KEY POINT: America’s largest plaintiff lawyer association asks the Supreme Court to ignore Encore Fiduciary’s advocacy for a higher pleading standard in rampant ERISA fiduciary-breach lawsuits. When plaintiff lawyers tell you not to read something, we suggest that you do the opposite and judge for yourself.
Four years ago, our underwriting company published a white paper entitled Exposing Excessive Fee Litigation Against America’s Defined Contribution Plans. At the time, it was a seminal examination of the litigation abuse against sponsors of large defined contribution plans. Many plan sponsors found it helpful to understand what was happening as hundreds of plan sponsors were being accused of fiduciary breaches for purported excessive fees paid to plan service providers. Our white paper is still cited in many briefs across the country to highlight the surge in excessive fee lawsuit filings in 2020. We exposed the copycat lawsuits and weak evidence being presented to federal courts, as well as the inconsistent rulings on similar fees and investments. We advocated for a higher and consistent pleading standard to weed out meritless excessive fee cases.
On November 24, 2024, the American Association for Justice (AAJ) – the “world’s largest plaintiff trial bar” – filed an amicus brief in the United States Supreme Court in the case of Cunningham v. Cornell University involving the pleading standard for ERISA prohibited transaction claims. AAJ argues that fiduciary class action litigation is not growing and, instead of posing a problem, AAJ claims that plaintiff lawyers are needed to supplement the Department of Labor’s enforcement activity. A key part of their argument is spent advising the Court to ignore the contrary arguments that Euclid-Encore Fiduciary made in our December 2020 excessive fee white paper as “questionable information” from a biased insurance underwriting company. The world’s largest association of plaintiff lawyers instructed the Supreme Court to ignore Euclid-Encore Fiduciary’s thought leadership.
Justice is in the eye of the beholder. AAJ seeks justice for what they claim are “wrongfully injured” ERISA-plan participants. They do not address their own money-making bias, pitching themselves as the defender of retirement-plan participants. But they provide zero evidence of any wrongfully injured participants. They do not even give a single example in their amicus brief of an excessive fee lawsuit that helped correct a wrong for a plan participant. They do not describe a single case, or a single situation of purported harm to plan participants – not even one recordkeeping fee or investment example. Their amicus brief is pure theory with no evidence to support their claims of injustice for plan participants.
The ERISA statute is a balance of the interests of plan participants and plan sponsors. With respect to bias, we are guilty as charged. We are advocates for America’s benefit plan sponsors as a best-in-class provider of fiduciary liability insurance. We defend these cases. But we remain steadfast in exposing the litigation abuse by the ERISA plaintiffs’ bar, which has filed hundreds of meritless fiduciary-breach cases against plan sponsors in a business model designed only to profit off a weak pleading standard. We back up our thought leadership with real proof – not hypotheticals or theory. We go deep into the cases to expose that many plan fiduciary committees have been improperly sued despite following fiduciary best practices.
Our 2020 white paper is outdated. But we now have four more years of hard evidence – with hundreds of additional cases in the interim – validating that the ERISA plaintiffs’ bar is knowingly filing cases with false fee evidence and using deliberately false and misleading benchmarks to leverage settlements against many plan sponsors who have done nothing wrong. Most, if not all, of these plan sponsors are guided by sophisticated investment advisors and offer high-quality investments and low plan fees. These retirement plans have skyrocketed in value in an unprecedented bull market. Participants in America’s large defined contribution plans are fortunate. They enjoy lower fees and better investment options than participants in the vast majority of small retirement plans.
The plaintiffs’ bar is nevertheless manufacturing fiduciary-breach cases in a business model designed to enrich lawyers, not plan participants, turning these plans into liability traps. ERISA’s fiduciary process standard has been turned into a performance standard in which plaintiff lawyers have become the judge and jury. The bias of AAJ’s plaintiff lawyers is to make money, and the dubious cases they file prove that they have no interest in justice for plan participants. A higher pleading standard is needed to weed out the many meritless fiduciary-breach cases that they continue to file in federal courts.
We are going to file our own amicus brief by January 3 in the Cornell case. But you be the judge as to whether there is merit to the current onslaught of ERISA fiduciary litigation. AAJ gave theory. We give hard fast facts. You be the judge as to whether plan participants in large retirement plans are being harmed by plan fiduciaries. You be the judge as to whether plaintiff lawyers are needed to supplement the regulatory authority of the Department of Labor. We think the current slate of cases being filed lack merit. But again, read our thoughts, consider the evidence, and then you be the judge.
