Another Federal Court Upholds ‘Meaningful Benchmark’ Standard in 401(k) Excessive Fee Suit

In a recent ruling, a federal appellate court upheld the 'meaningful benchmark' standard in a 401(k) excessive fee suit. This decision has significant implications for both plan participants and fiduciaries. In this article, we'll discuss the case history, examine the court's reasoning, and explore what this means for those involved in managing and investing in 401(k) plans.

Case History: Allegations of Breach of Fiduciary Duty

Overview of the case history and allegations made against the defendants

The case involves allegations of breach of fiduciary duty and failure to monitor fiduciaries under ERISA.

Plaintiffs allege that the Committee offered high-cost funds and charged high fees which constituted a breach of fiduciary duty.

The Committee's alleged imprudent actions were raised through cost comparisons between the Plan's investment options and comparable alternatives.

Appellate Review: Analyzing the Court Ruling

Examining the standards of prudence and the court's approach to evaluating fiduciary breaches

The court reviewed the allegations in accordance with the standards of prudence under ERISA.

‘Meaningful Benchmark’

The court referenced the concept of a 'meaningful benchmark,' which provides a basis for comparison in evaluating excessive fees in retirement plans.

They concluded that a plaintiff must allege a 'meaningful benchmark' to raise an inference of imprudence through price disparity.

To determine a 'meaningful benchmark,' the court explained that the comparison should involve similar investment options and services.

Examples of meaningful benchmarks include investment strategies, objectives, or risk profiles for investment management fees and services offered for recordkeeping fees.

Applying the Standards: Upholding the District Court's Decision

Expanded evaluation of the court's decision to dismiss the case with prejudice

The court found that the complaint failed to meet the pleading burden for stating a plausible claim for breach of duty of prudence.

They concurred with the district court's dismissal, stating that there were flawed cost comparisons and assertions lacking underlying facts.

The comparison of costs for different share classes, active and passive strategies, and different investment products weakened the arguments of the plaintiffs.

Additionally, the court invalidated data from the 401(k) Averages Book as it did not provide relevant information about the services offered by the plans assessed.

Implications and Future Considerations for Plan Participants and Fiduciaries

Discussion on the impact of the decision and potential developments in 401(k) fee lawsuits

This decision reaffirms the importance of the 'meaningful benchmark' standard in evaluating excessive fees in 401(k) plans.

Plan participants and fiduciaries should carefully review and assess the reasonableness of fees in their retirement plans.

Courts across circuits have varied in their interpretations, so it's crucial to consider jurisdiction-specific decisions as well.

Exploring Potential Future Developments

There may be further challenges and developments in the area of excessive fee suits, with ongoing cases potentially refining the application of the 'meaningful benchmark' standard.

Participants and fiduciaries should stay informed and work closely with experts to comply with their fiduciary obligations and ensure the reasonableness of fees.

Conclusion

In this recent 401(k) excessive fee suit, the federal appellate court has upheld the 'meaningful benchmark' standard in evaluating fiduciary breaches. The decision emphasizes the importance of considering comparable alternatives and services when assessing the reasonableness of fees. Plan participants and fiduciaries should take note and strive to ensure the prudence of their investment options and fees.

This ruling highlights the need for plaintiffs to provide a 'meaningful benchmark' to support allegations of breach of fiduciary duty. Ineffective cost comparisons and assertions without factual basis were found to be insufficient in establishing an inference of imprudence. Courts are placing greater scrutiny on the specifics of fee assessments, and potential indications of service quality are crucial in determining the reasonableness of fees.

FQA :

What is the significance of the 'meaningful benchmark' standard?

The 'meaningful benchmark' standard serves as a basis of comparison for assessing the reasonableness of fees in retirement plans. It requires plaintiffs to find comparable alternatives and services to determine if excessive fees or imprudent actions exist.

What are the implications of this ruling for plan participants and fiduciaries?

Plan participants and fiduciaries should carefully review investment options and associated fees in their retirement plans. It's essential to ensure that fees are reasonable and comparable to alternatives available in the marketplace to fulfill fiduciary obligations.

Will this ruling impact other 401(k) excessive fee cases?

Yes, this ruling reinforces the 'meaningful benchmark' standard that other courts have adopted in assessing excessive fee cases. It adds to the growing body of case law and sets expectations for fiduciaries to evaluate fees diligently.

What should plan participants and fiduciaries do now?

Plan participants and fiduciaries should work closely with knowledgeable experts to assess the reasonableness of fees and ensure compliance with fiduciary obligations. Staying informed about legal developments is crucial, especially regarding the 'meaningful benchmark' standard.

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