Insights From Encore Fiduciary on Fiduciary Liability & Other Risk Exposures of Employee Benefit Plans


Insights From Encore Fiduciary on Fiduciary Liability & Other Risk Exposures of Employee Benefit Plans

A Deep Dive into the Dish Network Excess Fee Decision

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By Daniel Aronowitz


Key Points

(1) The Court does not allow the defense to prove with participant account statements at the motion to dismiss stage that active plan participants paid nothing in recordkeeping fees, but finds the comparisons to eleven other random plans “inapt.”

(2) The court follows the Sixth Circuit in CommonSpirit to recommend dismissal of identical claims that the active suite of Fidelity Freedom Funds are imprudent because of higher fees and alleged underperformance compared to the Fidelity index suite.


On January 31, 2023, a magistrate in the United States District Court for the District of Colorado recommended dismissal without prejudice of a purported excess fee and investment underperformance complaint filed jointly by the prolific Miller Shah and Capozzi Adler law firms in Jones v. Dish Network Corporation (filed 01/20/2022 D. Colo.).  The case is one of many lawsuits challenging the prudence of large plans offering the active suite of Fidelity Freedom Funds on the grounds that it “grossly overcharged” plan participants and produced “inferior” investment returns.  The case is the same basic fact pattern, albeit against a plan one-third the size, as the Smith v. CommonSpirit case that the Sixth Circuit dismissed in June 2022.

Even though plaintiffs will likely amend their complaint if the district court adopts the Magistrate’s decision, the Dish Network complaint and motion to dismiss decision are worth a close examination because the case involves many of the key issues that animate excess fee and investment imprudence cases and in which courts continue to issue divergent and inconsistent rulings:

  • (1) do plan participants have standing to sue on investments they do not own?
  • (2) what is the proper timeframe to judge investment underperformance?
  • (3) What is substantial enough investment underperformance to infer an imprudent process?
  • (4) What is an appropriate comparator or benchmark to judge underperformance? Is a market index a meaningful benchmark to an active fund?
  • (5) Can the defense adduce evidence in a motion to dismiss context to disprove false recordkeeping claims?


Given that most excess fee claims attempt to infer imprudent fiduciary processes based on false facts and misleading index benchmarks, many of these key issues center on the extent to which courts allow the defense to provide contrary evidence of plan fees at the pleadings stage.  Simply put, courts that are willing to look beyond misleading complaints are more likely to dismiss claims.  While more courts are now dismissing a higher percentage of excess fee lawsuits, there is still a high-level of inconsistency in the decisions on these key issues.  We thus believe it is valuable to examine these defining issues more closely.

The Dish Network Excess Fee Lawsuit

The Dish Network defined contribution plan had $841 million in assets and 18,808 in participants as of December 31, 2020.  The complaint asserted three claims, including (1) excess recordkeeping costs, (2) imprudent investments in the Fidelity Freedom active target-date funds, and (3) the investment imprudence of the Royce Total Return Fund.

First, the complaint alleges excessive recordkeeping costs in which participants were “grossly overcharged” by Fidelity.  Plaintiffs use Form 5500 numbers in order to calculate the recordkeeping fees, and not the fee disclosures sent to plan participants.  The complaint alleges that the plan had a $49 average recordkeeping fee over five years compared to the 2020 [note one-year] average cost of eleven purported comparator plans [ranging from $23 per year in the Sonofi and Phillips North American plans to $34 per year in the Ecolab and Michelin plans].  The 2020 recordkeeping fees in the Dish Network plan was alleged to be $33 per participant [calculated by taking the number on the Form 5500 of $1,253,629 and subtracting an administrative credit of $620,778].

