Aegis Media Faces ‘Down Market’ Excessive Fee ERISA Challenge

The case is an example of class action fee litigation targeting a ‘large’ rather than a ‘jumbo’ plan, as the Aegis retirement plan under scrutiny holds less than $1 billion.

Plaintiffs have filed a proposed class action lawsuit against Aegis Media Americas, alleging that the firm has permitted excessive fees to be levied on participants within its defined contribution (DC) retirement plan.

Filed in the U.S. District Court for the Southern District of New York, the complaint alleges a familiar host of fiduciary breaches commonly included in Employee Retirement Income Security Act (ERISA) lawsuits. What distinguishes the suit is the relatively small size of the plan in comparison with the many others that have faced similar allegations. Such plans generally have well in excess of $1 billion in assets, while the Aegis plan in question held some $540 million at the end of 2018, according to case documents, though it has presumably grown since that date.

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“As a large plan, the plan had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments,” the complaint states. “Defendants, however, did not try to reduce the plan’s expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the plan to ensure it was prudent.”

The plaintiffs cite ERISA Section 3(21)(A) while arguing that their plan’s fiduciaries “failed to objectively and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost.” They cite the same section to support their allegations that plan fiduciaries maintained certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories.

In their complaint, the plaintiffs acknowledge that “at some point during 2018, over four years into the class period, defendants made changes to certain plan investment options, some of which are the subject of this lawsuit.” However, the plaintiffs argue, the changes came too late to prove that a prudent fiduciary monitoring process was in place.

As is common in such ERISA lawsuits, the complaint seeks to establish that its allegations are timely even under the special statute of limitations that can be applied by courts contemplating such issues. This issue was recently visited by the Supreme Court in Intel v. Sulyma and has thus featured prominently in newly filed ERISA complaints.   

“Plaintiffs did not have knowledge of all material facts (including, among other things, the investment alternatives that are comparable to the investments offered within the plan, comparisons of the costs and investment performance of plan investments versus available alternatives within similarly sized plans, total cost comparisons to similarly sized plans, information regarding other available share classes, and information regarding the availability and pricing of separate accounts and collective trusts) necessary to understand that defendants breached their fiduciary duties and engaged in other unlawful conduct in violation of ERISA until shortly before this suit was filed,” the complaint states. “Further, plaintiffs did not have and do not have actual knowledge of the specifics of defendants’ decisionmaking process with respect to the plan, including defendants’ processes (and execution of such) for selecting, monitoring and removing plan investments, because this information is solely within the possession of defendants prior to discovery.”

Another Supreme Court ruling featuring prominently in the text of the complaint is Tibble v. Edison. That 2015 decision was taken to establish clearly that the “ongoing duty to monitor” investments is a fiduciary duty that is separate and distinct from the duty to exercise prudence in the initial choice of an investment. The big practical result was that plan sponsors can no longer rely on ERISA’s statute of limitations to protect themselves from accusations of potentially imprudent investment decisions made in the past when the investment options in question persist on the menu to this day.

“A prudent fiduciary conducting an impartial review of the plan’s investments would have identified the cheaper share classes available and transferred the plan’s investments … into the lower share classes at the earliest opportunity,” the complaint states. “There is no good-faith explanation for utilizing high-cost share classes when lower cost share classes are available for the exact same investment. The plan did not receive any additional services or benefits based on its use of more expensive share classes; the only consequence was higher costs for plan participants.”

Aegis has not yet responded to a request for comment. The full text of the complaint is available here.