Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 1 of 52
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF MASSACHUSETTS
`
`
`
`Case No: 1:22-cv-10069
`
`
`
`CLASS ACTION COMPLAINT
`
`
`
`
`ADILSON MONTEIRO, KAREN
`GINSBURG, JASON LUTAN, and
`BRIAN MINSK, Individually and as
`representatives of a class of similarly
`situated persons, on behalf of the
`CHILDREN’S HOSPITAL
`CORPORATION TAX-DEFERRED
`ANNUITY PLAN,
`
`
`Plaintiffs,
`
`v.
`
`
`THE CHILDREN’S HOSPITAL
`CORPORATION, THE BOARD OF
`DIRECTORS OF THE CHILDREN’S
`HOSPITAL CORPORATION, THE
`CHILDREN’S HOSPITAL CORPORATION
`RETIREMENT COMMITTEE; and DOES No.
`1-20, Whose Names Are Currently
`Unknown,
`
`
`Defendants.
`
`
`
`
`I.
`
`INTRODUCTION
`
`1.
`
`Plaintiffs, Adilson Monteiro (“Monteiro”), Karen Ginsburg (“Ginsburg”),
`
`Jason Lutan (“Lutan”), and Brian Minsk (“Minsk”) (collectively, “Plaintiffs”),
`
`individually and as participants of the Children’s Hospital Corporation Tax-Deferred
`
`Annuity Plan (“Plan”), bring this action under 29 U.S.C. § 1132, on behalf of the Plan
`
`and a class of similarly-situated participants and beneficiaries of the Plan, against
`
`Defendants, the Children’s Hospital Corporation, doing business as Boston Children’s
`
`
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF MASSACHUSETTS
`
`
`
`Case No: 1:22-cv-10069
`
`
`
`CLASS ACTION COMPLAINT
`
`
`
`
`ADILSON MONTEIRO, KAREN
`GINSBURG, JASON LUTAN, and
`BRIAN MINSK, Individually and as
`representatives of a class of similarly
`situated persons, on behalf of the
`CHILDREN’S HOSPITAL
`CORPORATION TAX-DEFERRED
`ANNUITY PLAN,
`
`
`Plaintiffs,
`
`v.
`
`
`THE CHILDREN’S HOSPITAL
`CORPORATION, THE BOARD OF
`DIRECTORS OF THE CHILDREN’S
`HOSPITAL CORPORATION, THE
`CHILDREN’S HOSPITAL CORPORATION
`RETIREMENT COMMITTEE; and DOES No.
`1-20, Whose Names Are Currently
`Unknown,
`
`
`Defendants.
`
`
`
`
`I.
`
`INTRODUCTION
`
`1.
`
`Plaintiffs, Adilson Monteiro (“Monteiro”), Karen Ginsburg (“Ginsburg”),
`
`Jason Lutan (“Lutan”), and Brian Minsk (“Minsk”) (collectively, “Plaintiffs”),
`
`individually and as participants of the Children’s Hospital Corporation Tax-Deferred
`
`Annuity Plan (“Plan”), bring this action under 29 U.S.C. § 1132, on behalf of the Plan
`
`and a class of similarly-situated participants and beneficiaries of the Plan, against
`
`Defendants, the Children’s Hospital Corporation, doing business as Boston Children’s
`
`
`
`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 2 of 52
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`Hospital (“Boston Children’s”), the Children’s Hospital Corporation Board of Directors
`
`(“Board”), the Children’s Hospital Corporation Retirement Committee
`
`(“Administrative Committee” or “Committee”), and Does No. 1-20, who are members
`
`of the Administrative Committee or the Board or other fiduciaries of the Plan and
`
`whose names are currently unknown (collectively, “Defendants”), for breach of their
`
`fiduciary duties under the Employee Retirement Income Security Act (“ERISA”), 29
`
`U.S.C. § 1001 et seq., and related breaches of applicable law beginning six years prior to
`
`the date this action is filed and continuing to the date of judgment, or such earlier date
`
`that the Court determines is appropriate and just (“Class Period”).