The following is a preview of our rebuttal to the AAJ’s amicus brief in the Cornell case.
KEY POINT #1: The frequency of litigation against plan sponsors is growing – in fact , it is exploding – with novel claims being filed in significant numbers that are being copied by other plaintiff lawyers.
- The rate of ERISA litigation abuse is proven by the key statistic that over one-third of large plans, and over one-half of jumbo plans, have been sued for excessive fees in just last eight years.
- Many of these ERISA lawsuits are pushing theories of liability that are improper attempts to change plan design and create new benefits. These lawsuits attempt to turn benefit plans into liability traps – twisting and recasting settlor business decisions into purported fiduciary decisions so they can be challenged in federal court.
AAJ claims that fiduciary litigation is not a problem in American courts. Their main argument is that “the available data indicates that private ERISA civil litigation is insubstantial and decreasing.” They cite Groom lawyers for statistics in 2023 that the number of excessive fee cases were less than 2022, but there were still over 200 class action lawsuits filed last year.
Whether ERISA litigation is “growing” is not particularly relevant. The key issue is whether there are meritless cases being filed in sufficient numbers to unfairly harass plan sponsors. We will establish that the current frequency of ERISA class action lawsuits is problematic. But we start by rebutting any notion that ERISA fiduciary class action litigation is slowing down and not “growing.”
ERISA Fiduciary Litigation is not just growing, it is exploding: The hard evidence is that in the second half of 2024, class action fiduciary litigation has exploded, with cases filed at record levels in the last five months. We will finalize our 2024 litigation case summaries in the first week of January, but even if there was a temporary slowdown in excessive fee case filings last year, the number of ERISA class action lawsuits being filed is growing in alarming numbers. The plaintiffs’ bar continues to file standard excessive fee lawsuits every month, but they have expanded excessive fee theories to include alleged misuse of plan forfeitures. Plaintiff lawyers have filed over thirty forfeiture fiduciary-breach lawsuits in just the last twelve months. The prolific Capozzi and Walcheske law firms have joined the bandwagon, filing their own copycat cases against plan sponsors to cash in on the potential bonanza of new potential fiduciary liability.
All of these forfeiture cases challenge routine benefit practices that have been blessed by the Treasury Department and the Internal Revenue Service. In every case, plan sponsors are dutifully following the terms of the plan document. The lawsuits are cynical attempts to turn a classic settlor function into a fiduciary function that can be challenged in a lawsuit. At their heart, these cases are improper attempts to change the contractual benefits that the plan sponsor agreed to provide: attempts through litigation to alter benefit plan design to lower plan fees in a way that the plan sponsor never intended.
The forfeiture lawsuits represent regulation by litigation – and not by regulators, but by unelected plaintiff lawyers. AAJ claims that their members are needed to address injustice and purported harm to innocent retirees. But they are creating new liability as unelected lawyers who have no right to change the law or contractual rights by litigation. We find this problematic.
ERISA class action frequency has also spread in 2024 like wildfire to defined benefit plans:
- Pension Risk Transfers: The plaintiff bar has filed at least ten lawsuits claiming that it is a breach of fiduciary duty to choose the A+-rated Athene life insurer for pension risk transfers. At least three plan sponsors have been sued twice, as plaintiff firms jockey to cash in on this new junket.
- Tobacco and Vaccine Surcharges: The plaintiff trial bar has filed at least twenty-seven breach of fiduciary duty cases in less than twelve months alleging that it unfair to charge a higher health care premium if you smoke tobacco. More cases are being filed every week as new plaintiff firms join this bandwagon.
- Actuarial Equivalence: Plaintiff lawyers have filed over twenty-six cases alleging that married participants are short-changed when plan sponsors use outdated mortality tables when converting single-life annuities to joint and survivor annuities. We admit that these are sympathetic claims, but all of these plan sponsors are following plan documents, and there is nothing in ERISA that mandates reasonable actuarial assumptions for JSA conversions.
