After what seems a brief respite, another multibillion-dollar 401(k) has been targeted with an excessive fee suit.
The plaintiffs here—Keith K. Kruchten, Angel D. Muratalla and William Begani—are bringing suit on behalf of the $2.1. billion Ricoh USA, Inc. Retirement Savings Plan. They’re represented by Capozzi Adler PC, which means that it relies on a foundation of allegations that are basically a “rinse and repeat” from other suits—and, certainly in relationship to suits brought by firms like Schlichter Bogard & Dutton—it will be relatively short.
Sure enough, the suit (Kruchten v. Ricoh USA, Inc., E.D. Pa., No. 2:22-cv-00678, complaint 2/22/22) is only 27 pages long. It alleges that the Ricoh defendants as fiduciaries “breached the duties they owed to the Plan, to Plaintiffs, and to the other participants of the Plan by, inter alia, (1) failing to objectively and adequately review the Plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost; and (2) failing to control the Plan’s recordkeeping administration costs”—and that those shortcomings not only constituted a breach of the fiduciary duty, but “…were contrary to actions of a reasonable fiduciary and cost the Plan and its participants millions of dollars.
“In theory,” the plaintiffs note, “the Committee determines the appropriateness of the Plan’s investment offerings, monitors investment performance and reviews total plan and fund costs each year … the Committee fell well short of these fiduciary goals.”
Now this suit—as is common with these—acknowledges that the plaintiffs lack “actual knowledge” of the prudent process the Ricoh committee actually uses, but cautions that they can infer a lack of said process by the resulting fund menu. That said, they said they have previously written to Ricoh requesting copies of the minutes , only to have that request denied.
The suit claims that “the expense ratios for the Plan were artificially high to pay for the plan’s excessive administration and recordkeeping fees, which is the crux of this lawsuit … the Defendants chose to add 9 basis points to each fund in the Plan to offset the Plan’s administration and recordkeeping costs.” It notes that, “Even a fund which would have a normally low expense ratio such as a Vanguard index fund, would be considered to have excessive expense ratios after these 9 basis points are applied. For example, throughout the Class Period, the Plan had the Vanguard Total Stock Market Index fund. In 2021 this fund reported an expense ratio of 0.14% which is well above the ICI median of .04% for index funds … The addition of the 9 basis points to each fund to pay for the already excessively high administration and recordkeeping costs strongly suggest that the Defendants failed to engage in an appropriate prudent process when selecting the funds and a fee structure for the Plan.”
The suit goes on to infer that “there is little to suggest that Defendants conducted an appropriate RFP at reasonable intervals—or certainly at any time prior to 2016 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” since the Plan paid yearly amounts in recordkeeping fees that were well above industry standards each year over the Class Period.
As for those comparisons, the suit cites (as others have previously) fees stipulated by Fidelity in a separate, unrelated litigation of $14-$21/participant, as well as a table of ostensibly comparable plans (at least based on participant count) that paid $23-$35/participant, and—though uncited (save for reference to “some authorities cited in case law dating as far back as six years ago”—that the per participant rate for similar plans would be in the $35/participant range. In contrast the suit claims that the Ricoh plan charged anywhere from $61/participant to $103/participant during the period in question.
And as is common in such litigation, in addition to the breaches cited above, the suit also targets the company itself and the Board Defendants that the plaintiffs allege failed in their fiduciary duty to properly oversee the plan fiduciaries.
Will these allegations survive a motion to dismiss? Stay tuned.
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.
