In the past few years, a spate of excessive fee lawsuits has caused anxiety for many plan fiduciaries. In 2022 alone, 88 excessive fee suits were filed, which is the second highest in any year, according to InvestmentNews. But while some cases have left fiduciaries responsible for large payouts — like the VCA Inc. Salary Savings Plan, in which the company paid a whopping $1.5 million cash settlement — other sponsors have been able to avoid these types of judgments. In one recent case against human resources firm TriNet, a judge dismissed the excessive fee complaint brought by plaintiffs, noting the firm’s fee benchmarking exercises as one indication that they had upheld their fiduciary duty.
Judge Refutes Excessive Fee Allegations
The plaintiffs in the lawsuit Huang v. TriNet HR III Inc. et al. filed an ERISA lawsuit against the firm in 2020, alleging the plan sponsors had not properly reviewed investment options offered to employees. The suit also claimed that by favoring actively managed funds over passive investments, sponsors increased participant costs without sufficient justification. The complaint argued, “Funds with high fees on average perform worse than less expensive funds, even on a pre-fee basis.” But U.S. District Judge Virginia M. Hernandez Covington dismissed the suit in light of evidence that the HR firm had, in fact, satisfied its fiduciary requirements.
Benchmarking Helped Fulfill Fiduciary Duty
The defendants were able to prove to Judge Covington’s satisfaction that, in part through a system of fee benchmarking and recordkeeper comparisons, their fiduciary duty was met. The judge stated that the TriNet retirement committee “monitored the Plan’s recordkeeping fees properly, conducting three competitive searches for recordkeepers during the Class Period and conducting regular benchmarking exercises in the interim.” The evidence suggested that the firm’s regular fee benchmarking contributed to a favorable outcome in this case, as it helped to satisfy the requirements for appropriate fiduciary oversight.
A Layered Defense Against Litigation
The 401(k) world has become a litigious landscape, and a lost ERISA lawsuit can be catastrophic for fiduciaries. While fee benchmarking alone may be insufficient to prevent a costly lawsuit, it can be one of your first lines of defense to help demonstrate that fiduciary duties are being met. In addition to careful consideration of participants’ needs and expert plan design, regular benchmarking can help ensure you’re keeping up with market changes and avoiding unreasonably high fees. For higher fee investments and services, more frequent benchmarking can help demonstrate that the decision to retain these higher fee items were made prudently and with regard to participants.
PlanFees’ suite of benchmarking tools can help cover your bases by giving you the level of plan and service insight you need. Prism Total Fees Benchmarking shows whether a plan’s fees are low, average or high compared to similar plans. To help manage advisory fees, Prism365 compares fee ranges for 15 advisory services across five key performance areas. And RFP Express gives actual quotes from industry-leading providers instantly and can generate custom quotes within 24 hours.
While the current upward trend in excessive fee litigation may be understandably concerning, keeping your fee management toolkit stocked with robust resources can help provide an important layer of protection against a 401(k) lawsuit — and assist you in earning the trust of clients and prospects.
Sources:- https://www.investmentnews.com/will-2023-be-another-banner-year-for-401k-fee-litigation-233242
- https://www.napa-net.org/news-info/daily-news/excessive-fee-401k-suit-settles
- https://www.plansponsor.com/trinet-latest-face-familiar-fiduciary-breach-allegations
- https://www.plansponsor.com/federal-judge-dismisses-complaint-against-hr-company-trinet
