The ERISA Industry Committee, the American Benefits Council ,and the National Association of Manufacturers argued in a friend of the court brief filed with a 7th U.S. Circuit Court of Appeals that is considering the participants’ cases against the manufacturer.
The two employee benefits trade groups and the manufacturers’ organization said that the Deere workers’ excessive fee claims are vague and contain an “utter lack of substance” (see Deere Workers Hit Fidelity with Excessive 401(k) Fee Suit). The trio also broadly labeled similar 401(k) fee cases against large corporations “fishing expeditions.”
“Having opened the courthouse doors with the assertion that 401(k) plan fees are “unreasonable,’ plaintiffs in this lawsuit and its counterparts have eagerly deployed discovery tools to obtain untold thousands of documents and hundreds of pages of transcribed deposition testimony in hopes of finding actionable wrongdoing,” wrote lawyers Thomas L. Cubbage III and John M. Vine, who filed the 7th Circuit brief. “Notably, those efforts have not been confined to the topic of revenue sharing: plaintiffs have applied post-filing investigatory efforts toward top-to-bottom scrutiny of plans’ administration and investments over lengthy periods of time.”
A Detrimental Effect
The brief contends that allowing suits like that filed by the Deere participants to proceed would have a detrimental effect on the employee benefit arena.
“Given the fact—which Plaintiffs emphasize—that defined contribution plans are becoming the predominant nongovernmental source of retirement income for today’s workers, a legal regime that allows groundless allegations of fiduciary misfeasance to trigger discovery and litigation costs hardly represents sound public policy,” the lawyers wrote. “If full-blown litigation proceedings can be triggered merely by an allegation that fiduciaries have failed to engage vendors at the lowest possible prices, or have failed to make cost the primary criterion in selecting plan vendors, the resulting perverse incentives are obvious.”
The lawyers continued: “At best, if vendors are required to be chosen solely on the basis of cost, plans will be exposed to the grave risk of receiving sub-standard services (whether for administration or investment management). At worst, more employers will conclude that the risks attendant to sponsoring defined contribution plans are unwarranted, and there will be a decline in employers’ willingness to sponsor defined contribution plans—just as it has for defined benefit pension plans.”
Quentin Riegel, Vice President of litigation and general counsel at the National Association of Manufacturers, a trade group that represents more than 11,000 U.S. companies, told Bloomberg that the groups decided to get involved because of the affect of the Deere case on other excessive fee litigation around the country. “This case will impact a number of the other cases on 401(k) fees,” Riegel told Bloomberg. “We felt that the sooner we offered our view, the better.’
U.S. District Court Judge John C. Shabaz granted a motion last summer to dismiss the case (see Deere and Fidelity Fee Lawsuit Thrown Out).The Department of Labor then filed a friend of the court brief in March arguing for the lower court to be overturned (see Fiduciaries May Have Disclosure Mandate Not Specified in Law).
The trade group brief is available here. The DoL brief is here.