A federal judge has ruled that comparisons presented as evidence of a fiduciary breach were not “meaningful.”
The lawsuit was filed late last year by plaintiff-participants Malika Riley and Takeeya S. Reliford, by and through their attorneys – Carey & Danis, Edelson Lechtzin LLP and Capozzi Adler PC – on behalf of of the $930 million Olin Corporation Contributing Employee Ownership Planner, themselves and all others similarly situated, against the Plan Trustees (which include Olin Corporation and the Olin Corporation Board of Directors during the Class Period and the Olin Corporation Investment Committee and its members) for breaches of their fiduciary duties during the Class Period. Specifically, for (1) failing to “properly monitor and control the Plan’s record keeping costs; (2) failing to objectively and adequately review the Plan’s investment portfolio with due diligence to ensure that each investment option was prudent, in terms of cost and return; and (3) the maintenance of funds in the plan despite the availability of similar lower cost and/or higher yielding investment options. »
As is common practice, the trustees of the Olin Plan had filed a motion to dismiss the case for failure to allege breach of fiduciary duty.
As we have already noted in such cases, at this stage the court must accept as true the allegations made by the party who did not file the motion to dismiss. Here, the point of comparison here on fees – as has been the case in other cases – the NEPC’s 2019 defined contribution progress report, in which the lawsuit asserted that “no plan with between 5,000 and 10,000 participants paid no more than $100 in record-keeping per participant, trust and custodial costs”, although it also states that “some authorities have recognized that reasonable rates for large plans are typically amount to around $35 per participant, with costs decreasing daily.” And yes, again in characterizing the fees paid by the Olin plan, the suit called them “astronomical”.
The plaintiffs here presumed that the plan trustees did not conduct any kind of RFP to assess the reasonableness of the fees/services because they had: (a) stayed with the same accountant (Voya) during the recourse period; and (b) “paid the same relative amount in record keeping fees”. Additionally, they disputed the plan’s investment options and inferred a lack of proper fiduciary oversight based on the results. “Here, the defendants could not have engaged in a careful process with respect to the assessment of investment management fees. The plan would have qualified for the collective trust versions of these funds (which had been available since 2012 ) at any time during the Class Period, but it was not until 2019 that they moved investments to CIT versions of the T. Rowe Price fund,” the suit states.
Now, in accordance with the standards of review, the court (Riley et al. vs. Olin Corporation et al.case number 4:21-cv-01328, in U.S. District Court for the Eastern District of Missouri) accepted as true “the findings of the investigation as alleged,” but cautioned that the investigation accounted for registrar, trust and custodial fees charged by a limited number sample of investment plans of various types and sizes without specifying, in detail, the services that the plans received in return”, going on to note that “for this reason, the Court need not accept as true Riley and Reliford’s legal conclusion that the survey serves as a meaningful benchmark against which to evaluate the actions of the investment committee.
U.S. District Judge Stephen R. Clark also noted that plaintiffs “do not explain how their footnote argument – that the plan’s record-keeping costs are “clearly unreasonable” based on “certain authorities’ finding that large plans typically charge $35 per participant in record-keeping fees – provides a meaningful comparison. He went on to write that, “as defendants point out, the authorities of Riley and Reliford consist of opinions of provided by plaintiffs in other cases, an unspecified statement and the terms of a settlement agreement reached in another unrelated case”.
As to plaintiffs’ assertions that the Investment Committee failed to conduct periodic RFPs and renegotiate “nor does it lead the Court to draw an inference that the Investment Committee acted recklessly.” To begin with, “the allegation that the Plan’s trustees were required to regularly solicit competitive bids has no legal basis,” commented Justice Clark. “As the Court explained above, the allegations in the Complaint do not establish that the Investment Committee allowed Riley, Reliford and other plan participants to pay excessive fees. Thus, after reviewing the complaint in its entirety, the Court concludes that Riley and Reliford do not assert a claim for breach of fiduciary duty under a theory of excessive record keeping costs.
With respect to claims of excessive investment management fees, the suit had referenced the ICI (Investment Company Institute) median and ICI averages to support this claim. But “a complaint cannot simply make a simple allegation that the costs are too high or the returns are too low. On the contrary, it “must provide a solid basis of comparison – a meaningful point of reference”. Again, Justice Clark concluded that “ICI’s data is not such a benchmark. The ICI data that Riley and Reliford apparently rely on takes into account the plan size and high-level “investment style” of each fund (for example, a target date fund, a national equity fund, or an index fund), but that is not enough. The Eighth Circuit requires the Court to carefully compare challenged funds and putative benchmark funds with respect to fund holdings, investment style and strategy – and neither plaintiffs nor ICI data provide any of this information. required. The bottom line, Justice Clark noted, is that while his assessment at this point requires him to accept the data as factual, he was not required to consider the proposed benchmarks to be “meaningful.”
Regarding comparisons with mutual fund trusts, Justice Clark wrote: “Without more, courts have consistently found that mutual trusts are not meaningful comparators to mutual funds because mutual funds are subject to unique regulatory and transparency characteristics that make meaningful comparison impossible. ”
And then there were the allegations that a specific fund – the Eaton Vance Small/Mid Cap Fund – underperformed during the period. Justice Clark said: “But, of course, allegations that the costs are too high or the returns too low do not support a finding of misconduct. In addition, “[a] a decision taken with caution is not subject to action… even if it leads to a bad result.
Ultimately, having found no claims of breach sufficient, Justice Clark also found the claims of Olin’s board of directors to be without merit. lack of oversight by plan trustees.
“For the foregoing reasons, the Complaint sets forth no claim,” Justice Clark wrote, and “thus, the Court grants Defendants’ Motion to Dismiss, dismisses the Complaint without prejudice, and dismisses the Informal Application for Leave to modification of Riley and Reliford, their complaint.
What does that mean
It is refreshing to see a judge recognize that the determination of “reasonable” fees is more than a simple claim that the size of the plan creates a comparable benchmark for services rendered for those fees. In this regard, Judge Clark seems to “understand” in a way that other courts do not – or perhaps they are simply more willing to accept the criteria proposed by plaintiffs as sufficient at the dismissal stage. Either way, the points raised in this case appear to have merit – and, if adopted by other courts – could slow down what appears to be a relentless volume of random and superficial allegations that seem more focused on obtaining a settlement rather than a judgment.
 Beyond these cases, this isn’t the first time the Capozzi Adler company has affixed the “astronomical” label to 401(k) fees — having previously done so in lawsuits involving the 1, $5 billion Baptist Health South Florida, Inc. 403(b) Employee Retirement Plan, the American Red Cross $1.2 billion 401(k) plan, Pharmaceutical Product Development Retirement Savings Plan , LLC of $700 million, Cerner Corp’s $2 billion plan and most recently KPMG’s $6 billion 401(k) plan. And it’s not the only litigation firm to do so.
 Specifically, the survey only covered 121 plans. More than that, Justice Clark noted that “courts across the country consistently dismiss the 2019 NEPC survey – among others – as a solid basis for comparison because it lacks detail.” This apparently did not prevent him from being cited in a number of these cases.
 As always, it should be recalled that, as the lawsuit states, “…the Board and each of its members during the Class Period is or was a Plan Trustee within the meaning of Section 3(21)(A) of ERISA, 29 USC § 1002(21)(A), because each exercised discretion over the management or disposition of plan assets and because each exercised discretion to appoint and/or oversee other trustees, who had control over the management of the plan and/or authority or control over the management or disposition of the assets of the Plan.