Complainants claim Deloitte breached ERISA’s duty of care
The plaintiffs filed a new Employee Retirement Income Security Act (ERISA) lawsuit in U.S. District Court for the Southern District of New York, naming as defendants Deloitte LLP, the board of directors of the company and various other related entities.
The lawsuit alleges that the defendants authorized the payment of excessive administrative and record-keeping fees in connection with the operation of a 401 (k) plan and profit-sharing plan provided to employees of Deloitte.
According to the claimants, the plans’ billions of dollars in assets under management (AUM) qualify them as jumbo plans in the defined contribution (DC) market.
“As jumbo plans, the plans had substantial negotiating power regarding fees and expenses charged on participants’ investments,” the complaint states. “The defendants, however, did not attempt to reduce the plan’s expenses or exercise proper judgment to examine every investment option that was available in the plans to ensure that they were prudent. … Based on this conduct, the plaintiffs bring forward claims against the defendants for breach of fiduciary duty of care (count one) and breach of fiduciary supervision (count two).
The plaintiffs’ arguments in this case closely resemble those in previous ERISA cases filed against large domestic employers citing ERISA’s fiduciary obligations of general prudence and fiduciary oversight. In particular, these cases gave rise to varied results, depending on the facts in question and the points of view of the courts called upon to examine them. For example, Prudential recently defeated a similarly structured lawsuit based on plaintiffs’ failure to plausibly establish standing. The same result was achieved in an ERISA lawsuit filed against TriHealth. On the other hand, the defendants’ motions to dismiss were unsuccessful in a similar lawsuit against Allstate.
Generally speaking, the success of such prosecutions is linked to the ability (or lack thereof) of the plaintiffs to demonstrate that the payment of high fees or the provision of underperforming investments was likely the result of violations. trustees. In other words, simply stating that a plan paid higher fees than its peers or offered investments that underperformed other possible investment options is not enough to establish its reputation. with ERISA.
Here, the claimants suggest that Deloitte’s plans, with more than 89,000 members and over $ 14.5 billion in assets in 2019, should have been able to negotiate a record-keeping cost of around $ 20 from the start of the proposed recourse period. The complainants allege that “poorly performing plans” pay no more than $ 60 per member for record keeping, and that Deloitte paid an annual fee of approximately $ 65 to $ 70 per member of the 401 (k) plan and more than $ 200 per participant in profit sharing. plan.
“[Given] the fact that the plans have remained with the same archivist, namely Vanguard, since at least 2004, has paid an increasing amount in record keeping fees from 2018 to present, and paid outrageous amounts for record keeping of 2015 to 2017, there is little to suggest that the defendants tendered [RFP] at reasonable intervals (or certainly any time before 2015 to present) to determine if the plans could achieve better record keeping and administration fee pricing from other service providers, as the market for record keeping is very competitive, with many vendors also able to provide a high level of service, ”the complaint states.
The applicants make very similar arguments with respect to the investment options of the plans.
“The excessive costs of funds also provide circumstantial evidence, as well as the excessive costs of record keeping and administration, that the defendants failed to use a prudent process to monitor the costs of the plans,” the lawsuit said. “Failure to select funds that do not cost more than the average expense ratios for similar funds in similar sized plans costs plan members millions of dollars in damages. “
Deloitte has yet to respond to a request for comment on the lawsuit. The full text of the complaint is available here.