A New Jersey federal district court recently granted summary judgment in defendants’ favor in an ERISA excessive fee case accusing Evonik’s 401(k) plan fiduciaries of keeping imprudent investments in the plan and of allowing participants to pay excessive recordkeeping fees. Harris, et al. v. Evonik Corp., et al., No. 20-02202, 2024 U.S. Dist. LEXIS _____ (D.N.J. Jun. 28, 2024).  

At the core of the decision was the court’s finding that Evonik’s fiduciaries followed a rigorous, prudent process for reviewing plan investments and fees. Specifically, with regard to investments, it was undisputed that the fiduciaries reviewed quarterly reports, engaged an investment consultant, used an investment policy statement and watch list to guide decisions, and discussed underperforming funds. With regard to the recordkeeping claim, the court credited the undisputed facts that the fiduciaries annually benchmarked fees though their investment consultant, resulting in several fee reductions during the relevant timeframe. From there, the court held that the “concerns” with the process that plaintiffs raised did not create any issues that require resolution at trial. 

• Plaintiffs argued that the investment policy statement was impermissibly vague for various reasons, such as a lack of specific time constraints for keeping underperforming funds in the plan. The court found that a “vague” IPS does not negate an otherwise prudent process – as was the case here – and in any event, the alleged gaps in the policy statement were filled by the quarterly investment reviews.

• Plaintiffs argued that the plan’s “high” total plan cost was evidence that the plan’s investment fees were imprudent. But the court found that it was undisputed that the plan’s total plan cost was higher because the plan offered actively managed funds, which tend to be more expensive, and which are not imprudent simply due to their cost. The court further held that plaintiffs could not challenge investment fees without a fund-by-fund fee analysis, especially because it was undisputed that the total plan cost data included recordkeeping fees and other fees that were not at issue and did not account for the plan’s use of revenue sharing to lower plan costs.  

• Plaintiffs further argued that the fiduciaries kept two underperforming investments in the plan for too long but, again, the court pointed to the strength of the process and undisputed facts that the fiduciaries discussed the funds’ performance regularly and followed the advice of their consultants. Moreover, simply alleging investment loss is not enough to prove a breach.

• On the recordkeeping claim, Plaintiffs faulted the fiduciaries for failing to adopt a $23 per participant recordkeeping fee proposed by a competing recordkeeper in a request for information. But it was undisputed that the fiduciaries would have had to switch recordkeepers and change the plan’s default investment option and stable value fund to obtain that rate. The court held a fiduciary does not need to accept such “drastic changes” to a retirement plan simply to negotiate a lower recordkeeping fee. 

Takeaway

This case is a significant win for the plan sponsors and fiduciaries who continue to defend their fiduciary process in similar litigations and serves as a model for fiduciary prudence in investigating and selecting investments and monitoring the plan’s payment of recordkeeping fees.