Plaintiffs Claim Fiduciary Breach in Recent Retirement Plan Class Action While Acknowledging Insufficient Data to Determine Reasonable Fee Levels

Nestle USA and its board of directors have been served with an ERISA class action on behalf of 401(k) plan participants and their beneficiaries. The suit alleges that Nestle and its representatives failed to monitor fees or act to reduce expenses passed along to plan participants.

Filed in the U.S. District Court for the Eastern District of Wisconsin on October 9, 2020, the suit — Guyes et al. v. Nestle USA Inc. et al. — alleges that the defendants breached their fiduciary duties by “…among other things: (1) authorizing the Plan to pay unreasonably high fees for recordkeeping and administration (RK&A); (2) authorizing the Plan to pay unreasonably high fees for managed account services; and (3) engaging in self-dealing with regard to administration of the Plan.”

“Actual Knowledge” Requirement

On February 26, 2020, the U.S. Supreme Court ruled in Intel Corp. Investment Policy Committee v. Sulyma that to meet the “actual knowledge” requirement of Section 1113(2) of ERISA, a plaintiff must be aware of an alleged breach or violation. The Court said that, “The addition of ‘actual’ in §1113(2) signals that the plaintiff’s knowledge must be more than ‘potential, possible, virtual, conceivable, theoretical, hypothetical, or nominal.”

The Guyes suit takes care to note that the plaintiff “did not have knowledge of all material facts (including, among other things, the cost of the Plan’s recordkeeping services compared to similarly-sized plans, the Plan’s leverage to negotiate lower recordkeeping expenses, the cost of the Plan’s managed account service compared to similarly situated plans, and the Plan’s leverage to negotiate managed account expenses) necessary to understand that Defendants breached their fiduciary duties and engaged in other unlawful conduct in violation of ERISA, until shortly before this suit was filed.”

In addition, the suit states that the plaintiff did not have actual knowledge of how defendants made decisions with respect to the plan but has “drawn reasonable inferences” regarding how those decisions were made. The suit also states that the plaintiff and plan participants have no experience in managing a large 401(k) plan and lack actual knowledge of reasonable fee levels and prudent alternatives available to such plans.

What Next?

The Guyes suit was filed by the same law firm that is engaged in similar ERISA litigation against the Costco 401(k) plan. While it is currently unclear as to how the plaintiff’s disavowal of “actual knowledge” and the assertions the plaintiff’s claim make regarding the reasonableness of the plan’s recordkeeping and administrative fees will play out, a closer examination of the plaintiff’s suit appears as though the suit is heavily reliant on assertions as fact.

Considering continued market disruption due to COVID-19, fiduciaries of retirement plans should prepare for potential ERISA litigation by seeking legal counsel to ensure that objective decision-making processes are in place and well-documented.

We help our clients stay on top of the legislative and regulatory changes that apply to their businesses, and we ensure that their benefit plans and processes are updated to stay in compliance. To learn more, call our team of responsive ERISA counsel today at 678-439-6236.

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)

%d bloggers like this: