Since the Supreme Court’s January ruling in Hughes v. Northwestern University, circuit courts throughout the country have issued varying rulings regarding 401(k) fee litigation cases. These include the Ninth Circuit in Trader Joe’s Co. and Salesforce.com, Inc., and the Sixth Circuit in CommonSpirit Health, Inc. and TriHealth, Inc. Most recently, the Seventh Circuit has weighed in, affirming the dismissal of a 401(k) fee litigation in Albert v. Oshkosh Corporation, No. 21-2789 (7th Cir. 2022).
In Hughes, the Supreme Court held that offering some inexpensive investment funds does not prevent claims of breach of fiduciary duties when that plan also offers expensive funds. Further, the Court reiterated that ERISA requires plan fiduciaries to monitor all plan investments and remove any imprudent ones.
In Albert, the Seventh Circuit ruled in favor of Defendant Oshkosh Corporation, affirming the dismissal of Plaintiff’s claims challenging the fees charged under Oshkosh’s 401(k) plan, and, in doing so, clarified and cabined the impact of Hughes on Seventh Circuit precedent. There, Plaintiff Andrew Albert, on behalf of himself and a putative class, alleged Oshkosh violated ERISA by (1) mismanaging its retirement plan by breaching fiduciary duties in authorizing the plan to pay unreasonably high fees for recordkeeping and administration; (2) failing to adequately review the plan’s investment portfolio to ensure that each investment option was prudent; and (3) unreasonably maintaining investment advisors and consultants for the plan despite availability of similar service providers with lower costs or better performance histories.
Dismissing Plaintiff’s recordkeeping fee claim, the Court cited to, and agreed with, the Sixth Circuit’s reasoning in Smith v. CommonSpirit Health. The Albert court held that, as in CommonSpirit, “Plaintiff failed to state a duty of prudence claim where the complaint failed to allege that the recordkeeping fees were excessive relative to the services rendered.” (internal quotations and alteration omitted). The Court then emphasized that Hughes does not require fiduciaries to regularly solicit bids from service providers, maintaining that Seventh Circuit precedent in that regard was “left untouched” by Hughes.
The Court also dismissed Plaintiff’s claims alleging excessive investment management fees. Plaintiff first advanced a theory that the Plan should have offered higher‐cost share classes of certain mutual funds because the “net expense” of those funds would be lower based on the revenue sharing they offered. The Court, recognizing that no court decision has credited this theory, held that ERISA imposes no requirement to choose investment options on this basis. The Court also dismissed the theory that Plans must opt for cheaper, passively managed funds.
Next, the Court dismissed the Plaintiff’s claims that the fees for investment advisors were excessive because Plaintiff did not provide any basis for comparison to determine that such fees were, indeed, excessive.
The Court then dismissed Plaintiff’s duty of loyalty claims, based on the allegation that the Plan’s recordkeeper, Fidelity, encouraged the Plan to use Fidelity’s subsidiary as an investment advisor. The Court held that no breach of duty of loyalty can be inferred on Oshkosh’s part, nor on Fidelity’s part, because Fidelity is neither a named defendant nor a fiduciary.
Lastly, Plaintiff alleged Oshkosh engaged in prohibited transactions with Fidelity by paying excessive fees for Plan services. The Court dismissed this claim, holding that it would be “nonsensical” to read ERISA § 406(a)(1) “to prohibit transactions for services that are essential for defined contribution plans, such as recordkeeping and administrative services.”
This decision provides insight into how lower courts and the remaining circuits may handle 401(k) fee cases, post-Hughes. As always, we’ll monitor and report on how each circuit rules on these cases.