The second and core claim in the complaint was the alleged imprudence of maintaining the active suite of the Fidelity Freedom target-date funds.  Plaintiffs levy multiple arguments as to why the Fidelity Freedom TDFs are an unsuitable investment:  (1) the active suite is high risk, is unsuitable for institutional plans, and investors have lost confidence; (2) the active suite has high cost compared to the index suite [.42-65% compared to .08%]; (3) investors have lost faith in the active suite, evidenced by $5.4b in net outflows; and (4) inferior returns on a three- and five-year basis compared to popular funds that make up 60% of the market, including American Funds, T. Rowe Price, Vanguard and JP Morgan [.41% to 2.32% alleged underperformance].

The third claim was that the Royce Total Return Fund was an objectively imprudent investment because it underperformed the benchmark chosen by plaintiffs in the complaint.

Dish Network’s Motion to Dismiss

Dish Network’s motion to dismiss filed by the Groom law firm is notable because it includes participant account statements and other evidence that disproves the recordkeeping claims that were based on the Form 5500s.  We applaud this type of approach because too many courts allow misleading claims of excess recordkeeping fees based on the Form 5500 filing, which includes transaction costs that do not constitute recordkeeping fees charged to participants.  The Form 5500 is not meant to provide evidence of the amount charged to plan participants – that is what the Department of Labor mandated fee disclosures under rule 404a5 are intended to provide.  The Form 5500 should not be allowed as proof of recordkeeping fees for the more fundamental reason that the DOL requires recordkeepers to provide quarterly statements of the actual amount of recordkeeping fees under rule 404a5 to participants and under rule 408b2 to plans.  We are a broken record on this issue, but plaintiffs’ lawyers should not be allowed to assert excessive fee claims based on misleading Form 5500 data when the truthful amount of participant fees is readily available on government-mandated disclosure forms.  But that has not stopped plaintiff law firms from misleading courts in every single case.

The Groom lawyers sought to dismiss the excess recordkeeping claims by proving that active employees paid nothing for plan recordkeeping.  Whereas active employees paid nothing, inactive employees paid 20 bps before 2020, which was reduced to an amount in 2020 that is redacted from the record.  It must be low if Fidelity or someone else did not want the world to know the amount.  The defense continued that even this fee was often eliminated through revenue-sharing credits.

In addition to arguing that the excess recordkeeping claims must be dismissed because active employees pay nothing for recordkeeping fees, the other main points of the motion to dismiss filed by the Groom law firm were that:  (1) plaintiffs lack standing for vintages of the Fidelity Freedom target date funds in which they did not invest; (2) plaintiffs include zero allegations about the fiduciary process in choosing the investments; and (3) the underperformance claims cannot state a claim for imprudence because the index suite is not a meaningful benchmark for the active suite.  But even if the Fidelity index can be compared against the active suite, the defense demonstrated in the Morningstar Landscape report cited by plaintiffs that the active suite outperformed the index suite by 38 bps despite a 50 bps higher fee.  Finally, the motion to dismiss argued that an alleged under-performance of 2.11% at the highest is not enough to infer an imprudent process.

Euclid Note:  Dozens of cases have been filed alleging that Fidelity Freedom target-date funds are an imprudent choice for large plans.  Plaintiffs had a footnote in their opposition brief listing the many courts that have allowed these cases to proceed to discovery and eventual settlement to enrich plaintiff firms.  But the evidence Groom presents proves conclusively that these cases are based on a fraudulent premise that somehow Fidelity Freedom funds have harmed plan participants because of low investment performance.  The Groom evidence proves that the Fidelity Freedom funds have outperformed their index counterparts, even when taking into account the higher fees for active management.  This same evidence (and more from an amicus brief filed by Fidelity) was persuasive to the Sixth Circuit in the CommonSpirit case.  The attack on the performance of Fidelity Freedom funds has always been fraudulent and defamatory to Fidelity and the Fidelity professionals who work on the Freedom funds.

The Magistrate’s Recommendation to Dismiss the Complaint Without Prejudice

Standing:  The Colorado Magistrate’s opinion is of the same high caliber as the Sixth Circuit’s decision in CommonSpirit, which presented similar claims.  The court first addressed the defense’s argument that plaintiffs lack standing.  The court held that plaintiffs had standing to challenge the Fidelity Freedom active suite even though they were not invested in all vintages of the funds, but held that plaintiffs lacked standing to challenge the Royce Fund because none of the three plaintiffs invested in that fund.  The court further held that plaintiffs had standing to challenge the plan’s recordkeeping fees even though defendants adduced evidence from account statements that the plaintiffs did not pay recordkeeping fees through most of the alleged class time period.

