A forceful statement from the judge in a recent plan sponsor victory in a 401(k) excessive fee lawsuit could provide some guidance for others regarding the way in which recordkeeping fees are negotiated and monitored, a source said.

A federal judge in May agreed with the arguments presented by Humana Inc., dismissing a class action lawsuit against the 401(k) Humana Retirement Savings Plan, which had alleged the company used an improper process to administer the plan that led to excessive recordkeeping fees.

District Judge Rebecca Grady Jennings tossed the lawsuit from U.S. District Court for the Western District of Kentucky with prejudice, granting summary judgment for the accused on the claim plan recordkeeper Charles Schwab Retirement Plan Services charged the plan unreasonable fees. The accusers had contended that, although Humana engaged in requests for proposals for the plan and performed annual benchmarking using reports from third-party consultants, Schwab’s recordkeeping costs were unreasonably high.

The lawsuit is Moore et al. v. Humana Inc. et al. It was filed in 2021.

“Even if there were a genuine dispute of fact on the committee’s process, there can be no doubt that plaintiffs have failed to demonstrate any dispute of fact on whether the recordkeeping fees were excessive relative to the services provided,” Jennings wrote.   

Jennings dismissed each separate claim brought by the accusers—in a memorandum opinion and order—which was followed by a separate final and appealable judgment that tossed out the lawsuit and struck it from the court’s docket. An appeals deadline was not specified.

Attorneys for Humana and the accusers, Humana retirement plan participants—Kena Moore, Timothy Sweeney, Russel Hohman, Susan Smith and Veronica Cargill—had both sought summary judgment for their side, in the lawsuit.

For the accusers to succeed on their arguments, the legal standard per the Employee Retirement Income Security Act is they must show the court both that defendants breached their fiduciary duty of prudence and that recordkeeping fees were unreasonable, Jennings explained.

Jennings ruled for the accused on each claim, dismissing as “unpersuasive” arguments presented by the accuser that the plan’s failure to have a fee policy statement amounted to an imprudent process.

“Nothing in the record suggests that a fiduciary’s process cannot be prudent without the aid of a fee policy statement,” Jennings wrote.

Jennings also dismissed the accusers’ next argument, claiming the plan used an imprudent process.

“Plaintiffs have no factual support for their position that a $12–$20 recordkeeping fee would have been reasonable for the Plan to pay,” Jennings wrote. “Plaintiffs also point to no case law suggesting that a prudent process must involve continuous negotiations with a recordkeeper for lower fees throughout a contract period.”

Douglas Neville, a partner with law firm UB Greensfelder LLP in St. Louis, cited the part of the judge’s ruling that “soundly rejected” the idea that continuous fee negotiations are needed to comply with ERISA.

While the decision is the case is not binding precedent for other cases, it “may be useful to defendants in other cases facing similar allegations,” he says.

The plaintiffs are represented by attorneys with law firm Capozzi Adler PC, Shook, Hardy & Bacon LLP and Kirk Law Firm PLLC; the defendant is represented by attorneys with O’Melveny & Myers LLP and Kaplan Johnson Abate & Bird LLP.

Neither the attorneys for the plaintiff nor the counsel for the defendants responded to requests for comment. Representatives for Humana, Inc. also declined comment.