Deloitte Vindicated in Excessive Fee Dismissal

A U.S. District Court judge in the Southern District of New York granted on Friday Deloitte LLP’s motion to dismiss a lawsuit brought under the Employee Retirement Income Security Act that was filed in October of 2021.

The complaint said that Deloitte’s 401(k) and profit sharing plan totaling over $14 billion in assets used a revenue sharing fee structure whereby the plan was charged a percentage of assets managed instead of a per-participant fee. Vanguard was the plan recordkeeper.

The suit acknowledged that revenue sharing is not imprudent per se but, if left unmonitored, fees could increase significantly, despite there being no additional recordkeeping services rendered.

Deloitte moved to dismiss the lawsuit for lack of standing and failure to state a claim in March 2022, and U.S. District Court Judge John G. Koeltl granted the dismissal with leave to amend, giving the plaintiffs 30 days to refile the complaint with changes.

The PSP was only available to partners, managing directors and principals. Since none of the plaintiffs held those positions, Koeltl ruled they did not have standing to challenge the PSP. They did have standing to challenge the 401(k) offered to all full-time employees, Koeltl found.

Additionally, though the plaintiffs challenged the prudence of six funds offered in Deloitte’s retirement plan, only one plaintiff, Jeffrey Popkin, invested in any of them. Popkin invested in two of the six: a real estate fund and an emerging markets fund, both managed by T. Rowe Price, making those the only parts of the case Koeltl considered further.

Koeltl dismissed the rest of the case for failure to state a claim. The ruling stated that the plaintiffs cannot argue that the fees charged in the plan are greater than comparators but must argue that the fees are excessive relative to the actual services rendered. The ruling stated that the plaintiffs had never outlined the specific services that Vanguard offered the plan or compared them to the services provided for the plans to which Vanguard charged lower fees.

Koeltl also noted that the plaintiffs’ appeal to median fee levels for similar plans cannot be evidence of imprudence, because that would mean the top half of plans are imprudent fiduciaries by definition.

The ruling read, “In effect, the plaintiffs have only alleged that some funds in the world are more expensive than other funds.”