Excess Recordkeeping Fees:  The court starts its analysis of the excess recordkeeping fee claims by noting that the defense faults the plaintiffs’ “attempt to reverse-engineer [the Plan’s recordkeeping] fees using the Plan’s Form 5500s.”  The defense provided evidence from participant account statements that they paid no recordkeeping fees while they were active employees.  The defense further argued that Plaintiffs should have subtracted the plan forfeiture amounts, which was applied to reduced plan administration costs.  The court nevertheless refused to consider any of the defense evidence showing lower recordkeeping fees than alleged in the complaint, holding that it is not appropriate to consider this type of factual attack on a rule 12b6 motion to dismiss.  The defense was therefore not allowed to show on a motion to dismiss that plan participants paid no plan administration fees while they were active employees.

Nevertheless, the court recommended dismissal of the recordkeeping fees because the court found the comparisons to eleven other random plans “utterly inapt”:  the flaw was that plaintiffs compared the average fee paid by the plan over a five-year span to the fees paid by the comparator plan for just one selected year.  Importantly, the plan’s single-year fee for the year 2020 of $33 per participant “was on par with the fees paid by the comparator plans for the given year (ranging from $23 per participant to $34 per participant).”  “Indeed, the Plan’s 2020 fee was actually lower than the fees paid by two of the Plaintiff’s selected comparator plans.”

Imprudent Investment FeesThe court began with the test to establish a claim of investment underperformance:  “to plausibly establish a claim for breach of the duty to monitor, a plaintiff must allege facts plausibly establishing that no reasonable fiduciary would have maintained the investment.”  This key test often gets lost in investment imprudence cases, but should be the basis to dismiss most claims.  The court found it dispositive that “Plaintiffs never actually allege that the Index Suite outperformed the Active Suite.”  Instead, plaintiffs compare the active suites’ expense ratio, level of risk incurred, and amount of investment inflow/outflow with that of the index suit.  The court held that these comparisons fail to “plausibly establish that no reasonable fiduciary would have maintained the active suite in the face of the index suite.”

That court continued that “this omission largely negates Plaintiffs proffered comparisons between the Suites.  Investors would be wise to pay a high expense ratio if the added services provide long-term value to their accounts.”  Moreover, the court held that you cannot challenge an active fund because it has a higher risk:  “To permit a claim of imprudence because the Active Suite pursued its goal by taking on risk would seemingly imperil every actively managed fund in every plan.”  But, “[i]t’s possible, indeed likely, that the absence of any actively managed funds suited for risk-tolerant investors would be imprudent.”  (citing to Smith v. CommonSpirit).  According to the opinion, active funds are an appropriate tool, especially when the plan offers other passive investments.

We note that this is the first time we have seen a court attempt to place an active fund into the context of the overall investment portfolio since the Hughes v. Northwestern Supreme Court decision rejected a participant-choice theory that an imprudent investment option is not somehow justified if participants have access to prudent, low-cost index funds.  We were worried about the long-term implications of this decision.  But this shows that you can still justify an active fund in the context of the diversified investment options of active and passive funds in a plan.

The court also rejected the other arguments against the Fidelity Freedom funds.  The court rejected the argument that investors had “lost faith” in Fidelity Freedom funds because it only represents three percent of the fund.  Plaintiffs had relied on a Morningstar report in their complaint to support their investor withdrawal claims, and the court held that it could consider the entirety of the report.  This was useful, because the report proves that the active suite outperformed the index suite:  “[d]espite an average fee advantage of 50 basis points, the [Index Suite] lagged the [Active Suite] by roughly 38 basis points annually, on average, since the [Index Suite’s] 2009 inception through 2018.”  The Morningstar Report goes on to rank the Active Suite higher than the Index Suite.

