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Description
On September 11, 2006, Jerry Schlichter, a personal injury lawyer from St. Louis, Missouri, rocked the 401(k) plan market by filing a flurry of lawsuits against major corporations alleging that their 401(k) plans were paying excessive fees for plan administration and asset management that harmed employees in violation of their fiduciary duties under ERISA. Between 2006 and 2007, 31 excessive fee suits were filed by Schlichter and other firms. Following several large settlements, including a $62 million settlement by Lockheed Martin, a second wave of excessive fee litigation began in 2015 with more than 50 suits filed in both 2016 and 2017. Fee litigation then exploded in 2020 with more than 170 excessive fee cases filed between 2020 and April 2022.
The early lawsuits were filed against large corporations challenging their 401(k) plan fees. Lawsuits were then filed against financial institutions that are also plan sponsors. More recently, suits have been directed against universities and their 403(b) plans, which resemble 401(k) plans.
In the early years of plan fee litigation, plan sponsors often prevailed at the motion to dismiss stage. Over time, however, it has become much less common for plan sponsors to win at the motion to dismiss stage, and settlements in plan fee litigation are common. For example, at least 19 of the employers sued since 2020 have signed class settlements, with settlements often ranging between $500,000 and $4 million. Settlements, however, reached the tens of millions of dollars. For example, in April 2022, Wells Fargo & Co. agreed to settle for $32.5 million.
To date, the Supreme Court has decided two cases challenging plan fees. The first, Tibble v. Edison International, addressed the statute of limitations applicable to such claims. The second, Hughes v. Northwestern University, addressed the propriety of a trial court granting a motion to dismiss an excessive fee claim. This article discusses excessive plan fee litigation in light of Hughes v. Northwestern University.
The article begins by describing the importance of plan fees. It then provides a brief overview of ERISA’s fiduciary duties as they relate to plan fees. It then turns to the Supreme Court’s two plan fee decisions: Tibble v. Edison International and Hughes v. Northwestern University. It then discusses the differing perspectives commentators and courts have taken on the case and the competing interests underlying plan fee litigation. Finally, it identifies best practices fiduciaries should follow in order to avoid or at least defend against excessive fee complaints.
Publication Date
2022
Book Title
New York University Review of Employee Benefits and Executive Compensation
Publisher
LexisNexis Matthew Bender
City
New York
ISBN
9781663348869
Keywords
excessive plan fee, fiduciary duty, settlement
Disciplines
Labor and Employment Law | Law | Litigation
Recommended Citation
Moore, Kathryn L., "Excessive Fee Litigation in Light of Hughes v. Northwestern University" (2022). Law Faculty Books and Chapters. 43.
https://uknowledge.uky.edu/lawfac_book/43
Notes
Moore, Kathryn L. “Excessive Fee Litigation in Light of Hughes v. Northwestern University.” In New York University Review of Employee Benefits and Executive Compensation, edited by David Pratt, §2.01-2.08. New York: LexisNexis Matthew Bender, 2022.