(Another) $1 Billion Plan Billed In Costume Of Excessive Fees

You might think the Plaintiffs Bar would have exhausted the number of $1 billion 401(k) plans to sue, but you’d be wrong.

The latest is healthcare and biosciences company Grifols Shared Services NA – and trustees of the $1,035,952,055 plan (as of 2020), 10,550 participants who – according to participant-claimant Walter J. Gruber, Jr. – breached their duty of care owed to the Plan by requiring the Plan to “pay[ ] excessive account fees [and managed account fees].”

The suit (Gruber v. Grifols Shared services. NA, Inc., CD Cal., No. 2:22-cv-02621, complaint dated 04/19/22) alleges that they further breached these obligations “by failing to remove their high-cost accountant, Fidelity Investments Institutional (“Fidelity”), and their high-cost managed account service provider, Strategic Advisors, Inc. (“SAI”). “These objectively unreasonable record keeping, managed account and investment fees cannot be justified by the context and fall outside the “range of reasonable judgments that a fiduciary can make based on their experience and expertise,'” the suit said.[i] complaints.

Familiar Grounds

The lawsuit treads on familiar ground – difficult stock classes, record-keeping fees compared to purportedly comparable plans, and the use of managed accounts, which this plaintiff essentially accused of being an expensive target-date fund. That said, the allegations were fairly general, but the lawsuit alleged that “there is no need to allege the actual improper fiduciary actions taken because” an ERISA claimant alleging a breach of fiduciary duty need not plead details to which he does not have access, as long as the facts alleged tell a plausible story.

The lawsuit declines at the outset noting, as other lawsuits have before it, that “the plaintiff and all plan participants were unaware of all material facts (including, among other things, the conduct of excessive records, managed account and investment fees) necessary to understand that the defendants breached their fiduciary duty of care until shortly before the filing of this complaint” – a statement no doubt made to establish the commencement of the statute of limitations beyond which damages cannot be claimed.Indeed, despite the allegations that follow, the suit acknowledges that “having never run a mega 401(k) plan, that is- i.e. a plan with over $500 million in assets, the plaintiff and all plan participants lacked real knowledge of the fee levels available to the plan.Of course, this is the signal they need to go to the next step ante: the discovery of the facts.

Despite this acknowledged lack of specificity, the prosecution asserts a number of positions as facts without independent substantiation (several of which appear to merit questioning), such as:

  • All archivists quote charges for RKA services bundled on a per-participant basis without considering individual differences in the services requested, which are treated by archivists as insignificant because they are, in fact, inconsequential from the point of view of participants. costs for the delivery of bundled services. RKA services.
  • The vast majority of fees received by archivists typically come from bundled fees for providing bundled RKA services as opposed to Ad Hoc RKA services.
  • Since dozens of archivists can provide the full range of RKA services required, plan trustees can ensure that the services offered by each specific archivist are apples-to-apples comparisons.
  • Any difference in registrar fees between comparable plans is not explained by the level and quality of service provided by each registrar.
  • Many managed account services simply mimic the asset allocations available through a target date fund while charging unnecessary additional fees for their services.
  • A baseline survey alone is insufficient. Such surveys tend toward higher “average prices,” which promote inflated record keeping fees. To receive truly “reasonable” registrar fees in today’s market, prudent plan trustees regularly engage in competitive bid solicitations.

The lawsuit claims that “during the Class Period, the Defendants failed to regularly monitor the Plan’s record keeping fees paid to archivists, including but not limited to Fidelity”, that they “did not have not regularly solicited quotes and/or competitive offers from archivists, including but not limited to Fidelity, in order to avoid paying unreasonable record keeping fees”, and that “…unlike to a hypothetical prudent fiduciary, the defendants followed a fiduciary process that was conducted inefficiently in light of the objectively unreasonable record keeping fees they paid Fidelity and in light of the level and quality of archival services that he received.

‘Adjustment’ tables

Now, as other such lawsuits have done, the plaintiff here produces tables intended to show which comparable plans (although the comparability seems to be only size – having already asserted (without justification) that the services provided are essentially identical) have paid for record keeping, investment management and, in this case, managed account services. It claims that the Grifols plan paid average annual recordkeeping/administrative services of approximately $66/per participant compared to alleged comparables ranging from $41/participant to $28/participant, “took participants to the Grifols plan, including the plaintiff, to pay excessive fees for managed account services to SAI, which were “estimated not to exceed 0.52% per annum of [a participant’s] average daily managed account balance,” and that their choice of more expensive share classes for plan investments “caused unreasonable and unnecessary losses to plan participants through 2020 in the amount of approximately $649,599.

Ultimately, they “failed to regularly monitor plan record keeping fees paid to archivists, including but not limited to Fidelity”, “failed to regularly solicit quotes and/or competitive bids from archivists, including but not limited to Fidelity, to avoid paying unreasonable record keeping fees, and that “…unlike a hypothetical prudent fiduciary, defendants followed a fiduciary process that was conducted ineffectively considering the objectively unreasonable record keeping fees they paid to Fidelity and in light of the level and quality of record keeping services they received”.

As to the net “damage” attributable to these actions, the suit alleges that “from the years 2016 through 2020, and because defendants failed to act in the best interests of plan participants, and relative to other plans of similar sizes with money under management, receiving a similar level and quality of services, the plan actually cost its participants a total minimum amount of approximately $1,394,637 in unreasonable and excessive RKA fees”, and which , on a compounded basis, has accrued “a total, cumulative amount greater than $1,907,016 in RKA charges. Invoking the recent Northwestern v. Hughes U.S. Supreme Court ruling, the suit says that “…these record-keeping allegations do not relate to reasonable compromises between archivists providing a different level or quality of services,” that “defendants do not did not take advantage of the size of the plan to timely negotiate lower fees from its existing archivist, and defendants could have obtained the same archival services at a lower cost from other similar archivists.” Further, he asserts that “Plaintiff paid these excessive record-keeping fees in the form of direct compensation to the Plan and suffered damages to his Plan Accounts as a result.”

Ultimately, the suit alleges that during the class period, the defendants:

1) failed to conduct an impartial and objectively reasonable review of the Plan’s investments on a quarterly basis;

2) has not identified the conservative share classes available for the Plan; and

3) did not shift Plan investments into conservative share classes with the lowest net expense ratios as soon as possible.

Will these allegations be considered sufficient and plausible in view of the statements made? In the context of the Hughes decision? We will see.


[i] Walcheske & Luzi LLC and Creitz & Serebin LLP represent the plaintiffs here.

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