- Health Plan Excessive Fees: The plaintiff bar has filed two high-profile lawsuits trying to scapegoat Johnson & Johnson and Wells Fargo for failing to monitor pharmacy benefit managers. The ERISA plaintiff and defense bar have both predicted an avalanche of similar cases if the federal courts in the J&J and Wells Fargo allow standing to the plaintiff lawyers in these manufactured fiduciary breach cases. In their opposition to the motion to dismiss the J&J case, plaintiffs cite appellate court precedent from the Wesco case involving defined contribution retirement plans to advocate for a pleading standard for excessive fee cases that does not require any meaningful benchmark to establish perspective and context as to whether the fees are excessive. If the Supreme Court allows the type of pleading standard advocated by AAJ and the Department of Labor in the Cornell case, plaintiff lawyers will be allowed to challenge any service provider contract as a prohibited transaction. That is why the stakes of the Cornell case are so high.
ERISA Class Action Fiduciary-Breach Litigation is a Substantial Menace: The explosion of new class action theories and filings disproves AAJ’s assertion that ERISA lawsuits are slowing down. But their further and more serious assertion that the frequency of ERISA litigation is “insubstantial” is also inaccurate. Their unsubstantiated assertion lacks proper perspective. It is the same flaw as their excessive fee fiduciary-breach claims: “insubstantial” compared to what? If you compare the litigation to the over 900,000+ sponsored plans in America, then yes, 200+ cases a year is relatively insubstantial. The Schlichter law firm made this exact argument in the 2022 Northwestern case before the Supreme Court. But most of those 900,000 total benefit plans are tiny. AAJ profit-seeking plaintiff lawyer members don’t sue tiny plans, because there is no money to be made in suing small plans. They sue large plans – and with a high frequency that should be concerning to federal courts.
The key fact missing from AAJ’s argument is that over half of defined contribution plans with assets over $1b have been sued for excessive fees in just eight years. Some of those companies have been sued more than once.
While AAJ correctly notes the reduction in the number of excessive fee filings from 89 in 2022 to 48 in 2023, it ignores that the number of filings has rebounded in 2024. But it is also critical to put the number of case filings into the perspective of the total number of large plans, as this shows that even 48 cases per year is too many.
The animating theory of excess fee cases is that plan fiduciaries failed to leverage the size of the plan to reduce fees because they were “asleep at the wheel,” and that logically means that the challenged plan needs to be large enough to leverage its size to achieve lower recordkeeping and investment fees. The latest statistics from ICI Brightscope indicate that, as of three years ago, the number of defined contribution plans with assets over $500m is approximately 1,350. Given that the vast majority of the lawsuits are filed against plans with more than $500m in assets, which means that 4-8% of all large plans are sued in any given year. That is close to or higher than the percentage of the approximately 3,700 public companies in America that are sued annually for alleged federal securities violations. [The D&O Diary indicates that 212 securities lawsuits were filed in 2023, or about a 5-6% frequency]. But if you consider that at least 385 of these large plans had already been sued for excess fees in the last eight years [by omitting the 403b plan filings], the percentage of large plans being sued each year rises to a frequency of 5 to 10 percent. That is a significant frequency of case filings, particularly when a 10% filing frequency means that every large plan is at risk of being sued in a class action fiduciary-breach case every seven years.
Approximately 485 out of 1,350, or 36%, of large plans in America have been sued for alleged excessive fees in the last eight years. If you just focus on plans with assets over $1b or more, more than fifty percent of these plans have now been sued for purported excess fees. Any cynic of the plaintiffs’ bar would discern that many plans are being unfairly sued, because 35% of America’s large retirement plans, or over 50% of jumbo plans, cannot possibly have excessive fees. The law of averages would dictate otherwise, assuming that plan fees are properly compared. These lawsuits are not about excess retirement fees, but a business model in which ERISA fiduciary liability is being exploited for financial gain.
Contrary to AAJ’s unsubstantiated assertion that ERISA litigation is “insubstantial” and declining, the volume of ERISA class action fiduciary litigation is substantial against large plans, and plaintiff lawyers have targeted every single jumbo plan in America. They are suing jumbo plans with no prosecutorial discretion. They will sue any jumbo plan for which they can find a gullible participant who answers litigation advertisements. Plaintiff lawyers want the role as supplemental fiduciary regulators or policemen, but there must some gatekeeper or guardrails. At least the Department of Labor theoretically answers to a higher authority.
This is why courts need to serve as gatekeepers of fiduciary litigation. This is why the plausibility pleading standard matters – to weed out meritless cases. But federal courts are not properly applying the plausibility pleading standard. Read on for examples of cases that should have been dismissed because of irresponsible complaints with false facts and misleading fee comparisons.
