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Another 401(k) Excessive Fee Suit Falls Short

Fiduciary Rules and Practices

Another Midwestern federal court has found that the plaintiffs in a 401(k) excessive fee suit have failed to make their case.

This suit had been brought by participant-plaintiffs Ruth Williams, Tovah Allen, Carolyn Ross, Alicia Bates, and Tracy Young against Centene Corporation, the Board of Directors of Centene Corporation, the Centene Corporation Retirement Plan Investment Committee, and John Does 1-30 (the unnamed members of the committee and the board, and any other unknown fiduciaries), alleging the usual plethora of assertions made in these cases. As of 2020, the Plan had over 63,000 participants and over $3.1 billion dollars in assets under management.

The Allegations


As for the particulars, at a high level, the plaintiffs here — represented by attorneys from the firm of Capozzi Adler PC[1] — claim that the investment committee breached its fiduciary duty of prudence — and that Centene and its board failed to adequately monitor the investment committee. In support of the first, the suit claims that the Centene defendants “imprudently maintained funds with excessive expense ratios, imprudently allowed the plan's "total plan cost" to balloon, imprudently failed to control the Plan's recordkeeping fees and administrative costs, and imprudently maintained underperforming investment options in the Plan.” Their point of reference in those claims is a comparison to the "ICI Median" and "ICI Average” — which they claim indicates for a Plan with assets in excess of a billion dollars, the average asset weighted total plan cost is 0.22% of total plan assets — while they claimed that the Centene plan had a [total plan cost] of more than 0.46%, which is "more than 109% higher than the average." 

The suit also took issue with the plan’s use of revenue-sharing alongside there being “…little to suggest that Defendants conduct an appropriate RFP at reasonable intervals in order to shop around for lower fees.” Oh, and in addition to a comparison with other, similar plans, they also cited a stipulation entered into by Fidelity in another case as evidence that "the Centene Plan fiduciaries should not have been paying more than $21 per participant in recordkeeping and administration fees."

An amendment to the original suit also charged that the investment committee should have replaced several funds in the Plan because they underperformed — specifically eight funds that they said compared unfavorably with alternatives that were cheaper and performed better. However, Judge Sarah E. Pitlyk commented that on that issue, “Plaintiffs provide no information regarding any of the funds' holdings, investment style, or strategy, but they do allege that the challenged and comparator funds are ‘in the same investment style.’"

The Centene defendants then moved to dismiss the suit.

The Case


Judge Sarah E. Pitlyk in the U.S. District Court for the Eastern District of Missouri began her consideration of that motion noting that in order to survive that motion and head to trial, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face,” but also that in considering that standard, “the Court must grant all reasonable inferences in favor of the nonmoving party” — in this case, the participant-plaintiffs.

After granting the request of the U.S. Chamber of Commerce to file a “friend of the court” brief in support of the motion to dismiss, Judge Pitlyk noted (Williams v. Centene Corp., 2023 BL 111960, E.D. Mo., No. 4:22-cv-00216, decision docketed 4/3/23) that the Centene defendants argued that “none of Plaintiffs' theories…adequately supports their breach-of-fiduciary-duty claim” — and that she concurred with that assessment. She found the reliance on the ICI Median and ICI Average markers as “misplaced” — further commenting that, “As this Court and many others have held,[2] the ICI data fail to provide such a benchmark.” Similarly, she dismissed the ICI total plan cost measure, noting that “A general industry average, without more, cannot serve as a meaningful benchmark,” and citing other cases (Matousek v. MidAmerican Energy Co., 2022 BL 364661, 8th Cir., No. 21-2749, 10/12/22) noted “to plead a meaningful benchmark, 'the plaintiff must plead that the administrative fees are excessive in relation to the specific services the recordkeeper provided to the specific plan at issue.'" 

Dismiss ‘Sieve’


Judge Pitlyk also quickly dismissed the plaintiffs’ inferences that the use of revenue-sharing suggested a breach of fiduciary duties. She then noted that “Plaintiffs do not actually allege that Defendants failed to conduct an RFP. Instead, they argue that "there is little to suggest" that Defendants had done so. That allegation accomplishes little, especially since "allegation[s] that the Plan fiduciaries were required to solicit competitive bids on a regular basis has no legal foundation."

She also didn’t put much stock in reference to the fees Fidelity (Centene’s recordkeeper) had paid itself for recordkeeping services. Citing the decision in Wehner v. Genentech, Inc., “[Plaintiffs] [do] not explain how the services that Fidelity provided to its own plans are equivalent to the services Fidelity provided to the Plan at issue in this case. Without more, the $14-21 figure cannot serve as an adequate market comparator." Ultimately, she concluded that “because the stipulation does not provide a meaningful comparison, it does not support an inference of imprudence.”