`
`2.
`
`Defined contribution plans (e.g., 401(k) and 403(b) plans) that are qualified
`
`as tax-deferred vehicles have become the primary form of retirement saving in the
`
`United States and, as a result, America’s de facto retirement system. Unlike traditional
`
`defined benefit retirement plans, in which the employer typically promises a calculable
`
`benefit and assumes the risk with respect to high fees or under-performance of pension
`
`plan assets used to fund defined benefits, 401(k) and 403(b) plans operate in a manner
`
`in which participants bear the risk of high fees and investment underperformance.
`
`3.
`
`The importance of defined contribution plans to the United States
`
`retirement system has become pronounced as employer-provided defined benefit plans
`
`have become increasingly rare as an offered and meaningful employee benefit.
`
`4.
`
`As of December 31, 2020, the Plan had 18,580 participants with account
`
`balances and assets totaling over $1.1 billion, placing it in the top 0.1% of all defined
`
`-2-
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`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 3 of 52
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`contribution plans by plan size.1 Defined contribution plans with substantial assets,
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`like the Plan, have significant bargaining power and the ability to demand low-cost
`
`administrative and investment management services within the marketplace for
`
`administration of defined contribution plans and the investment of defined contribution
`
`assets. The marketplace for defined contribution retirement plan services is well-
`
`established and can be competitive when fiduciaries of defined contribution retirement
`
`plans act in an informed and prudent fashion.
`
`5.
`
`Defendants maintain the Plan, and are responsible for selecting,
`
`monitoring, and retaining the service provider(s) that provide investment,
`
`recordkeeping, and other administrative services. Defendants are fiduciaries under
`
`ERISA, and, as such, owe a series of duties to the Plan and its participants and
`
`beneficiaries, including obligations to act for the exclusive benefit of participants,
`
`ensure that the investment options offered through the Plan are prudent and diverse,
`
`and ensure that Plan expenses are fair and reasonable.
`
`6.
`
`Defendants have breached their fiduciary duties to the Plan. As detailed
`
`below, Defendants: (1) failed to fully disclose the expenses and risk of the Plan’s
`
`investment options to participants; (2) allowed unreasonable expenses to be charged to
`
`participants; and (3) selected, retained, and/or otherwise ratified high-cost and poorly-
`
`performing investments, instead of offering more prudent alternative investments
`
`
`1The Brightscope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans,
`2018 (pub. July 2021).
`
`-3-
`
`
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`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 4 of 52
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`when such prudent investments were readily available at the time Defendants selected
`
`and retained the funds at issue and throughout the Class Period.
`
`7.
`
`To remedy these fiduciary breaches and other violations of ERISA,
`
`Plaintiffs bring this class action under Sections 404, 409 and 502 of ERISA, 29 U.S.C. §§
`
`1104, 1109 and 1132, to recover and obtain all losses resulting from each breach of
`
`fiduciary duty. In addition, Plaintiffs seek such other equitable or remedial relief for the
`
`Plan and the proposed class (“Class”) as the Court may deem appropriate and just
`
`under all of the circumstances.
`
`8.
`
`Plaintiffs specifically seek the following relief on behalf of the Plan and the
`
`Class:
`
`a.
`
`A declaratory judgment holding that the acts of Defendants
`
`described herein violate ERISA and applicable law;
`
`b.
`
`A permanent injunction against Defendants prohibiting the
`
`practices described herein and affirmatively requiring them to act
`
`in the best interests of the Plan and its participants;
`
`c.
`
`Equitable, legal or remedial relief for all losses and/or
`
`compensatory damages;
`
`d.
`
`Attorneys’ fees, costs and other recoverable expenses of litigation;
`
`and
`
`e.
`
`Such other and additional legal or equitable relief that the Court
`
`deems appropriate and just under all of the circumstances.
`
`-4-
`
`
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`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 5 of 52
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`II.
`
`THE PARTIES
`
`9.
