In a rare jury trial, more than 26,000 employees and retirees were awarded more than $38,760,232 – an amount believed to be the highest jury verdict in an excessive fee lawsuit. The case is tied to a multiemployer 401(k) plan, administered by fiduciaries of Pentegra’s more than $2 billion Multiple Employer Defined Contribution Plan for Financial Institutions.
The case is yet another win for law firm Schlichter Bogard, which has been representing many plaintiffs in the onslaught of 401(k) and 403(b) excessive fee cases over the last few years. Jerry Schlichter, founder of Schlichter Bogard, is a pioneer in legal action against 401(k) and 403(b) plan sponsors on behalf of retirees and savers.
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Jury trials in Employee Retirement Income Security Act cases are rare because many courts have ruled that ERISA lawsuits seek equitable claims that must be heard by a judge, instead of money damages that can be submitted to a jury. However, some judges within the Second Circuit—which includes New York, Connecticut, and Vermont—have expressed greater willingness to allow jury trials in these cases.
The Pentegra multiple employer plan (MEP) was adopted by 250 banks for their employees. In Khan et al. v. Board of Directors of Pentegra Defined Contribution Plan, the jury found that fiduciaries of Pentegra’s breached their fiduciary duties under ERISA by paying unreasonable recordkeeping and administrative fees.
The class action case, which alleged “that the fees paid by participants have far exceeded the rates of comparable plans,” was originally filed in a New York district court in 2020 by employees Imran Khan, Joan Bullock and Pamela Joy Wood, who represented themselves and all others with retirement savings in the plan since September 15, 2014.
According to the lawsuit, in 2014, the plan paid Pentegra at least $9.52 million in direct recordkeeping and administration fees, or an average of $359.70 per participant, while a comparable plan, Nike’s 401(k) plan, with approximately 19,000 to 26,000 participants, paid $21 per participant for recordkeeping services in 2012 and 2016.
Pentegra was accused of failing to regularly monitor administrative fees or to solicit competitive bids from third-party providers. Since the plan is considered a “mega” plan based on its assets, Pentegra had tremendous “bargaining power” to obtain low recordkeeping fees, alleges the lawsuit.
In March 2022, a federal court found most of the plaintiffs’ ERISA fiduciary breach claims were sufficient to advance the litigation process.
Related: Supreme Court’s ruling in Cornell’s 403(b) ‘high fees’ case could bring a ‘tsunami’ of lawsuits
There could be more retirement plan excessive fee cases to come this year, since the Supreme Court took a worker-friendly approach on behalf of Cornell University’s 28,000 employees in their excessive fees suit earlier in the month. The high court’s final ruling on this case, which was another jury trial, could come “at any time before the term ends in June," said Schlichter, who also represented plaintiffs in Cornell’s case.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