As for the list of eight allegedly comparable plans, Judge Pitlyk again looked to the conclusions in other cases and noted that, “The Eighth Circuit has highlighted that not all recordkeeping and administrative fees are apples-to-apples,” and commented that “despite the case law, the Amended Complaint is silent as to which recordkeeping services those eight other plans received.” In other words, Plaintiffs fail to "plead that the administrative fees are excessive in relation to the specific services the recordkeeper provided to the specific plan at issue” — and rejected the “eight-plan list as a sound basis for comparison, because it lacks sufficient detail.” She concluded that even “accepting all factual allegations as true, the Court still may not draw the reasonable inference that the investment committee allowed Plaintiffs to pay excessive fees. Thus, Plaintiffs do not state a breach-of-fiduciary-duty claim under an excessive-fees theory.”

Sound ‘Bite’


Turning to the allegations regarding the investment committee’s failure to replace certain underperforming funds, Judge Pitlyk noted that, “As already mentioned, in an investment-by-investment challenge like this one, a complaint cannot simply make a bare allegation that costs are too high, or returns are too low. Rather, it ‘must provide a sound basis for comparison—a meaningful benchmark.’"  Pointing to the eight allegedly comparable funds she commented that “Plaintiffs provide no information regarding any of the funds' holdings, investment style, or strategy. Instead, the Amended Complaint merely alleges that the challenged and comparator funds are ‘in the same investment style.’” She then noted that "Plaintiffs do not explain how their proposed funds serve as sound bases for comparison to Centene's chosen funds.” And Plaintiffs "provide none of the information courts regularly consider when determining whether a plaintiffs state an ERISA breach-of-fiduciary-duty claim, like fund prospectuses."  Ultimately, she concluded that “Plaintiffs' allegations do not provide a meaningful benchmark on the basis of which the Court could evaluate the plausibility of their claim. Thus, considering the Amended Complaint in its totality, the Court concludes that Plaintiffs do not state a breach-of-fiduciary-duty claim under the theory that Centene retained underperforming funds.”

Perhaps needless to say, having found a lack of plausibility in the alleged fiduciary breaches, Judge Pitlyk noted that “plaintiffs' only argument against dismissal presumes that they state a breach-of-fiduciary-duty claim against the investment committee. Because they fail to state such a claim, the failure-to-monitor claim is dismissed.”

And then dismissed the suit — with prejudice.

What This Means


At a high level, this looks to be another case in a Midwestern[3] federal district court that is requiring more than mere allegations of imprudence based on comparabilities in size and participant count only. Over the past year or so this standard of plausibility has resulted in a number of wins for fiduciary defendants, at least in federal courts in the Midwest and South. That said, it has not yet found much traction in the West or Northeast, where those type allegations still appear to be sufficient for judges to dismiss the motions to dismiss, sending the suits on to discovery and trial. 

At some point one might well hope for a clear resolution of this standard — but until then, it looks as though the outcome of these excessive fee suits may well depend on the court district in which the suit is filed.

[1] Capozzi Adler PC has been one of the more active litigants of late. It had a busy 2020, in addition to the suit against LinkedIn (settled this week for $6.75 million), there have been actions filed against Universal Health Services, Inc., and before that Aegis Media Americas Inc., as well as the $2 billion health technology firm Cerner Corp., Pharmaceutical Product Development, LLC Retirement Savings Plan, Gerken v. ManTech Int’l Corp — and the appeal of losses at the district court in a case involving Salesforce. In May 2021, they also filed suit against the $5.3 billion Humana Retirement Savings Plan, in June against the $2.3 billion Wake Forest University Baptist Medical Center, and in August against the $1.5 billion Baptist Health South Florida, Inc. 403(b) Employee Retirement Plan. 

[2] In the case cited by Judge Pitlyk, that court noted that “the ICI data on which Riley and Reliford rely apparently considers the plan size and the high-level ‘investment style’ of each fund (for example, a target date fund, a domestic equity fund, or an index fund), but this does not suffice. The Eighth Circuit requires the Court to thoroughly compare challenged funds and putative benchmark funds with regard to fund holdings, investment style, and strategy — and neither the Plaintiffs nor the ICI data provide any of this required information.”

[3] See Grocery Chain’s Excessive Fee Suit Sacked, DISH Beats Back Excessive 401(k) Fee Suit, Plan Fiduciaries Fend Off Another 401(k) Excessive Fee Suit & Gosh! Oshkosh Wins Dismissal of Excessive Fee Suit.