`
`Monteiro is a former employee of Boston Children’s and former
`
`participant in the Plan under 29 U.S.C. § 1002(7). Monteiro is a resident of Randolph,
`
`Massachusetts. During the Class Period, Monteiro maintained an investment through
`
`the Plan in the Fidelity Freedom 2045 Fund and was subject to the excessive
`
`recordkeeping and administrative costs alleged below.
`
`10. Ginsburg is a former employee of Boston Children’s and former
`
`participant in the Plan under 29 U.S.C. § 1002(7). Ginsburg is a resident of Swampscott,
`
`Massachusetts. During the Class Period, Ginsburg maintained an investment through
`
`the Plan in the Fidelity Freedom 2025 Fund and was subject to the excessive
`
`recordkeeping and administrative costs alleged below.
`
`11.
`
`Lutan is a former employee of Boston Children’s and former participant in
`
`the Plan under 29 U.S.C. § 1002(7). Lutan is a resident of Boston, Massachusetts.
`
`During the Class Period, Lutan maintained an investment through the Plan in the
`
`Fidelity Freedom 2040 Fund and was subject to the excessive recordkeeping and
`
`administrative costs alleged below.
`
`12. Minsk is a former employee of Boston Children’s and former participant
`
`in the Plan under 29 U.S.C. § 1002(7). Minsk is a resident of Quincy, Massachusetts.
`
`During the Class Period, Minsk maintained an investment through the Plan in the
`
`Fidelity Freedom 2055 Fund and was subject to the excessive recordkeeping and
`
`administrative costs alleged below.
`
`-5-
`
`
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`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 6 of 52
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`13.
`
`Boston Children’s is a Massachusetts non-profit corporation
`
`headquartered in Boston, Massachusetts. Boston Children’s is a nationally-ranked acute
`
`care pediatric hospital.
`
`14.
`
`The Board appointed “authorized representatives” of Boston Children’s,
`
`including the Administrative Committee, as plan fiduciaries. Does No. 1-10 are
`
`members of the Board who were/are fiduciaries of the Plan under ERISA pursuant to
`
`29 U.S.C. §§ 1002(21)(A) because each exercised discretionary authority to appoint
`
`and/or monitor the Administrative Committee, which had control over Plan
`
`management and/or authority or control over management or disposition of Plan
`
`assets.
`
`15.
`
`The Administrative Committee is the Plan Administrator and is a
`
`fiduciary under ERISA pursuant to 29 U.S.C. §§ 1002 and 1102. The Administrative
`
`Committee maintains its address at Boston Children’s corporate headquarters in
`
`Boston, Massachusetts. The Administrative Committee and its members are appointed
`
`by Boston Children’s Chief Executive Officer to administer the Plan on Boston
`
`Children’s behalf.
`
`16. Does No. 11-20 are the members of the Administrative Committee and, by
`
`virtue of their membership, fiduciaries of the Plan or otherwise are fiduciaries to the
`
`Plan. Plaintiffs are currently unable to determine the membership of the
`
`Administrative Committee or the identity of the other fiduciaries of the Plan because,
`
`despite reasonable and diligent efforts, it appears that the membership of the
`
`Administrative Committee and the identity of any other fiduciaries is not publicly
`
`-6-
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`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 7 of 52
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`available. As such, these Defendants are named Does as placeholders. Plaintiffs will
`
`move, pursuant to Rule 15 of the Federal Rules of Civil Procedure, to amend this
`
`Complaint to name the members of the Administrative Committee, the members of the
`
`Board, and other responsible individuals as defendants as soon as their identities are
`
`discovered.
`
`III.
`
`JURISDICTION AND VENUE
`
`17.
`
`Plaintiffs seek relief on behalf of the Plan pursuant to ERISA’s civil
`
`enforcement remedies with respect to fiduciaries and other interested parties and,
`
`specifically, under 29 U.S.C. § 1109 and 29 U.S.C. § 1132.
`
`18.
`
`This Court has subject matter jurisdiction over this action pursuant to 28
`
`U.S.C. § 1331 because this action arises under the laws of the United States.
`
`19.