The court cites to the Sixth Circuit’s CommonSpirit decision that a court would need “significantly more serious signs of distress” to allow an imprudence claim to proceed.  As to the level of underperformance to prove imprudence, “a fiduciary may – and often does – retain investments through a period of underperformance as part of a long-range investment strategy.”  (citing White v. Chevron Corp.).  “This is especially true when, as here, the relative underperformance compared to the allegedly ‘suitable alterative’ funds was slight going into the Class Period – often less than 1%, and never greater than 3.5%.  Finally, the court held that an investment is not imprudent simply because it is untested.

The Key Issues that Apply to Most Excess Fees and Investment Underperformance Lawsuits  

KEY ISSUE #1:  Is there standing for participants to sue on investments they do not own [and is there a difference if the participants are invested in one glide path of a target-date suite]?

We think the court’s standing ruling makes sense, at least with respect to the investment claims.  The defense had argued that the three plan participants could only challenge the three vintages of the target date funds in which they invested.  We think it is reasonable for the court to rule that the three participants could challenge the entire target-date suite given that each participant would logically only invest in one vintage of the overall suite of target-date funds, and the plan fiduciaries chose the entire suite of target date vintages as one investment choice or decision.  There may be a class certification issue, but not necessarily a standing issue.  What is more important is whether the three participants could challenge the Royce investment when none of them had invested in that option.  The court did not grant standing for that claim.  Many courts rule otherwise, so it is important every time a court requires an actual investment in the fund option in order to sue.

Whether there is standing for the recordkeeping claim is more interesting given that active employees pay nothing in this plan, but it appears that all three participants had left the company and thus had some potential fees if there was not a complete credit in any given year.  It is a closer call, but we find this court’s standing ruling to be more reasonable than the many courts that allow standing to challenge investments in which plan participants were not invested.

KEY ISSUE # 2:  What is the proper timeframe to judge investment underperformance? 

We continue to believe that most investment imprudence claims are insidious and unfair to plan fiduciaries because they are placed in no-win situations in monitoring investment performance.  It is a judgment call when to leave an underperforming investment.  Many of these cases are comparing plan performance with the benefit of hindsight to the top-performing funds.  Most of these cases also leave out the critical perspective that nearly every large institutional plan in America is advised by a quality investment advisor or manager.

The Groom motion to dismiss brief is helpful in that it effectively argues that three-year and five-year trailing periods of performance are artificially short and cannot support an underperformance claim.  Given how few courts have issued guidance on the proper timeframe from which to judge performance, the cases cited are noteworthy.  In Cho v. Prudential Ins. Co. of Am., No. 19-19886, 2021 WL 4438186, at *9 (D.N.J. Sept. 27, 2021), the court dismissed claims because plaintiff “relies on five-year trailing performance data and on one ten-year trailing performance chart . . The time period at issue is, for the most part, fairly short.”  In Dorman v. Charles Schwab Corp., No. 17-cv-00285, 2019 WL 580785 (N.D. Cal. Feb. 8, 2019), the court found allegations that the fund at issue “persistently and/or materially underperformed” for three to five years did not support an inference of imprudence.

Groom lawyers pointed out that these holdings are consistent with the broader principle that “the duty of prudence does not compel ERISA fiduciaries to reflexively jettison investment options in favor of the prior year’s top performers.”  Patterson v. Morgan Stanley, No.-CV-6568, 2019 WL 4934834 (S.D.N.Y. Oct. 7, 2019).  To the contrary, fiduciaries often have “longer-range investment strateg[ies], which “plainly permi[t]” the “common practice of retaining investments through periods of under-performance.”  White v. Chevron Corp., No. 16-cv-0793, 2017 WL 2352137, at *20 (N.D. Cal. May 31, 2017), aff’d, 752 F. App’x 453 (9th Cir. 2018).

