessive fees for the Pooled Separate Accounts, costing Plan participants additional hundreds of thousands of dollars.” It’s a charge that has only recently crept into these excessive fee lawsuits.

Oh, and this may not be the last we hear from the law firm representing the plaintiffs — Madia Law LLC of Minneapolis. The home page of their web site reads: “Goliath, Beware. We’re trial lawyers. Our core competency — above everything else — is trying cases to juries. And we specialize in beating giants.”