KEY POINT #2: The High-Volume of Fiduciary-Breach Class Action Litigation Represents Litigation Abuse with Many Meritless Cases Being Filed Based on False and Misleading Evidence
AAJ plaintiff lawyers characterize that the “guiding star of ERISA” is to protect “employee benefit plans from poor or indifferent management and conflicts of interest.” Congress worried that “many pension plans were being corruptly or ineptly mismanaged and that American workers were losing their financial security in retirement as a result.” No dispute from us. But ERISA was not intended to give a litigation lottery ticket to challenge any plan with a claim of poor stewardship without any proof. Plaintiffs need to go beyond the possible – as anything is possible – and provide plausible proof of fiduciary imprudence to sue in federal court to redress financial mismanagement of employee benefit plans. They should not be allowed to use litigation to gain the right to audit whether plan fiduciaries have acted improperly. Instead, they need to have plausible proof of financial mismanagement before they sue.
Our Fid Guru Blog has chronicled the litigation abuse as meritless ERISA class action fiduciary breach cases are being filed by plaintiff lawyers with the goal to extract settlements. Plaintiff lawyers are suing plans that follow an objectively prudent process for fiduciary malpractice based on deceptive circumstantial evidence of disfavored results without plausible proof of negligence. Many of these cases follow the same formula: (1) false fees (2) compared to false and misleading benchmarks, and (3) then backed by dubious junk science. We give some examples below:
Part 1: False Fees Alleged: Many purported excessive-fee cases contain objectively false fees to support fiduciary malpractice claims. Most of these cases ignore the participant account statements and fee disclosures available to plan participants, and instead allege false recordkeeping and other fees from unreliable Form 5500 data. The false fees are usually inflated by transaction fees and/or include revenue sharing that is rebated to plan participants. Plaintiff lawyers have no excuse to estimate or falsely calculate plans fees, because their participant clients have quarterly fee disclosures from the plan recordkeeper. There is no excuse to deceive the courts with inflated and false fees to support malpractice claim, but that is what is happening in case after case. They claim that they have no access to information at the pleading stage, but they have participant account statement, fee disclosures, and broad rights under ERISA section 104 to request plan information.
The following are examples of false fees in excessive fee lawsuits:
- $32 Misrepresented as $326 to $526: The most egregious example of an excessive fee case with false fees alleged was in Matousek v. Mid-Am Energy Co. The fiduciary-breach complaint alleged an “unreasonable fee ranging between $326 and $526” per plan participant. But this was false. The defense attached participant fee disclosures that each participant in the plan received four times a year. The truth was that the actual recordkeeping fee was only $32 per participant. The plan fees were misrepresented by ten to sixteen times. Plaintiff lawyers knew there was a substantial revenue-sharing credit to participants, but they intentionally hid the truth. And more importantly, they continued to prosecute a false excessive fee case even when presented with the truth.
- Trader Joe’s was sued in two separate cases for purported excessive fees. The fiduciary malpractice complaint alleged a “roughly $140 per participant fee.” But this was false. Plaintiffs were presented with the recordkeeping contract that limited the plan recordkeeping fee to $11,650 plus $48 per participant fee. Defense lawyers attested to the actual plan fees in an affidavit under oath. Nevertheless, the plaintiff law firm allowed the case to be appealed to the Ninth Circuit Court of Appeals on the grounds that there was a dispute of fact as to the amount of recordkeeping fees. But there was no dispute of fact. Plaintiffs were given the actual recordkeeping contract. The deception of the plaintiff law firm – suing for fiduciary malpractice for excessive fees based on a false representation of the actual fees – should be a violation of a lawyers’ ethical code or practice. But there certainly was no injustice to any plan participant. We exposed the false excessive fee claims in the following blog post. Ninth Circuit Reverses Excessive Fee Cases for Salesforce and Trader Joe’s – Encore Fiduciary
- A plaintiff law firm filed a fiduciary imprudence lawsuit against Davita, Inc. in the District Court of Colorado in a case captioned Teodosio v. Davita, Inc., No. 1:22-cv-00712 (07/08/22 D. Colo.). The fiduciary-breach complaint alleged that the plan paid $50-96 for recordkeeping services worth between $14-21 [using the misleading characterization of the Fidelity discovery stipulation that is discussed more fully below]. We explained the distorted evidence in the following blog post. Distortion of Evidence in Excess Fee Cases: The Davita Example – Encore Fiduciary The court accepted the false recordkeeping fee as “true” for purposes of a motion to dismiss under a weak plaintiff standard. But the motion to dismiss included DOL-mandated fee disclosures from the recordkeeper that the actual recordkeeping was $34.50 per participant. And the participants serving as plaintiffs in the case never even paid the full $34.50 fee. One of the participants serving as a plaintiff had a tiny $750 account, and paid between 12 cents and $10.56 for plan recordkeeping services. The $96 inflated recordkeeping fee alleged in the complaint was patently false.