Courts reviewing investment imprudence cases need to put these claims in a realistic context.  Plan fiduciaries are human beings that are trying to get good results for their plan participants.  They are being guided by outside advisors.  Absent evidence of self-dealing, they cannot be held liable simply because they failed to choose the top-performing funds.  But that is what these cases are mostly about:  punishing any plan that failed to select the top-performing funds in the last five years.

KEY ISSUE #3:  What is substantial enough alleged underperformance to infer an imprudent process?

  After requiring a legitimate length of time in which to judge underperformance, the next key issue is what is an amount of underperformance that is legitimate enough to allow a fiduciary breach lawsuit to proceed.  In the February 3 oral argument in the Eastern District of Virginia in the Capital One and Booz Allen investment imprudence cases involving BlackRock LifePath funds, the court asked this very question:  “is there some point at which the degree of poor performance could be a basis for moving forward with the breach of fiduciary duty claims?”  Plan sponsors deserve an answer to this question to reduce litigation risk and uncertainty.  Unless there is actual evidence of an imprudent process – and most complaints have no such evidence – investment imprudence claims should be thrown out unless the underperformance – judged against a legitimate benchmark – is egregious.

Notwithstanding the trademark hyperbole of “deplorable” performance of the Miller Shah and Capozzi Adler law firms, the alleged underperformance in any single three-year or five-year time frame is rarely above two percent in the cases they file.  This does not constitute egregious underperformance.  In the Dish Network case, the court found it dispositive that plaintiffs do not even affirmatively allege that the Fidelity Freedom index funds outperformed the active funds.  We think the court is misreading the complaint, but it does not matter.  To the extent that there was any affirmative evidence of underperformance for short periods of time, it was less than the 2%.  In footnote 10 of the complaint, plaintiffs even concede recent positive returns, arguing that “[w]hile the Active suite has enjoyed some positive recent returns, such performance does not absolve Defendants of their breaches.”  Fiduciaries of defined contribution plans deserve more certainty of their fiduciary risk in monitoring plan investments.  They should not be held hostage to capricious litigation standards, but that is where we are.  They deserve guidance as to what amount of underperformance can constitute underperformance.

The Groom lawyers attempt to answer this question by demonstrating that a two-percent differential is not substantial enough to infer an imprudent process.  They cite to Forman v. TriHealth (S.D. Ohio Sept. 24, 2021)(dismissing claims where plaintiffs alleged underperformance of “just over 2%”; Cho v. Prudential Ins. Co. of Am. (D.N.J. Sept. 27, 2021)(dismissing claims because alleged underperformance was not “sufficiently substantial[,]” where highest rate of underperformance was 3.71%; and Birse v. CenturyLink, Inc. (D. Colo. Mar. 20, 2019) (Colorado court rejected a claim based on alleged underperformance averaging 2.11% over five years, and noted that “89% of managers underperform their benchmarks, and relative underperformance is insufficient to state a breach of fiduciary duty claim.”).  Simply put, 2% alleged underperformance should not be sufficient to allow a fiduciary malpractice lawsuit.

KEY ISSUE #4:  What is an appropriate comparator or benchmark to judge underperformance?  Is a market index a meaningful benchmark for an active fund? 

Plaintiffs have filed dozens of cases against Fidelity Freedom and other active target dates funds.  They stubbornly continue to compare the active funds against passive funds.  The fees of the active funds are always going to be higher than the fees of passive funds.  But when asked if they are asserting that it is inherently imprudent to offer active funds, they quickly back down and say no.  And courts since CommonSpirit have started to make the key point that no court has taken the position that it is imprudent to offer active funds.  This is another court that takes this core position.  To the extent there is any change in the tide on the rulings in excess fee and imprudent investment cases as some of the defense law firm blogs have asserted, it is this key point.  Plaintiffs have lost their ability to claim that it is inherently imprudent to offer active funds, or that it is imprudent to offer active target-date funds, including as the plan QDIA (qualified default investment alternative).  This is a key victory for the plan sponsor community.

