Suit Says Plan Paid Twice Too Much for ‘Fungible’ Services

A participant in yet another mega 401(k) plan claims participants paid nearly twice what they might have for “fungible” recordkeeping services.

This time it’s participant-plaintiff Matthew A. Miller[1] positioned as a representative of a Class of Participants and Beneficiaries of the $22 billion Pfizer Savings Plan, and represented by Walcheske & Luzi, LLC (and Haney Law Office, P.C.), alleging both “a violation of the duty of prudence against the Plan Committee under 29 U.S.C. § 1104(a)(1) for charging excessive Total recordkeeping and administrative (‘RKA’) fees, and a claim against Pfizer and its Board of Directors for failure to monitor fiduciaries on the Plan Committee with regard to Plan Total RKA fees.”

More specifically, the suit (Matthew A. Miller v. Pfizer Inc. et al., case number 1:23-cv-00594, in the U.S. District Court for the Western District of Michigan) alleges that, “among other things, Defendants paid over 86% premium per-participant for Total RKA fees for the Plan to the Plan recordkeeper, Fidelity Investments Institutional Operations Co. (‘Fidelity’), during the Class Period.” The plaintiff here further argues that “defendants should have lowered its Total RKA expenses by soliciting bids from competing providers and using its massive size and correspondent bargaining power to negotiate for fee rebates, but it did not do so or did so ineffectively.”

Perhaps looking to fend off a motion to dismiss (customary in such things), the suit claims (citing precedent[2]) that “There is no requirement to allege the actual inappropriate fiduciary actions taken because ‘a breach of fiduciary duty claim under ERISA can survive a motion to dismiss without ‘well-pleaded factual allegations relating directly to the methods. employed [sic] by the ERISA fiduciary if the complaint alleges facts that, if proved, would show that an adequate investigation would have revealed to a reasonable fiduciary that the investment at issue was improvident.’”

Notwithstanding that assessment, the suit goes on to comment that “the unreasonable Total RKA fees paid inferentially and plausibly establishes that an adequate investigation would have revealed to a reasonable fiduciary that the Plan Total RKA services, given their level and quality, were improvident. The facts alleged below show that a prudent fiduciary would have taken steps to reduce these Plan fees.”

Moreover, he notes that “There is no ‘obvious alternative explanation that suggests [that Defendants’] conduct falls within the range of reasonable judgments a fiduciary may make based on [their] experience and expertise,’” and that “defendants’ fiduciary decisions fall outside the range of reasonableness,” alleging that those breaches “caused Plaintiff and Class Members tens of millions of dollars of harm in the form of lower retirement account balances than they otherwise should have had in the absence of these unreasonable Plan fees and expenses.”

That said, and as is customary in such suits, the suit includes a caveat that “having never managed a mega 401(k) Plan, meaning a plan with over $500 million dollars in assets, Plaintiff, and all participants in the Plan, lacked actual knowledge of reasonable fee levels available to the Plan.” However, due to its size ($21,699,493,712 in assets in 2021) the suit asserts that “the Plan thus had more bargaining power regarding Plan fees and expenses than almost any other 401(k) Plan in the United States. Defendants, however, did not regularly monitor Fidelity to ensure that Fidelity remained the prudent and objectively reasonable choices to provide Total RKA services, as illustrated by not reducing its Total RKA fees for at least six years.”

And, doubtless cognizant of the recent trend in certain federal district courts to require that claims of excessive fees make reference to specific comparable services (to establish a “plausible” argument that a fee is “unreasonable”), the suit asserts that “There is nothing in the documents provided to Plan participants to suggest that there is anything exceptional, unusual, or customized about the Bundled RKA services provided to Pfizer Plan participants. In other words, the Plan provided participants all the commoditized Bundled RKA services provided to all other mega 401(k) plan participant. The quality or type of RKA services provided by competitor recordkeepers are comparable to that provided by Fidelity. Any differences in these Bundled RKA services are immaterial to the price quoted by recordkeepers for such services.” The plaintiff here also comments on his personal experience (a point of view that other courts have acknowledged) that “Plaintiff has participated in several other large or mega 401(k) plans from other employers and from his union, and there has been no material differences in the services that he has received.”

Just in case the point was missed, he goes on to cite “industry experts” commenting that “Custody and recordkeeping are ‘commodity’ services. Like any commodity, given equal quality, the key benchmark for these services is price. The cheaper you can find competent custody and recordkeeping services, the better for participants.” Which, the suit then claims, means that “RKA services are essentially fungible and the market for them is highly competitive,” and that “given the mammoth size of the Pfizer Plan, the same price paid by the Pfizer Plan for Bundled RKA over the Class Period, and the trend of price compression for Bundled RKA over the last six years, it is possible to infer that Defendants did not engage in any competitive solicitation of RKA bids, or only ineffective ones, breaching their fiduciary duties of prudence.”

And if that were not enough to make their case, they cite Fidelity’s own words in a case brought against the firm by its own participants (fees ranging from $21/participant to $14/participant)—and since the Pfiizer plan is twice as large as the Fidelity plan, “…Fidelity has conceded that the Pfizer Plan did not receive any broader or more valuable recordkeeping services from Fidelity than the services received by any other Fidelity-recordkept plan with at least $1 billion in assets during the Class Period.” More to the point, the suit alleges that the Pfizer plan is twice as large and paid twice the price on a per participant basis. 

The suit also includes a table of allegedly comparable plans, based on assets and participant counts. “The comparator plans serviced by other recordkeepers and who charged less received materially the same level and quality of total RKA services given that these services are fungible and commodified for mega plan like the Pfizer plan,” the suit maintains.
We’ll see if the court is persuaded.
 
NOTE: In litigation there are always (at least) two sides to every story. However factual it may turn out to be, the initial lawsuit in any action is only one side, and one generally crafted toward a particular result. In our coverage you'll see descriptions of events qualified with statements such as “the suit says,” or “the plaintiffs allege”—and qualifiers should serve as a reminder of that reality.

Footnotes

[1] A Level 3 Mechanical Integrity Inspector at the Pfizer location at 7000 Portage Road, Kalamazoo, MI 49001, from December 2013 through April 2023, who is said to have invested in the Vanguard Target Retirement Date 2030 Fund and Pfizer Common Stock during the class period.

[2] Comau LLC v. Blue Cross Blue Shield of Michigan, 2020 WL 7024683, at *7 (E.D. Mich. Nov. 30, 2020) (quoting Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 718 (2d Cir. 2013).)