Excessive plan fee and imprudent plan management litigation was lower in the first half of 2023 than it was last year, but plaintiff law firms also appear to be getting smarter in their arguments, according to analysis from Euclid Fiduciary.

There were 21 excessive fee and fiduciary imprudence cases in the first half of 2023, far off the 89 filed for the full year 2022, according to the fiduciary insurance underwriter. The firm forecasts 45 filings this year overall, almost 50% off last year’s pace.

But the smaller case load is more indicative of plaintiff law firms catching up with a robust 2022 than of an easing of future litigation, says Daniel Aronowitz, the managing principal in Euclid Fiduciary.

“The number of cases are down as the big firms are digesting their cases,” Aronowitz says.

This year’s slowdown is “likely temporary,” he says, noting in his mid-year analysis that there continue to be demands from plaintiff firms for plan administration information, many of which “turn into lawsuits.”

Overall, Aronowitz says the trend toward excessive fee cases, which have been dominating plaintiff filings in recent years, does appear to be dwindling, with a shift toward investment underperformance claims. Among new claims, trends include claims about providers making income from plan participant assets and allegations of imprudence resulting from providers choosing investment funds in the wrong share class.

New Entrants

While the overall slowdown was not surprising, Aronowitz says, given the raft of complaints filed in 2022, the more interesting development is that two new plaintiff law firm entrants, Wenzel Fenton Cabassa PC and Christina Humphrey Law PC, have been making more “thoughtful” arguments.

“Whereas many historical excess fee filings have used artificially inflated fee data and misleading comparisons, these new firms assert somewhat more credible recordkeeping fee claims based on plan services, and some complaints even include participant fee disclosures with accurate fees charged to participants,” Aronowitz wrote in his analysis.

Many excess fee complaints base their case on Form 5500 filings, dividing plan size by number of participants, which Aronowitz argues is often “inflated or just plain wrong.” Firms Wenzel and Christina Humphrey, meanwhile, filed complaints using participant fee disclosures, which he writes are more accurate.

“We consider this historic for the excess fee genre, as most law firms pretend that there is some kind of mystery as to what participants pay for recordkeeping,” he wrote.

The plaintiff law firms are also introducing “new theories of liability” that allege imprudence against plan sponsors who do not monitor interest float and other indirect income being made by recordkeepers, Aronowitz wrote.

The first float claims were included in four complaints by Wenzel Fenton, then copied by another law firm, he notes. In Barner v. McLane Co. Inc., the plaintiff alleges that investment firm Merrill Lynch allowed participant deposits or money withdrawn from the plan from individual accounts to first pass through a Merrill clearing account, with Merrill allegedly being able to keep “millions of dollars” from investment earnings and interest.

Meanwhile, eight complaints, including four from the Christina Humphrey law firm, focus on whether plan sponsors are providing the lowest-fee share classes in plans.

“Plaintiff firms know that share class claims are the most difficult claims to dismiss at the pleading stage and will remain a staple of excessive investment fee claims,” Aronowitz wrote.