- We exposed the false fees alleged in the Humana purported excessive fee case in the following blog post – a case filed by the plaintiff law firm who filed nearly one-half of the excessive fee lawsuits filed in 2020 and 2021. Humana’s Prudent Fiduciary Process is Vindicated at Summary Judgment, But the False Excess Fee Case Should Have Been Dismissed at the Initial Pleading Stage – Encore Fiduciary In Kena Moore v. Humana Inc. (Civil Action No. 3:21-cv-00232-RGJ-RSE D. Kentucky), plaintiffs originally alleged that Charles Schwab, the recordkeeper for the sponsored defined contribution retirement plan, was paid between $59 and $67 per participant per year for recordkeeping services from 2015 to 2021, and that allegedly comparable plans paid “slightly over $40 per participant” over that same time period. These fee amounts were false. After the lawsuit was filed, defense lawyers disclosed the Schwab service agreements to plaintiffs’ lawyers. These contracts revealed a $37 recordkeeping fee in 2014; a $23 recordkeeping fee in 2019; and a $28 recordkeeping fee in 2021. These fees were below the $40 fee that plaintiffs had suggested was reasonable in their original complaint. Plaintiffs were also apprised that the plan had conducted three separate RFPs to validate the plan’s recordkeeping fees, including the 2019 RFP that dramatically reduced the recordkeeping fee from $37 to $23. Confronted with the truth, and according to Humana’s summary judgment motion, plaintiffs refused to dismiss their claim. Instead, they moved the goalposts. They incorporated the plan’s actual recordkeeping fees in two subsequent amended complaints, but cut their supposedly “reasonable” fee exactly in half, alleging that the plan “should have been able to negotiate a recordkeeping cost in the low $20 range.”
- In Bugielski v. AT&T Services, Inc., A&T has been subjected to a long excessive fee odyssey. The original three complaints in the case, which caused AT&T to spend millions to defend, alleged that AT&T had a $61 recordkeeping fee per participant. But that was a false fee derived from including transaction fees from the Form 5500 unrelated to recordkeeping. The truth was that over the course of the plan’s contractual relationship with Fidelity, with the help of a plan consultant, AT&T continually and proactively negotiated lower flat fees from $31 in 2011 to $20 in 2017. In 2011, the recordkeeping fee was $31 per participant. It was reduced to $29 the following year. In 2017, AT&T renegotiated its terms with Fidelity again, resulting in a significant reduction to $20 per participant. But AT&T went even further to ensure that it had the lowest possible fees. At all relevant times, the plan’s agreement with Fidelity contained a “most favored customer” clause. That provision guaranteed AT&T that the recordkeeping fees Fidelity charged the plan would be equal to or lower than the fees Fidelity charged “any other of its customers of similar demographics, asset configuration and Plan characteristics/complexity as AT&T for the same or similar Services, in similar quantities.” The recordkeeping fees Fidelity charged to AT&T were so low that Fidelity wanted the lower court record redacted so that no one would learn about deal that AT&T had negotiated. Pull the district court’s summary judgment opinion, and you will see lots of redactions every time the $20 per participant fee is mentioned. That tells you everything you need to know as to whether the AT&T fiduciaries acted imprudently to allow “excess” fees in the plan. We chronicle the false excessive fee claims against AT&T in the following blogpost. Ninth Circuit: AT&T’s $20 Recordkeeping Fee Presumed Imprudent in Litigation – Encore Fiduciary
The AT&T case is essential to understand when evaluating the Cornell case, because it involves the same issue of the proper pleading standard for excessive fee fiduciary-breach claims. In the low pleading standard allowed by the Ninth Circuit, AT&T is presumed guilty of fiduciary imprudence and has to disprove prohibited transaction claims, notwithstanding that it has the lowest fee of any Fidelity contract in America. The result is absurd. But even if you do not agree, it is impossible to dispute that there is no injustice to AT&T plan participants, as they have a really low recordkeeping fee.
