Lawsuit Alleges ERISA Breaches by Fiduciaries of Nokia of America 401(k) Plan

Plan fiduciaries face a breach of duty of prudence claim over allegedly excessive investment and recordkeeping fees.

Law firm Capozzi Adler has filed a lawsuit on behalf of participants in Nokia of America Corp.’s 401(k) plan, alleging the company, its board of directors and its 401(k) plan committee violated the Employee Retirement Income Security Act (ERISA) by allowing plan participants to pay excessive fees for investments and recordkeeping services.

As a preliminary matter, the attorneys cite the Uniform Prudent Investor Act in the complaint, which says, “Wasting beneficiaries’ money is imprudent. In devising and implementing strategies for the investment and management of trust assets, trustees are obligated to minimize costs.” The lawsuit also cites decisions from the 9th U.S. Circuit Court of Appeals and the U.S. Supreme Court in the Tibble v. Edison case to make a point that prudence should be applied in not only selecting retirement plan investments but in monitoring and reviewing those investments over time.

Noting that at the end of 2020 and 2019, the plan had more than $8.5 billion and $7.9 billion, respectively, in assets under management (AUM), the complaint says the plan qualifies as a jumbo plan in the defined contribution (DC) plan marketplace. As such, the lawsuit says, plan fiduciaries had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments.

The lawsuit includes one count for the breach of the fiduciary duty of prudence and a second count for failure to monitor fiduciaries.

To address any pleading standard, such as that set by the Fifth Third v. Dudenhoeffer case, the attorneys note in the complaint that the plaintiffs did not have and do not have actual knowledge of the specifics of the defendants’ decisionmaking process with respect to the plan because this information is solely within the possession of the defendants prior to discovery. They say that for purposes of the complaint, reasonable inferences have been drawn regarding these processes based upon several factors.

For example, the complaint alleges that the defendants could not have engaged in a prudent process as it relates to evaluating investment management fees because expense ratios for the plan’s funds were 364% above the Investment Company Institute (ICI) median in some cases and 252% above the ICI median in other cases. The attorneys used a chart to support their claim that the high cost of the plan’s funds is also evident when comparing them with the average fees of funds in similarly sized plans.

“The defendants’ failure to obtain reasonably priced investments is circumstantial evidence of their imprudent process to review and control the plan’s costs and is indicative of the defendants’ breaches of their fiduciary duties,” the complaint states.

The attorneys also imply that because the plan paid yearly amounts in recordkeeping fees that increased each year over, there is little to suggest that the defendants conducted a request for proposals (RFP) at reasonable intervals to determine whether the plan could obtain better recordkeeping and administrative fee pricing from other service providers. The lawsuit calls into question the fact that the recordkeeping fees were based on plan assets, noting that as plan size increases so does the per participant cost.

The attorneys again used a chart to demonstrate their claim that the plan’s per-participant administrative and recordkeeping fees “were astronomical when benchmarked against similar plans.” According to the complaint, the per-participant charge steadily increased from a low of $76 per participant in 2015 to a high of $116 per participant in 2020. It cites an NEPC survey that found the majority of plans with more than 15,000 participants paid slightly less than $40 per participant recordkeeping, trust and custody fees.

Another chart the attorneys say includes “a few well managed plans having more than 30,000 participants and approximately $3 billion in assets under management,” is used to support a claim that fiduciaries of Nokia’s plan should have been able to negotiate a recordkeeping cost in the low $20 range.

“Given the size of the plan’s assets during the class period and total number of participants, in addition to the general trend toward lower recordkeeping expenses in the marketplace as a whole, the plan could have obtained recordkeeping services that were comparable to or superior to the typical services provided by the plan’s recordkeeper at a lower cost,” the complaint states.

Nokia of America has not yet responded to a request for comment.