`
` Venue is proper in this District pursuant to Section 502(e) of ERISA, 29
`
`U.S.C. § 1332(e), and 28 U.S.C. § 1391 because Boston Children’s principal place of
`
`business is in this District and the Plan is administered from this judicial district.
`
`Furthermore, a substantial part of the acts and omissions giving rise to the claims
`
`asserted herein occurred in this District.
`
`20.
`
`Plaintiffs have standing to bring this action. Section 502(a)(2) of ERISA, 29
`
`U.S.C. § 1132(a)(2), authorizes any participant, fiduciary or the Secretary of Labor to
`
`bring suit as a representative of a plan, with any recovery necessarily flowing to a
`
`plan. As explained herein, the Plan has suffered millions of dollars in losses resulting
`
`from Defendants’ fiduciary breaches and remains vulnerable to continuing harm, all
`
`redressable by this Court. In addition, although standing under Section 502(a)(2) of
`
`-7-
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`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 8 of 52
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`ERISA, 29 U.S.C. § 1132(a)(2), is established by these Plan-wide injuries, Plaintiffs and
`
`all Plan participants suffered financial harm as a result of the Plan’s imprudent
`
`investment options and excessive fees, and were deprived of the opportunity to invest
`
`in prudent options with reasonable fees, among other injuries.
`
`IV.
`
`FACTUAL ALLEGATIONS
`
`A.
`
`Background and Plan Structure
`
`21.
`
`The Plan is a participant-directed 403(b) plan, in which participants direct
`
`the investment of their contributions into various investment options offered by the
`
`Plan. Each participant’s account is credited with the participant contributions,
`
`employer matching contributions, any discretionary contributions, and earnings or
`
`losses thereon. The Plan pays Plan expenses from Plan assets, and the majority of
`
`administrative expenses are paid by participants as a reduction of investment income.
`
`Each participant’s account is charged with the amount of distributions taken and an
`
`allocation of administrative expenses. The available investment options for participants
`
`of the Plan include various mutual funds, guaranteed investment contracts, and a self-
`
`directed brokerage account.
`
`22. Mutual funds are publicly-traded investment vehicles consisting of a pool
`
`of monetary contributions collected from many investors for the purpose of investing in
`
`a portfolio of equities, bonds, and other securities. Mutual funds are operated by
`
`professional investment advisers, who, like the mutual funds, are registered with the
`
`U.S. Securities and Exchange Commission (“SEC”). Mutual funds are subject to SEC
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`-8-
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`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 9 of 52
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`regulation, and are required to provide certain investment and financial disclosures and
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`information in the form of a prospectus.
`
`23. Guaranteed investment contracts are insurance company contracts that
`
`guarantee a rate of return in exchange for keeping a deposit for a certain period of time.
`
`Contributions are held in the general account of the issuing insurance company and are
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`credited with earnings on the underlying investments and charged for withdrawals and
`
`administrative costs. The guaranteed return of principal, plus the contractually
`
`obligated interest rate, is subject to the long-term financial health and claims-paying
`
`ability of the issuing company.
`
`24. During the Class Period, the majority of the Plan’s assets were held in a
`
`trust by the Plan trustee, Fidelity Management Trust Company. Most investments and
`
`asset allocations are performed through this trust instrument. Per the Plan’s Form
`
`5500s2, Lincoln National Life Insurance Company (“Lincoln”) provides custodial
`
`services for participants selecting Lincoln prior to January 1, 2006, while TIAA-CREF
`
`provides custodial services for participants selecting TIAA-CREF prior to January 1,
`
`2011.
`
`B.
`
`The Defined Contribution Industry
`
`25.
`
`Failures by ERISA fiduciaries to monitor fees and costs for reasonableness,
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`such as those identified herein, have stark financial consequences for retirees. Every
`
`
`2The Form 5500 is the annual report that defined contribution plans are required to file
`with the DOL and U.S. Department of Treasury pursuant to the reporting requirements
`of ERISA.
