Excessive Fee Lawsuit Reaches Further

Last Updated: January 29, 2016

At the end of December, the St. Louis based law firm Schlichter, Bogard, & Denton filed yet another in what is becoming a long list of class action lawsuits against retirement plan sponsors. This lawsuit, however, caught the eye of many industry observers because it seems to be pushing the envelope of what a plan sponsor can be sued for further than seen before.
Excessive Fee LawsuitIn Bell v. Anthem, a class of participants in the $5.1 billion Anthem, Inc. 401(k) Plan are suing the plan sponsor and the retirement plan committee. The Anthem, Inc. 401(k) Plan is a plan with primarily Vanguard mutual funds, a record keeping fee with Vanguard that was reduced by over 50% in 2013, and a Vanguard money market fund.  This is a plan that seemed to be doing all the things that we have come to think a retirement plan is required to do.  Low cost mutual funds were used as investment options, the record keeping fee was renegotiated to save participants money, and the Vanguard money market fund was used rather than a stable value fund.  Yet the plan sponsor and retirement plan committee has been slapped with a lawsuit anyway. The lawsuit alleges that because of Anthem’s large plan size, the retirement committee should have considered reducing investment costs by using collective trusts[1], rather than the Vanguard mutual funds.  It also claims that the size of the plan should have been used to leverage even lower record keeping fees.  Finally, the complaint includes a claim that the plan should have used a higher return stable value fund rather than the very low return money market fund.

“However, this lawsuit emphasizes the importance of using low cost investment share classes when possible and continually monitoring record keeper’s fees.”

At this early stage it’s hard to say what this lawsuit means for the industry. If Anthem decides to avoid litigation and settle the case, as many plan sponsors have before them, it is likely that attorneys will be emboldened to push the boundaries in these types of lawsuits further and further.  However, this lawsuit emphasizes the importance of using low cost investment share classes when possible and continually monitoring record keeper’s fees.  As the record keeping industry continues to consolidate, fees continue to fall, and the fee that was renegotiated several years ago may no longer be reasonable.  (For more on record keeper industry consolidation, see our recent post.) If you need help putting a prudent process in place to monitor your plan’s investments and service providers, contact our ERISA Services Team today.
[1] Collective Trust:
A fund that is operated by a trust company or a bank and handles a pooled group of trust accounts. Collective investment funds combine the assets of various individuals and organizations to create a larger, well-diversified portfolio.
  PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.


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