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Will Third Time Be a 'Charm' For New Excessive Fee Litigant?

ERISA

A relatively small ($500 million) plan has found itself the target of an excessive fee suit – but that’s not the real news.

This particular suit (Enos v. Adidas Am., Inc., D. Or., No. 3:19-cv-01073-YY, complaint 7/10/19) was filed by Paul Enos and David Freitas (individually and as representatives of a Class of Participants and Beneficiaries) on behalf of the 7,478 participants of the Adidas Group 401(k) Savings and Retirement Plan. Yes, that Adidas. 

The suit claims that for every year between 2013 and 2017, the administrative fees charged to plan participants was “greater than a minimum of approximately 75 percent of its comparator fees when fees are calculated as cost per participant,” and that during that same period “the administrative fees charged to Plan participants is greater than 80 percent of its comparator fees when fees are calculated as a percent of total assets.” Indeed, the plaintiffs allege that the total difference from 2013 to 2017 between Adidas’s fees and the average of its comparators based on plan asset size is $6,078,234. 

These “high fees, occurring over years, represent something more than a sloppy business practice; they are a breach of the fiduciary duties owed by Adidas to Plan participants and beneficiaries,” the plaintiffs contend.

As for the source of that comparison, the plaintiffs refer to “commercially available programs commonly used by financial advisors and plan fiduciaries to analyze plans’ performance, comparative costs and so on,” and that the program used for their analysis “…contains validated financial information from more than 55,000 financial plans of all types.”

Ostensibly contributing to the fee gap was the use of actively managed funds by the Adidas plan; “Adidas could have chosen passively managed funds to offer even as an alternative to Plan participants. These passively managed funds would have resulted in significantly lower administrative fees yet generated comparable returns,” the plaintiffs claim. “Adidas’s decision-making, monitoring and soliciting bids from investment funds was deficient in that it resulted in almost no passively-managed funds options for Plan participants, resulting in inappropriately high administrative Plan fees.”

So, what’s unusual about this case – well, yes it’s a smaller plan than the ones that have been the focus of most of the excessive fee litigation since 2006. 

It also happens to be the third ERISA lawsuit filed this year by Greg Coleman Law and Jordan Lewis PA targeting a relatively smaller 401(k) plan (the other two being, according to Bloomberg Law, telecommunications provider West Corp. and a subsidiary of Greystar Real Estate Partners LLC. The latter, with between $100 million and $250 million in assets, paid as much as $6.2 million in excess fees compared with similarly sized plans over a four-year period, according to a May 13 lawsuit. The former was alleged to have paid fees 29 times more expensive than comparable alternatives for the plan (that reportedly had between $250 million and $500 million in assets, according to the complaint).

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