The obvious and more appropriate fee comparison would be to compare active target-date funds against the fees of other active target-date funds.  But plaintiff law firms have been so stubborn to compare active to passive funds that they usually fail to offer the most basic comparison of active fund fees to other active funds fees.  The .42-.65% Fidelity K share fees [during the 2020 and prior timeframe] are higher than the fees offered by American Funds in the R6 retirement plan share class or even some share classes of the high-performing T. Rowe Price target-date funds [the I share of the T. Rowe Price funds are comparable to the Fidelity K share fees above 40 bps, but the F and B share classes are often between .34-.37%].  It would be so much more difficult for plans to justify active fees from .42-65% against high-performing target-date funds that are offered between .32-40%.  We still believe you have to prove that the investment objectives, strategies and investments are comparable between these target-date funds at different fee levels, but plaintiff firms are stubbornly failing to make these more cogent comparisons.  It is only a matter of time before plaintiff firms adjust to the reality that they cannot compare index funds to active funds, but so far we are not seeing any change in the claims being filed in recent lawsuits.

We want to make one final point on what constitutes a meaningful benchmark.  If you study DOL’s rule 404a5 participant fee disclosure requirements, plans are required to compare their investment options, including active funds, to an appropriate index fund.  This means that participants are getting a comparison to an index fund in the fee disclosure, even if the comparison is not justified.  In the recent ten years, that likely means that many active funds in the plan have underperformed the index used in the fee disclosure.  The question is whether that is a fair benchmark?  We think it is not.  But that is where the war will be waged on investment imprudence cases once plaintiff law firms stop running away from fee disclosures that disprove their false recordkeeping claims.

We believe that an appropriate benchmark is one that has similar investment objectives, strategies and investments.  That means that the investments have to be compared.  But plans need to be prepared proactively, because if they are putting out participant communications that compare their plans to inapt index funds with different investment strategies and underlying investments, then they are setting themselves up for potential litigation risk.  We recommend that plans supplement the 404a5 index benchmark with investment literature that compares to a more appropriate benchmark.  Otherwise, plans are opening themselves up to comparisons to the average benchmarks from S&P or Morningstar.

KEY ISSUE #5:  Can plan sponsors adduce evidence in a motion to dismiss context to disprove false recordkeeping claims? 

The defense in the Dish Network case proved that plan participants paid nothing for recordkeeping fees because (a) active participants pay nothing under the plan for recordkeeping fees, and (b) the plan credited other amounts, like forfeitures, to reduce or eliminate recordkeeping fees charged to inactive participants.  The claims of excess recordkeeping fees were just plain false.  While the court ultimately got to the right result in recommending dismissal of the alleged excess recordkeeping fee claims, we still find it troubling that the court did not allow the defense to provide evidence that the recordkeeping fees alleged in the complaint were false.  This is a key issue for excess recordkeeping fee lawsuits, as many cases like Trader Joes and Salesforce have allowed challenges to recordkeeping fees to proceed based on false fee allegations.  This happens most often when the plan uses revenue sharing or the Form 5500 does not clearly disclose fees credited back to participants.

The Dish Network case proves the Euclid premise that we have demonstrated many times:  complaints alleging excess recordkeeping fees from the Form 5500 recordkeeping are demonstrably false, because the Form 5500 numbers are not the actual recordkeeping fees charged to plan participants.  In this case, the plan was using plan forfeiture amounts to reduce plan administration costs.  But in most cases, the Form 5500 number includes non-recordkeeping transaction costs.  Courts should not allow Form 5500 data to support claims of excess recordkeeping fees.  It is like allowing someone to judge the temperature outside by a personal estimate when an accurate thermometer is available.

