The 8th Circuit Court of Appeals has upheld a lower court ruling dismissing an excessive-fee claim against The Principal Financial Group, which served as recordkeeper to the 401(k) plan sponsored by McCaffree Financial Corp.
Participants in McCaffree’s 401(k) plan alleged The Principal charged excessive fees by putting participants in separate accounts that included Principal’s proprietary mutual funds.
That resulted in plan participants paying “grossly excessive investment management and other fees” that amounted to a breach of the fiduciary duties of loyalty and prudence under the Employee Retirement Income Security Act, according to the original complaint.
Early in 2015, those claims were dismissed in U.S. District Court for the Southern District of Iowa, on the grounds that The Principal was not acting as a fiduciary in acting as the plan’s recordkeeper.
The 8th Circuit unanimously upheld the lower court’s dismissal.
In its decision, the appellate court noted that because Principal was never a named fiduciary, McCaffree participants needed to prove the actions The Principal took administering the plan were fiduciary in nature.
None of the plaintiffs’ five arguments convinced the appellate court of as much.
In negotiating its agreement with The Principal in 2009, McCaffree remained free to reject the terms of the contract, and move its business to another service provider, wrote the 8th Circuit.
The Principal also was not acting in a fiduciary capacity when it selected 29 separate accounts from 63 options McCaffree originally agreed to, because McCaffree’s allegations claimed all of the fees were too high in the agreed to 63 accounts.
The plaintiffs also argued that The Principal was acting in a fiduciary capacity because it had the authority to raise management fees.
But the complaint never showed that The Principal exercised that authority, demonstrating to the 8th Circuit that “McCaffree seeks to evade through this lawsuit precisely those fees to which the parties contractually agreed,” according to court documents.
And claims that The Principal provided participants investment advice, in effect making them a fiduciary, were irrelevant to the core claims in the complaint—that all of separate accounts offered to participants were too expensive.
“Principal’s enforcement of the terms of its contract with McCaffree did not implicate any fiduciary duties, and McCaffree failed to establish a connection between its excessive fee allegations and any post-contractual fiduciary duty Principal may have owed to plan participants,” concluded the unanimous 8th Circuit, according to its ruling.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
