A district court in New York recently dismissed a putative class action challenging retirement plan recordkeeping and investment management fees.  The case is Singh v. Deloitte LLP, No. 21-cv-8458, 2023 WL 186679 (S.D.N.Y. Jan. 13, 2023).  The court’s decision adds to the growing number of Second Circuit district courts relying on out-of-circuit appellate decisions to dismiss excessive recordkeeping and investment management fee claims for failure to plead proper benchmarks against which to measure fees.  It also lends support to a standing argument advocated by the defense bar that, if it were to gain more traction, could substantially reduce the financial exposure in similar lawsuits.

Plaintiffs, former Deloitte LLP employees, sued the firm in the U.S. District Court for the Southern District of New York, alleging that it violated ERISA in its management of both a 401(k) plan and a profit-sharing plan.  In particular, plaintiffs alleged that plan fiduciaries breached their duty of prudence by allowing the plans to incur excessive recordkeeping fees and retaining certain funds with above-average investment management fees.  Deloitte moved to dismiss the complaint for lack of standing and failure to state a claim upon which relief can be granted.

The court dismissed the complaint in full.  First, the court held that plaintiffs lacked standing with respect to the profit-sharing plan because they were not participants in that plan.  Next, the court held that plaintiffs lacked standing with respect to four of the challenged funds in the 401(k) plan in which they did not invest.  Absent investment in a particular fund, the court explained, plaintiffs could not have been harmed by its alleged shortcomings.

Second, as to the two remaining challenged funds in the 401(k) plan, the court held that plaintiffs’ imprudence claim failed in two respects.  The court rejected the recordkeeping fee claim because plaintiffs did not allege that the fees were excessive relative to the services rendered, and relied on “disingenuous” comparisons of the plan’s aggregate costs to only the “direct” costs of comparator plans.  Likewise, the court rejected plaintiffs’ allegations that the funds charged excessive investment management fees, finding that the industry means and averages to which plaintiffs compared these fees were merely “arbitrary benchmark(s).”  Plaintiffs did not “offer any context” for their allegations, such as showing how the challenged funds’ fees were comparable to these metrics or pointing to other comparable funds with lower fees.

Third, the court dismissed plaintiffs’ claim for the failure to monitor other fiduciaries, having found that the complaint did not state an underlying claim of imprudence.

Proskauer’s Perspective

This decision is noteworthy for two reasons.  First, it supports an argument that the defense bar has advanced for years in fee cases: absent investment in the challenged fund or service, a plaintiff lacks Article III standing.  Second, it represents another example of the emerging trend among district courts to follow the lead of the Sixth Circuit in Smith v. CommonSpirit Health (discussed in a previous post) and require plaintiffs to support claims of excessive plan recordkeeping fees with allegations regarding the specific services rendered.

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Photo of Myron Rumeld Myron Rumeld

Myron D. Rumeld has over thirty-five years of experience handling all aspects of ERISA litigation at both the trial and appellate level. His broad experience includes numerous representations of 401(k) plan fiduciaries defending class action employer stock and excessive fee claims, and representations…

Myron D. Rumeld has over thirty-five years of experience handling all aspects of ERISA litigation at both the trial and appellate level. His broad experience includes numerous representations of 401(k) plan fiduciaries defending class action employer stock and excessive fee claims, and representations of large multiemployer pension and health fund trustees in the defense of a large assortment of fiduciary breach lawsuits. He has defended class action suits against Charles Schwab, Barnabas Health, Inc., Neuberger Berman, and the American Federation of Musicians Pension Fund, among many other clients; and he has tried cases for The Renco Group and Foot Locker, Inc., among others.

Chambers USA cites Myron as a “brilliant” and “sensational litigator,” who is “sharp, articulate, clever, and deeply committed to the work he does.” Similarly, The Legal 500 United States has called Myron an “outstanding ERISA lawyer.”

Myron is presently co-chair of Proskauer’s ERISA Litigation Group.  He previously served as co-chair of Proskauer’s nationally renowned Employee Benefits & Executive Compensation Group. He also served as the past co-chairman of the Board of Editors for the American Bar Association publication, Employee Benefits Law (BBNA).

Photo of Tulio Chirinos Tulio Chirinos

Tulio D. Chirinos is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group and the Workplace Investigations Practice Group.

Tulio works on a wide variety of ERISA and non-ERISA plan litigation matters…

Tulio D. Chirinos is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group and the Workplace Investigations Practice Group.

Tulio works on a wide variety of ERISA and non-ERISA plan litigation matters, including fee and investment litigation cases, breach of fiduciary duty claims and benefits claims. He also represents management in workplace investigations and litigation of employment-related matters, including claims of unlawful discrimination, harassment and retaliation. Tulio focuses his pro bono efforts on immigration matters where he has represented several juveniles from Central America in their asylum petitions and special immigrant juvenile status (SIJ) petitions.

Tulio is the author of several ERISA-related articles, including several focusing on ERISA fee and investment litigation that appeared in the Benefits Law Journal (2016-2023), Bloomberg BNA, and Law360. He is a contributing author to Chapter 10 (Fiduciary Responsibility) of BNA’s Employee Benefits Law treatise. He is also the co-editor and a frequent contributor to Proskauer’s Employee Benefits & Executive Compensation Blog.

Prior to joining Proskauer, Tulio clerked for the Federal Public Defender’s office for the Middle District of Florida. Tulio is a retired Lieutenant Colonel in the Army National Guard and served three tours of duty in Iraq, Kuwait, and Jordan.

Photo of Sydney Juliano Sydney Juliano

Sydney L. Juliano is an associate in the Labor & Employment Department and a member of the Employee Benefits & Executive Compensation Group, where she focuses on ERISA Litigation.

Sydney works on a variety of ERISA litigation matters, including fee- and investment-related breach…

Sydney L. Juliano is an associate in the Labor & Employment Department and a member of the Employee Benefits & Executive Compensation Group, where she focuses on ERISA Litigation.

Sydney works on a variety of ERISA litigation matters, including fee- and investment-related breach of fiduciary duty claims, benefit claims, and claims by trustees of multiemployer plans for withdrawal liability and delinquent contributions. Sydney is also a frequent contributor to Proskauer’s Employee Benefits & Executive Compensation Blog.

Sydney maintains an active pro bono practice, including representing clients in immigration and family court matters.

Sydney received her J.D. from the University of Virginia School of Law, where she was an Articles Editor of the Journal of Law and Politics and Director of Coaching for the Extramural Moot Court team.  While at UVA, she worked at the U.S. Attorney’s office for the Southern District of Florida.