Seyfarth Synopsis: Excessive fee complaint dismissed because the diverse selection of funds available to plan participants negates any claim that Defendants breached their duties of prudence simply because cheaper funds were available.
Nearly 20 universities have been sued under the Employee Retirement Income Security Act (“ERISA”) over the fees paid in their Section 403(b) qualified employee benefit defined contribution plans.
Many of these actions have survived the motion to dismiss stage. Still, some courts have been willing to look carefully at ERISA’s requirements and quickly determine that these suits have no basis because they do not allege violations of ERISA. Most recently, the Southern District of New York ruled against plaintiffs, noting after a trial that plaintiffs have not proven a violation of ERISA, that prudent process does not require perfection, and that, relative to performance there is no such claim under ERISA. Sacerdote v. New York University, Case No. 16-cv-6284, 2018 WL 3629598 (July 31, 2018 S.D.N.Y.).
The latest blow to these largely cookie cutter cases is Davis v. Washington University, Case No. 17-cv-1641 (E.D. Mo.), which alleged that the plan paid excessive fees for administrative or investment management services, the plan should have consolidated to one recordkeeper (as opposed to two), that certain funds underperformed and that the plan’s fiduciaries caused the plan to engage in prohibited transactions.
On Friday, September 28, 2018, Judge Ronnie L. White dismissed Davis holding that Plaintiffs failed to allege a breach of fiduciary duties based upon Plan participants’ payment of purportedly excessive fees and recordkeeping fees. The court reasoned that the complaint starts with the false premise that just because the plan’s fees could have been lower, there must have been some breach of duty. Relying on precedent in other circuits, the court held that the diverse selection of funds available to the plan’s participants negates any claim that defendants breached their duties of prudence because cheaper funds were available. The court further held that allowing plan participants to pay fees on an asset basis is a pure question of where the burden of recordkeeping costs should be placed and that plaintiffs pled no basis for removing the discretion of a reasonable plan administrator. The court likewise dismissed the prohibited transaction claims, noting that plaintiffs pled the affirmative defense in their complaint.
With the recent defense victories in Divane v. Northwestern University, Sacerdote v. New York University and Sweda v. University of Pennsylvania, Washington University brings another beacon of hope to the universities facing these claims and reinforces the discretion incumbent upon plan administrators.