ERISA Fee Appeal Denied in Pennsylvania District Court, Extending Favorable Trend – Employee Benefits and Compensation

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in Krutchen v. Ricoh USA, No. 22-cv-678, 2022 U.S. Dist. LEXIS 206792 (ED Pa. Nov. 15, 2022), a Pennsylvania district court dismissed an ERISA overcharge complaint because it failed to provide sufficient information about alleged comparator plans that allegedly paid less for services for record keeping. The decision is notable for giving defendants a victory in the Third Circuit, which previously allowed overarching filing claims to survive dismissal Sweden vs. USA, Pennsylvania(discussed herein) and to cite in favor of recent opinions favorable to defendants from the Sixth, Seventh, and Eighth Circuits.

Background

The plaintiffs in Krutchen are former employees of the defendant plan sponsor who participated in its 401(k) plan. Plaintiffs brought claims for breach of fiduciary duty of care and failure to monitor alleging that the plan paid excessive recordkeeping fees. In support of their claims, Plaintiffs compare the plan’s costs to the backup costs of twelve other plans, cite a nationwide backup cost study, and cite case law addressing the backup costs of other plans.

The decision of the district court

The court dismissed the plaintiffs’ claims in their entirety, but allowed them to refile their complaint. In its ruling, the court explained that fiduciaries can choose different services from bundled offerings or additional a la carte services, as the plan did here. The court recognizes that comparisons between price tags without sufficient detail about the services actually performed are too general and speculative to support a plausible inference that the defendants breached their fiduciary duties by overpaying for services.

The court faulted the plaintiffs for failing to include information about the specific services used by the plan, comparison plans, and plans reviewed in the cited case law. Plaintiffs list the services that all national registrants have the ability to provide and simply assert that the plan’s selected services “fall within the broad range” of those available. The court found that this did not provide enough information to know whether the fee comparisons were valid or apples to oranges comparisons. The court distinguished
Pot, where the plaintiffs used “specific comparisons” showing that the “practices of similarly situated fiduciaries” differed from those of the allegedly imprudent plan. The court also found support for its analysis from decisions outside the circuit in Albert v. Oshkosh Corp.47 F.4th 570 (7th Cir. 2022) (discussed here); Smith v. CommonSpirit Health, 37 F.4th 1160 (6th Cir. 2022) (discussed herein); and Matousek v. MidAmerican Energy Co ., 51 F.4th 274 (8th Cir. 2022) (discussed herein). Finally, because the duty to monitor claim is derivative of a breach of the duty of care, it is also dismissed.

Proskauer’s point of view

The ruling is a positive development for plan sponsors because it shows that district courts outside the Sixth, Seventh, and Eighth Circuits appear to be heeding the requirements for allegations of factual information sufficient to support the validity of comparisons between different plans. Notably, this is the second decision by a district court in the Third Circuit in 2022 to dismiss recordkeeping claims despite Pot.

ERISA fee appeal dismissed in Pennsylvania District Court, extending favorable trend

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