Summary
The Second Circuit affirmed the district court's dismissal of a putative class action alleging that Deloitte breached its fiduciary duties under ERISA by failing to negotiate lower recordkeeping fees for its 401(k) plan. The court held that the plaintiffs failed to plausibly allege that the fees were excessive relative to the services rendered, as they did not provide sufficient context or comparative data regarding the quality and scope of services provided by comparator plans.
Topics
Practice areas
Questions Presented
- Whether the proposed amended complaint plausibly alleged that the Deloitte 401(k) plan's recordkeeping and administrative fees were excessive relative to the services provided, such that the plan fiduciaries breached ERISA's duty of prudence.
- Whether the proposed amended complaint stated a derivative claim that Deloitte and its Board failed to monitor other plan fiduciaries.
- Whether the district court properly denied leave to amend on the ground that amendment would be futile.
Holdings
- The proposed amended complaint failed to plausibly allege that the plan's recordkeeping fees were excessive relative to the services rendered or that defendants acted imprudently by failing to obtain lower fees. Fee comparisons lacking sufficient context about the type, scope, and quality of services, and comparing only direct fees while omitting indirect revenue-sharing fees, were insufficient.
- The failure-to-monitor claim was derivative of the duty-of-prudence claim and could not survive because the underlying fiduciary-duty claim was properly dismissed.
- The district court properly denied leave to amend because the proposed amended complaint could not withstand a motion to dismiss.
Key quotations
“But as we said in Young, plaintiffs need plausibly to allege that challenged fees “were excessive relative ‘to the services rendered,’” or to provide allegations “concerning other factors relevant to determining whether a fee is excessive under the circumstances.”” (at 10)
“Absent greater specificity as to the type and quality of services provided by the Plan and its comparators – or absent other allegations providing the context that might move this recordkeeping claim “from possible to plausible,” Matousek, 51 F.4th at 278 – Plaintiffs fail to state a claim for breach of the duty of prudence.” (at 20)
Factual background
Deloitte maintained a defined-contribution 401(k) plan with tens of thousands of participants and billions of dollars in assets. Vanguard provided the plan's recordkeeping and administrative services, and participants allegedly paid direct fees and indirect fees through revenue sharing. Plaintiffs alleged that the plan's per-participant recordkeeping costs exceeded those of six comparator plans and that Deloitte's fiduciaries failed to negotiate lower rates or periodically solicit competing bids.
Procedural history
Plaintiffs filed a putative class action on October 13, 2021, alleging that Deloitte plan fiduciaries breached ERISA's duty of prudence by allowing excessive recordkeeping and administrative fees. The district court granted defendants' motion to dismiss, allowed plaintiffs an opportunity to seek amendment, and then denied leave to file the proposed amended complaint because amendment would be futile. The Second Circuit reviewed the denial of leave to amend de novo and affirmed the judgment.