The defense sought judicial notice of the actual plan participant statements to demonstrate that the three plan participants did not pay any recordkeeping fees.  The court did not allow this evidence on a motion to dismiss.  The implication is that this is a factual dispute.  But there is no legitimate factual dispute.  If courts are not going to allow evidence of the actual recordkeeping fees – like government-mandated fee disclosures and participant account statements – then courts are allowing, indeed inviting, plaintiff law firms to submit intentionally misleading evidence of inflated recordkeeping fees.  And this exactly what is happening in nearly every lawsuit.  This excess recordkeeping fee claim was ultimately dismissed because even plaintiff’s inflated $33 per participant amount was low, but it is still the wrong number being charged to participants.  Active participants in the Dish Network plan in 2020 did not pay $33 a year for recordkeeping:  they paid nothing at all – zero.  The court can call it a factual dispute, but there is no legitimate dispute.  This type of ruling invites more illegitimate claims of “excess” recordkeeping fees based on false and misleading data.

The main reason the court rejected the eleven comparator plans, which is the same type of chart that the Capozzi law firm uses in every case they file, was because the 2020 fees were low, even using plaintiffs’ incorrect numbers.  But this will not always be the case in other cases in which the plan is not subsidizing or paying the recordkeeping fees.  Some courts are requiring plaintiffs to compare recordkeeping services to the services in the comparator plans, but many courts allow the same type of comparator chart used in this case.  Defense law firms have seized on the recordkeeping services argument.  Discerning plaintiff firms have adapted by listing the recordkeeping service codes from the Form 5500 filings.

We think that distinguishing services is a dangerous argument long-term, because this is a misapprehension of what is being compiled in the Form 5500.  When plaintiffs argue that the recordkeeping services are mostly equivalent for large plans, they are mostly correct.  The real factor driving cost is the number of participants in the plan.  Unless you count participant education as a recordkeeping service, the different Form 5500 service codes are not distinguishing the level or types of recordkeeping services, but rather, for the most part, are categorizing the non-recordkeeping fees that are included in the reported number, primarily transaction fees.  The service codes prove that the fee number in the Form 5500 is not an accurate depiction of the amount charged to participants because it includes transaction costs and non-recordkeeping services.  It does not prove that there are meaningful service levels offered at different prices.  Most courts do not understand that the Form 5500 contains transaction services in addition to recordkeeping services, all compiled under the label “recordkeeping,” and this has allowed plaintiff law firms to profit off the judicial system’s misunderstanding as to how plan administration works.

To the extent there is a fundamental difference in recordkeeping for large plans, it is not a difference in services.  To the contrary, the biggest difference in the amount of recordkeeping fees paid by large plans is whether or not they include the proprietary investments from the recordkeeper.  If you have Fidelity as a recordkeeper, you will get a lower recordkeeping fee if the plan uses its investments in the plan.  If you do not use the recordkeeper’s investments, you will pay more.  We have never seen this key point argued in any case.  A large plan could pay as much as $10 more per participant if they chose investments that are not affiliated with the plan’s recordkeeper.  This is not a sign of imprudence, as it is a legitimate and prudent decision to use unaffiliated investments offered by another company.  But it explains the fee discrepancies in large plans.

This means that the better argument to defeat an excess recordkeeping fee complaint is not that the plaintiffs failed to compare recordkeeping services between the plan and purported comparator plans, but that any comparator plan (1) must take into account whether the plan received the often substantial discount for using proprietary investments from the recordkeeper; and/or (2) whether the amounts for transaction costs and non-recordkeeping services have been stripped out to allow for an apples-to-apples comparison.

Disclaimer:  The Fid Guru Blog is intended to provide fiduciary thought leadership and advocacy for the plan sponsor community in areas of complex fiduciary litigation.   The views expressed on The Fid Guru Blog are exclusively those of the author, and all of the content has been created solely in the author’s individual capacity.  It is not affiliated with any other company, and is not intended to represent the views or positions of any policyholder of Encore Fiduciary, or any insurance company to which Encore Fiduciary is affiliated.  Quotations from this site should credit The Fid Guru Blog.  However, this site may not be quoted in any legal brief or any other document to be filed with any Court unless the author has given his written consent in advance.  This blog does not intend to provide legal advice.  You should consult your own attorney in connection with matters affecting your legal interests.

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