- Voya has been sued multiple times for fiduciary breaches in its company-sponsored retirement plans. The main focus was on the offering of proprietary Voya target-date and other investment products. The complaints were misleading by failing to disclose to the court that Voya subsidized part of the investment fees. The representations of the purported excessive recordkeeping fees were more dishonest. The truth was that Voya paid the recordkeeping fees for its plan participants. Plan participants paid nothing for recordkeeping services. The purported injustice to justify a fiduciary-breach claim? Plaintiffs argued that Voya could later change its mind!
- In Sigetich v. The Kroger Co., Case 1:21-cv-00697-SJD filed in the Western District of Ohio on November 5, 2021, Kroger was sued for an alleged excessive $32 RK fee. This was a reasonable fee if compared to a comprehensive market study of recordkeeping fees for large plan. But the true facts were that Kroger subsidized $27 of the amount. Kroger plan participants paid only $5 per for recordkeeping services. Plaintiffs nevertheless compared the plan to a purportedly more reasonable $17 fee, claiming that any reduction would have gone to participants. Excessive Fee Lawsuits: Scrutinizing the $30 Recordkeeping Fee Case – Encore Fiduciary
Part Two: False/inflated fees compared to misleading benchmarks: The examples above are not unique. Many cases allege false and inflated fees. But the second key part of the excessive fee playbook by the ERISA plaintiff bar is to take the false and inflated fees, and then compare them to misleading benchmarks – all designed to deceive federal judges into believing that there is a factual issue as to whether plan fiduciaries have been asleep at the wheel in allowing Fidelity, Empower or other recordkeepers to charge excessive fees. In the hundreds of cases that have been filed, not one plaintiff law firm has used a national survey of the recordkeeping fees to compare the challenged plan at issue. Why not? Because a national survey would give perspective and context as to the average and median of large-plan recordkeeping fees. It would show that the average large plan has paid more than $35 per participant for recordkeeping fees in the years between 2016 and 2024. A national survey would disprove the vast majority of excessive recordkeeping fee cases.
Instead of a survey of recordkeeping fees with statistical credibility, plaintiff lawyers have filed fiduciary malpractice cases based on dubious and misleading benchmarks and comparison. In the Cornell case, the plaintiffs asserted a reasonable $35 per participant benchmark with no proof at all. It was made up. The Schlichter law firm filed sixteen cases against university-sponsored defined contribution plans with a made-up $35 benchmark. That is the level of proof at issue in the case against Cornell in the Supreme Court: plaintiffs want a no-proof-required pleading standard to assert a prohibited transaction claim, which forces plan sponsors to disprove that they breached their fiduciary duties.
Since 2016 when the initial surge of excessive fee cases were filed, the excessive fee playbook has evolved – starting with misciting a national survey of small plans; distorting a discovery stipulation in the Fidelity excessive fee case; and then attempting to benchmark large-plan recordkeeping by citing a few examples of the lowest fees they can find.
- Plaintiffs used to file excessive fee cases by citing the 401k Averages Book and intentionally misrepresenting the survey to find that $200m plans paid only $5 per participant. Plaintiff lawyers intentionally left out $160 per participant revenue sharing in the survey’s results. The 401k Averages Book changed the small account description finally in the 2024 edition to stop this deception. But the misrepresentation of the 401k Averages Books was made in dozens of cases.
- Plaintiff lawyers continue to allege that the value of large-plan recordkeeping is $14-21 per participant. They cite to a discovery stipulation in the Moitoso case involving Fidelity’s own sponsored plan. Fidelity never intended the discovery stipulation to represent proof of the value of its recordkeeping services. But it has not stopped plaintiff lawyers from persistent misrepresentations of the Fidelity discovery stipulation.
- The most common method of purporting to establish that a challenged plan has excessive recordkeeping is with a chart of random plans with lower recordkeeping fees. The fees are often wrong. For example, in Ulch v. Southeastern Grocers (M.D. Fla. 09/27/2023), plaintiffs offered a chart alleging that the $1.48b/10.070 Netflix 401k plan only pays $4.17 per participant; and the $1.3b/10,038 RPM International plan only pays $9.23 per participant. These fee representations are just plain false. But even if they were correct, any federal court should realize that comparisons to a few random plans do not give context and perspective as to whether the challenged plan has excessive fees – let alone whether their fees are above the national median or average for similar plans. You would never allow conclusions – and certainly serious inferences of fiduciary malpractice – based on a few statistically irrelevant data points. But this tactic has worked in dozens of cases with a low pleading standard. Defense lawyers have lost control of this damaging narrative, as they have focused on service comparisons, failing to demonstrate to courts that they must require a statistically credible national survey to establish whether fees are excessive.
