401(k) Fee Complaint Survives Dismissal Post-Hughes

March 23, 2022
Hall Benefits Law, LLC

In the first court decision since the U.S. Supreme Court’s decision in Hughes v. Northwestern University et al., case number 19-1401, a Georgia federal district court ruled in favor of the plaintiffs in declining to dismiss their complaint concerning costly 401(k) plan fees and underperforming funds. In Goodman v. Columbus Reg’l Healthcare Sys., 2022 U.S. Dist. LEXIS 13489 (M.D. Ga. Jan. 25, 2022), participants in their employer’s 401(k) plan allege that the plan sponsors breached their fiduciary duty of prudence under ERISA by:

  • Offering retail share class mutual funds, even though identical institutional share class mutual funds were available at a lower cost
  • Including actively managed mutual funds instead of less expensive passively managed mutual funds
  • Choosing and maintaining underperforming funds
  • Paying excessive fees for recordkeeping services

The court relied heavily on Hughes, rejecting the defendant’s argument that it should dismiss the plaintiff’s claims simply because it offered various investment options, including lower-cost passive investment choices. The court also cited Hughes for the proposition that plan participants may state a cognizable breach of fiduciary duty claim based on imprudence under ERISA by alleging that the plan sponsors offered retail share class mutual funds in place of identical institutional share class mutual funds. Finally, the court noted that the plaintiffs made plausible claims of ERISA violations in that the plan paid almost double the fees charged by plans of similar sizes, and the plan sponsors failed to monitor those costs.

As the district court issued this decision merely one day after the Supreme Court issued its decision in Hughes, the parties to the case were unable to engage in any additional briefing concerning the impact of the Hughes decision. Therefore, it is unclear whether this decision indicates if these trends will continue.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

The following two tabs change content below.

Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

Latest posts by Hall Benefits Law, LLC (see all)