Fiduciaries of a small 401(k) plan were recently targeted in excessive fee suit, making it the first case surrounding a retirement plan of less than 10 Million dollars to be brought to court.
In this case, Damberg v. LaMettry’s Collision, Inc., the participant-plaintiffs are part of a 114-employee retirement plan that had, in 2014, less than $10 million in plan assets. The suit names the plan, as well as LaMettry’s CFO and LaMettry’s President personally, based on their breach of fiduciary duty, as trustees of the plan. Also, the suit is being brought by two long term employees. Historically, cases of this nature have only involved large plans. This may be the smallest case yet to file an excessive fee lawsuit.
In this case, plaintiffs argue that plan fiduciaries breached their fiduciary duty by:
- Selecting an unduly expensive structure for its retirement plan, (in this case a one that bundled recordkeeping and investment management),
- Failing to benchmark fees by conducting an RFP to minimize expenses,
- Failing to evaluate whether an unbundled or alternative fee structure was a better option,
- Failing to conduct due diligence regarding whether the assessed fees were appropriate,
- Failing to actively monitor the fees and expenses, paying almost $886 per employee for recordkeeping services alone
The primary complaint in the suit is that the plaintiff’s fiduciaries breached their duty because they used higher-priced retail shares when lower-priced institutional class shares were available. The plan fiduciaries have a duty to prudently select and monitor their plan’s service providers, considering both services and compensation.
In this case, the fiduciaries did not maintain a prudent process in soliciting competitive bids, evaluating proposals, and offering reasonable fees. Defending this suit will come at a high cost, both reputationally and monetarily in defense costs. It will be disruptive to their business, with high stress and sure to be time consuming. If you’re not sure your process or governance structure will keep your business out of the courts, we can help. If you want to learn more about this case, or how we can help, you can call us at (781) 235-4426 or email at: info(at)assetstrategyrc.com
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