Class Action Counsels’ Reach Expands to “Fee” Claims against Small and Mid-Size 401(k) Plans

So-called 401(k) “fee” cases first appeared on the scene in 2006, when a personal injury firm filed a group of lawsuits against sponsors and fiduciaries of large 401(k) plans. Originally, these lawsuits targeted allegedly “excessive fees” charged to plan participants. But the claims have morphed over the years to encompass every aspect of 401(k) fee administration: fund performance, arrangements with services providers, proprietary funds, investment tools, and so on.

These cases have created a bonanza for class action attorneys. In 2019 alone, plaintiffs’ class action attorneys obtained $211 million in settlements—and requested a total of $71 million in fees. In one case, plaintiffs obtained a $55 million judgment and $18 million in fees.

Until recently, these cases focused on sponsors and fiduciaries of multi-billion dollar 401(k) plans because “that’s where the money is” (as famous bank robber Willy Sutton may or may not have said). But now, class action attorneys have started to focus on smaller employers. Previously, most of the lawsuits targeted $1 billion+ plans, but now, new lawsuits are targeting plans sponsored by Greystar Real Estate Partners LLC ($100 million-$250 million in assets), Adidas Group ($500 million in assets), TriHealth ($250-$500 million in assets), Rollins, Inc. 401(k) plan ($713 million in assets).

The claims are not novel. They all allege some variation of the same theme—the plan fiduciaries failed to prudently manage the investment in, and fees charged to, 401(k) (and 403(b)) plans. But the targeted plans, and in many cases the attorneys, are new.

Even in the world of COVID-19, this trend will almost certainly continue. Here are some thoughts about how ERISA fiduciaries can minimize their litigation risk. And, of course, we are available to discuss any concerns you may have.