October 20, 2022

The 7th US Circuit Court of Appeals recently upheld the dismissal of a participant’s claims that defined contribution (DC) plan fiduciaries imprudently allowed excessive administrative and investment fees (Albert v. Oshkosh Corp., No. 21‐2789 (7th Cir. Aug. 29, 2022)). The court was unpersuaded by the participant’s request to vacate the original district court decision dismissing his lawsuit in light of the Supreme Court’s decision in Hughes v. Northwestern University (142 S. Ct. 737 (2022)).  That ruling overturned another 7th Circuit decision still pending on remand, but the appellate court stated that the lower court’s rationale for dismissal differed from the one the high court rejected. The 7th Circuit’s decision in this case extends a growing trend of federal appeals courts expressing skepticism toward some of the most common allegations in many ERISA excessive fee lawsuits since the high court’s Northwestern ruling.

Excessive recordkeeping fee claims lacked context. The court found allegations that plan fiduciaries failed to regularly solicit competitive bids for recordkeeping services were insufficient to support the participant’s fiduciary breach claims. Although the lawsuit identified nine similarly sized DC plans with lower average recordkeeping expenses, the 7th Circuit said the participant hadn’t provided enough context about services delivered to this “potentially random assortment” of other plans to plausibly claim the Oshkosh plan’s fees were high relative to the services received. The court also rejected similar claims challenging plan fiduciaries’ selection of an affiliate of the recordkeeper to provide investment advisory services to participants.

Fiduciaries don’t have to consider net investment expenses. The participant made a novel argument that plan fiduciaries should have selected more expensive share classes of certain investment funds when a rebate of the funds’ revenue-sharing payments would have resulted in a lower net cost to participants. (Excessive fee lawsuits typically claim the plan should offer the least expensive share class available.) Though the court said prudent fiduciaries could consider such “net expense” factors, it ruled that plan fiduciaries in this case hadn’t acted imprudently by not doing so. The court also found simple allegations that a plan’s actively managed investment options are more expensive than passive funds don’t support fiduciary breach claims.

7th Circuit still to reconsider Northwestern decision. Several other excessive fee lawsuits allege that plan fiduciaries imprudently offered retail share class mutual funds instead of cheaper institutional share classes. Such share-class claims were the focus of the Supreme Court’s ruling in Northwestern, which the 7th Circuit is still reconsidering. Although two other federal appeals courts recently have been more sympathetic to these types of claims, the participant in this case didn’t make such claims.

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Matthew Calloway
by Matthew Calloway

Principal, Mercer’s Law & Policy Group

Margaret Berger
by Margaret Berger

Partner, Mercer’s Law & Policy Group

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