Part Three: Plaintiff law firm use unreliable junk expert testimony to support their excessive fee fiduciary-breach claims. This proves that they have filed many fiduciary-breach cases in which they never had proof of malpractice or excessive fees when they filed their lawsuits.
Most excessive fee cases settle after the plan sponsor loses the motion to dismiss. The reason is that ERISA defense firms charge million of dollars to defend these cases, which require expert evidence that also runs into the millions. No one has figured out how to defend these cases economically. The plaintiffs’ bar excessive fee playbook works because the cost to defend these cases is too high. If plaintiff can convince a federal judge to deny the motion to dismiss, they can leverage a settlement because the cost of defense is astronomical. It can cost over ten million dollars to try a case. The prejudice to plan sponsors is real when a federal court fails to dismiss a meritless fiduciary-breach lawsuit.
But when the plan sponsor and its fiduciary insurance company are willing to invest in the case, the results show how many of these cases lack merit and should have been dismissed before discovery. In fact, plaintiff law firms have lost the last six fiduciary breach trials involving purported excessive fees and investment imprudence [E.B. Braun; Yale University; Milliman; Prime Healthcare; Wood Group; and Molina Healthcare]. Why? Because when the trial judge, who gave the benefit of the doubt to plaintiffs at the pleading stage sees the fiduciary process evidence, including the advice of investment advisors, they see the clear evidence that there was not fiduciary imprudence – that the excessive fee or imprudent investment case was contrived and based on false pretenses. They also learn that the investments being challenged are usually objectively prudent. These trial verdicts are proof positive that many excessive fee cases are manufactured by plaintiff lawyers to extract strike settlements.
A third key part of the excessive fee playbook that has been exposed in a number of the cases is that plaintiff law firms have filed many cases with no proof of fiduciary malpractice: with no proof that any plan in America actually pays the fees that they alleged in their excessive fee complaints. When forced to prove their excessive fee cases, they rely on embarrassing expert testimony. Their house of cards gets exposed. We demonstrate this in the following blog post that summarizes the PNC excess fee case. The Junk Science of the PNC Excess Fee Case – How The Plaintiff Bar Files Fiduciary Breach Lawsuits With No Reliable Methodology to Allege or Prove Excessive Plan Fees – Encore Fiduciary Our summary of the Prime Healthcare case makes the same point. The Wagner Fiduciary Standard of Perfection, No Discretion, and Hindsight Second-Guessing Is Rejected in the Prime Healthcare Trial – Encore Fiduciary
The PNC excessive fee complaint hyperbolically alleged a “shocking breach of fiduciary duty” (1) with false fees [$55-$85 per participant when the actual amount was $46 and declining each year to well under $30], (2) compared to just four plans out of the entire universe of defined contribution plans. The comparison was not a credible national survey that would give context and perspective as to how the PNC recordkeeping fee would compare to all other plans, but just four plans with unverified fees, cherry-picked to create the impression that PNC’s fees were astronomically high because the purported reasonable fee would be $14-21 [from the Fidelity Moitoso stipulation]. You wouldn’t even know from the complaint how PNC’s plan compared to the national average or median plan fees. That is the point we made above.
The PNC case, however, exposed a third key element of the plaintiff’s bar excessive fee con game, and that is false expert testimony with fee benchmarks plucked out of thin air. Whereas most cases settle after a court holds that the comparison to four random plans shows a plausible claim of fiduciary imprudence, PNC forced plaintiffs to prove their case with actual evidence of excessive fees. Plaintiffs filed an expert report from a former Transamerica employee who alleged an arbitrary low recordkeeping amount of $19 to $22 based on no credible methodology. He made up his own personal benchmark, inventing the “reasonable” amount based on his gut feel from his fifteen years of “experience” – and then found plans to support his contrived fee target. Even his fee evidence was false. For example, he misrepresented his comparator of the Nike 401k Plan by a factor of three: $20 compared to the actual fee of $63, which was higher than PNC participants paid for recordkeeping fees.
Plaintiff’s expert had no evidence that any plan in the entire plan universe actually paid the contrived benchmark upon which he based his testimony. This same “expert” spouting junk recordkeeping evidence has testified in many cases, all designed to extort a settlement that benefits the plaintiff firm and the expert witness. This false evidence is similar to what the plaintiff bar has used in hundreds of cases to profit off a false narrative that America’s large-plan sponsors pay excessive administrative fees. It is a big lie.
