Excessive Fee Suit Targets RK Fees

A lawsuit—short on length and allegations, but laden with insinuation—has been filed in the U.S. District Court for the Southern District of Ohio, citing a “failure of effort, competence, or loyalty.”

 

The suit was filed by plaintiff-participants Gregory Stark, William Gaff, and Michael Lewin as representatives on behalf of participants in the $2.9 billion KeyCorp 401(k) Savings Plan. The suit claims that the fiduciary defendants “failed to monitor and control the Plan’s expenses for recordkeeping and related administrative services”—oversight that they claim “…has resulted in millions of dollars in excessive fees to the Plan and its participants since the beginning of the statutory period.” More specifically, each of the three participant-plaintiffs say they had “…been financially injured by Defendants’ unlawful conduct, and his account would be worth more today if Defendants had not violated ERISA as described herein.”

 

Much of the 20-page filing (Stark v. KeyCorp, S.D. Ohio, No. 2:20-cv-02922, complaint 6/4/20) is dedicated to outlining the standard duties and obligations of ERISA and the rigorous standards that apply. When it gets to the particulars of this case, it notes that the cost of providing administrative services to the plan (recordkeeping) “depends on the number of participants in a plan,” and that “plans with large numbers of participants can take advantage of economies of scale by negotiating lower per-participant administrative fees.” It notes that the KeyCorp plan has had between 21,000 and 29,000 participants, and between $1.8 billion and $2.9 billion in assets during the class period, concluding that, as one of the 300 largest plans in the nation, “the Plan has significant leverage to negotiate administrative expenses.”

 

 

Before moving on to those administrative expenses, the plaintiffs note that Alight has been the Plan’s recordkeeper since at least 2009, and that KeyCorp has a “close relationship” with that firm. They go on to note that, in addition to acting as the recordkeeper for the Plan, Alight “also administers KeyCorp’s pension plan, administers KeyCorp’s retiree medical plan, and has also played an integral role in setting up and administering KeyBank’s online HR portal through which all employee benefits are managed, among other things.” Moreover, they state that, “unlike the Plan, where administrative expenses are paid by employees’ assets, the costs of providing these pension plan, medical plan, and HR services are the responsibility of KeyCorp.”

 

And then—without directly connecting the statements just made, the plaintiffs state that the plan’s fee disclosure indicates that each eligible participant is charged $63 per year for administration, though “…based on Plaintiffs’ investigation, a prudent and loyal fiduciary of a similarly sized plan could have obtained comparable administrative services of like quality for approximately $30-40 per participant.”

 

At this point the plaintiffs proceed by arguing that “a prudent fiduciary would have closely monitored the Plan’s administrative expenses and engaged in a rigorous benchmarking analysis, either on its own or by working with an independent consultant, and would have discovered that the Plan was paying far too much for recordkeeping.” Or, they argue alternatively, “the Plan could have performed a request for proposal (RFP) and discovered that other service providers would have provided the same services at lower cost.”

 

 

And then, having laid out the dots, they proceed to connect them. Ultimately, they argue that “the Plan’s excessive administrative expenses demonstrate that Defendants either failed to engage in prudent monitoring of the Plan’s administrative expenses and engage in prudent practices to keep administrative expenses at competitive levels, or that Defendants allowed participants to be charged excessive administrative fees, such as recordkeeping, in exchange for discounts on the other services Alight was providing that KeyCorp itself should have been paying for. Either way, the process by which Defendants managed the Plan’s administrative services “would have been tainted by failure of effort, competence, or loyalty,” each of which constitutes a “breach of fiduciary duty,” according to the filing.

 

The plaintiffs here are represented by Nichols Kaster PLLP and Barkan, Meizlish, DeRose, Wentz, McInerney, Peifer LLP. The former is, of course, a name that has appeared with striking regularity in this type of litigation, including cases involving John Hancock, M&T Bank, MFS, SEI and Goldman Sachs, as well as suits involving Deutsche Bank Americas Holding Corp., BB&T, American Airlines and most recently BOK Financial. Nichols Kaster was also one of three litigation firms specifically noted in a property and casualty renewal template that has reportedly showed up in a number of cases.

 

Stay tuned.