Anthem Excessive Fee Case Survives Most Motions to Dismiss

The suit charges Anthem 401(k) plan fiduciaries with offering plan investments with excessive fees and paying too much for recordkeeping services, among other things.


A federal district judge has moved forward most claims in an excessive fee case brought by participants in the Anthem 401(k) Plan.

The defendants, fiduciaries of the plan, moved to dismiss the plaintiffs’ amended complaint, contending that the plaintiffs failed to state a claim upon which relief can be granted. The defendants also assert that the plaintiffs’ claims are untimely.

Under Count I, the plaintiffs assert that defendants breached their fiduciary duty by selecting and retaining plan investment options with excessively high fees instead of choosing identical lower-cost investment options that were available during the relevant period. Citing two prior court cases, the defendants assert they did not breach their fiduciary duty because the plan offered an array of different investments with an acceptable range of fees.

In response, the plaintiffs contend that the defendants’ reliance on the prior cases is misplaced because they do not claim any problem with the “array” of plan investment options offered, but take issue only with the cost of the investment options. The plaintiffs rely on Tibble v. Edison when arguing that the defendants breached their fiduciary duty because, from December 29, 2009, through July 22, 2013, they provided investment options at a higher cost when the same investment options were available at a lower cost. Judge Tanya Walton Pratt of the U.S. District Court for the Southern District of Indiana agreed and denied the defendants motion to dismiss Count I.

Under Count II, the plaintiffs argue that the defendants breached their fiduciary duty because, prior to restructuring the investment lineup in 2013, they failed to solicit competitive bids from vendors on a flat participant fee and failed to monitor recordkeeping compensation to ensure that the plan’s recordkeeper received only reasonable compensation. The plaintiffs assert that a reasonable compensation for recordkeeping is a flat fee of $30 per participant.

But, the defendants contend the court should dismiss Count II because the plaintiffs failed to make any factual allegations that the recordkeeping fees are the result of any type of self-dealing. They argue that the plaintiffs also failed to plead any facts to support the claim that a reasonable recordkeeping fee for the plan would have been $30 per participant or that there were other vendors equally capable of providing recordkeeping services for the plan at that lower cost. They assert that without these facts, the plaintiffs’ claim is nothing more than a conclusory allegation that the plan’s recordkeeping fees were unreasonable because they were higher than what the plaintiffs thought they should be.

But, Pratt found that the plaintiffs were not required to allege that the recordkeeping fees were the result of any type of self-dealing, but were required to assert only that the defendants failed to act with prudence when failing to solicit bids and to monitor and control recordkeeping fees. She denied defendants motion to dismiss Count II.

NEXT: Offering a stable value fund and monitoring fiduciaries

Under Count III, the plaintiffs allege the defendants breached their fiduciary duty by providing and maintaining the Vanguard Prime Money Market Fund, while failing to prudently consider and make a reasoned decision regarding whether to use a stable value fund. The defendants argue that the Employee Retirement Income Security Act (ERISA) does not require a fiduciary to offer participants a specific investment type or even a particular mix of investment vehicles. Because participants had an array of choices across the risk spectrum, the defendants argue they cannot be faulted for offering a money market fund as a low-risk, low-return investment option instead of a higher-risk, higher-return stable value fund.

Pratt noted, and the parties agreed, that the defendants did not have a duty to absolutely provide a stable value fund instead of a money market fund. The issue is whether Defendants considered a stable value fund option and came to a reasoned decision for continuing to provide the money market fund instead. The plaintiffs argue that the defendants breached their fiduciary duty because an average stable value fund has dramatically outperformed the plan’s money market fund, but despite the advantages, the defendants failed to provide a stable value fund. They also contend that, had the defendants considered a stable value fund and weighed the benefits, the defendants would have removed the plan’s money market fund and provided a stable value fund. Pratt concluded that the plaintiffs’ assertion is conclusory and is not enough to state a claim. The motion to dismiss count III was granted.

Count IV asserts that Defendants are responsible for monitoring and removing fiduciaries, specifically members of the Pension Committee. The plaintiffs argue that the defendants breached their fiduciary monitoring duties by, among other things, failing to ensure that the monitored fiduciaries had a process for evaluating the plan’s administrative fees to ensure that the fees are reasonable; considered comparable investment options, including lower-cost share classes of the identical mutual funds, that charged lower fees than the plan’s mutual fund; and removed appointees who continued to maintain imprudent, excessive-cost investments and an option that did not keep up with inflation.

According to the court opinion, both parties agree that Count IV is entirely derivative of the underlying breach of fiduciary duty claims outlined in Counts I through III. So, Pratt declined to dismiss the plaintiffs’ failure to monitor claims regarding the consideration of low-cost, identical mutual funds and the evaluation of recordkeeping fees. But, she dismissed the plaintiffs’ failure to monitor claim as it relates to their contention that the defendants should have offered and considered a stable value fund.

Count V states that the Pension Committee failed to supply plan information upon request, in violation of ERISA.

The defendants argue that the court should dismiss Count V because the plaintiffs allege only that they sent two requests to the Pension Committee, who refused the requests upon delivery, but the plaintiffs failed to allege that the Pension Committee ever received their requests. In response, the plaintiffs counter that when looking at the plain text of ERISA, “receipt” is not an element of their claim under Count V.

Because the plaintiffs allege that the Pension Committee refused to accept the requests and the defendants do not allege that that failure was beyond the control of the Pension Committee, Pratt denied the motion to dismiss Count V.

In response to the defendants’ accusation that the participants’ claims were untimely, Pratt said that because the defendants do not allege that the plaintiffs had actual knowledge of defendants’ solicitation and monitoring process, the motion on this issue is denied.