FINAL THOUGHTS: The stakes of the Cornell Supreme Court case are high, because plaintiff lawyers are seeking an end-run around the prudence plausibility standard by recasting prudence claims as prohibited transactions.
We briefly described the AT&T excessive fee case above. AT&T is being sued for excessive fees despite having a super low $20 recordkeeping fee, backed by a most favored customer provision ensuring that no other jumbo plan receives a lower recordkeeping fee. Nevertheless, the AT&T plan fiduciaries face a prohibited transaction claim for their service contract with Fidelity, because the Ninth Circuit allowed a prohibited transaction claim without any upfront proof that the fees charged by the service provider were not reasonable or necessary. This minimal pleading standard is what AAJ is advocating in the Cornell case. AAJ’s amicus brief advocates for the need of plaintiff lawyer ERISA police to sue plan sponsors if they contract with service providers. Given that every retirement and health plan uses service providers, the AT&T pleading standard by the Ninth Circuit essentially gives the right to any plaintiff lawyer to sue large plan sponsors, who have then have to prove the affirmative defense that the fees of the service contract were reasonable. It sanctions what amounts to litigation audits of retirement plans in federal court litigation. Our summary of excessive fee cases above shows that it is recipe for mischief and unfair liability. The result is absurd.
The stakes of the Cornell case are high because it would allow plaintiff lawyers an end-run around the prudence plausibility standard. Too many courts already apply a low pleading standard to allow excessive fee claims with false fees compared to false benchmarks. But the AT&T and Cornell cases are attempts to recast fiduciary prudence claims as prohibited transaction claims to avoid alleging any plausible proof at all. The prohibited transaction claims are end-run attempts to allege excessive fees without plausible proof of excessive fees.
If the Supreme Court will not end this litigation abuse, then Congress needs to act. AAJ argues that Congress knows how to impose heightened pleading standards in a statute. In the 1990s, plaintiff law firms were filing meritless securities lawsuits, filing frivolous securities fraud lawsuits with serial plaintiffs who owned one share of most publicly filed companies. Congress passed the Private Securities Litigation Reform Act of 1995 (PSLRA) to curb securities litigation abuse. The PSLRA requires a securities fraud complaint to specify all alleged misleading statements “with particularity.” The PSLRA halts discovery before the motion to dismiss is decided, and requires plaintiffs to have a meaningful amount of company stock to prosecute a securities fraud case. The PSLRA reduced some of the rampant securities fraud litigation abuse.
We have previously advocated for Congress to fix ERISA class action litigation abuse with the PSLRA model. But in the meantime, the Supreme Court needs to enforce a plausibility pleading standard. We admit that courts invented the higher-plausibility pleading standard. It is not found in the Federal Rules of Civil Procedure. But the Supreme Court held in the Northwestern case that the pleading standard for an ERISA fiduciary-breach case is plausibility. Until Congress changes ERISA, the Northwestern plausibility standard is the pleading standard.
Plausibility requires some level of proof beyond mere “possibility.” Applied to the Cornell case, recordkeeping fees above a made-up $35 recordkeeping benchmark may be the result of fiduciary imprudence. It is possible. But again, anything is possible. It is also possible, as the summary judgment decision in the district court demonstrated, that Cornell fiduciaries were advised by investment consultants and made intentional changes and fee reductions in its retirement plan. It is possible that they engaged in a prudent fiduciary process. By contrast, plausible proof of fiduciary imprudence has to be more than just the allegation that they entered into a service contract. Plausible proof of a prohibited transaction claim would require persuasive proof that the fees were too high (i.e., unreasonable). Plausible proof should be more than a made-up $35 benchmark, or even a chart of a few random plans. Plausible proof would be a statistically credible survey of the fees of other similar jumbo university plans, and then showing that the Cornell plan was higher than 95-99% of other similarly situated plans. Plausible proof would be proof that the fees were egregious. It would not allow litigation gamesmanship and deception to trick a federal court into allowing a case to discovery.
As we noted in the introduction, justice is in the eye of the beholder. AAJ asks the Supreme Court to ignore our advocacy. Judge for yourself. But whereas AAJ gave just theory and zero examples of injustice in large retirement plans, we believe that we have demonstrated that justice for plan sponsors requires plausible evidence to support a claim for fiduciary malpractice. There is nothing plausible about the vast majority of the exploding number of ERISA class action lawsuits that are clogging our federal court system.