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`-9-
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`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 10 of 52
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`extra level of expenses imposed upon plan participants compounds over time and
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`reduces the value of participants’ investments available upon retirement. Over time,
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`even small differences in fees compound and can result in vast differences in the
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`amount of a participant’s savings available at retirement. As the Supreme Court has
`
`explained, “[e]xpenses, such as management or administrative fees, can sometimes
`
`significantly reduce the value of an account in a defined-contribution plan.” Tibble v.
`
`Edison Int'l, 575 U.S. 523, 525 (2015).
`
`26.
`
`The impact of excessive fees on a plan’s employees’ and retirees’
`
`retirement assets is dramatic. The U.S. Department of Labor (“DOL”) has noted that a
`
`1% higher level of fees over a 35-year period makes a 28% difference in retirement
`
`assets at the end of a participant’s career.3
`
`27.
`
`Plan participants typically have little appreciation of the fees being
`
`assessed to their accounts. Indeed, according to a 2017 survey conducted by TD
`
`Ameritrade, only 27% of investors believed they knew how much they were paying in
`
`fees as participants in defined contribution plans, and 37% were unaware that they paid
`
`defined contribution fees at all.4 It is incumbent upon plan fiduciaries to act for the
`
`exclusive best interest of plan participants, protect their retirement dollars, and ensure
`
`that fees are and remain reasonable for the services provided and properly and fully
`
`
`3A Look at 401(k) Plan Fees, UNITED STATES DEPT. OF LABOR at 1-2 (Sept. 2019),
`https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-
`activities/resourcecenter/publications/a-look-at-401k-plan-fees.pdf (last visited
`January 3, 2022).
`4See https://s2.q4cdn.com/437609071/files/doc_news/research/2018/Investor-
`Sentiment-Infographic-401k-fees.pdf (last visited January 3, 2022).
`
`-10-
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`disclosed. Unfortunately, fiduciaries of defined contribution retirement plans, including
`
`large retirement plans like the Plan, also often lack understanding of the fees being
`
`charged to the plans that they administer, manage and control.
`
`C.
`
`Recordkeeping and Administrative Services
`
`28.
`
`Fiduciaries of virtually all large defined contribution plans, including the
`
`Plan, hire a single provider to provide the essential recordkeeping and administrative
`
`(“RK&A”) services for the plan. These services include, but are not limited to,
`
`maintaining plan records, tracking participant account balances and investment
`
`elections, providing transaction processing, providing call center support and
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`investment education and guidance, providing participant communications, and
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`providing trust and custodial services.
`
`29.
`
`The term “recordkeeping” is a catchall term for the entire suite of
`
`recordkeeping and administrative services typically provided by a plan’s service
`
`provider or “recordkeeper” – that is recordkeeping fees and RK&A fees are one and the
`
`same and the terms are used synonymously.
`
`30.
`
`Recordkeepers typically collect their fees in two forms, respectively
`
`referred to as “direct” compensation and “indirect” compensation.
`
`31. Direct compensation is paid directly from plan assets and reflected as a
`
`deduction in the value of participant accounts.
`
`32.
`
`Indirect Compensation is paid to the recordkeeper indirectly by third
`
`parties and is not transparent to retirement plan participants. In other words, the fees
`
`are taken from the investment options prior to the value of the investment option being
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`provided to the participant. Thus, in most cases, participants are not aware that they
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`are paying these fees. Most indirect compensation is typically collected by
`
`recordkeepers through asset-based “revenue sharing.”
`
`33.
`
`Virtually all recordkeepers are subsidiaries or affiliates of financial
`
`services and insurance companies that also provide investment options to defined
`
`contribution plans, (e.g., mutual funds, insurance products, collective trusts, separate
`
`accounts, etc.), or have some other ancillary line of business (e.g., consulting) to sell to
`
`plans. As a result, all recordkeepers consider the economic benefit of their entire
`
`relationship with a defined contribution plan when setting fees for the RK&A services.
`
`Simply put, discounts in the RK&A fee rate are often available based on revenues the
`
`recordkeeper earns through the provision of other services (e.g., investment
`
`management revenues). In many cases, the additional investment management
`
`revenues are more than double or triple the revenue earned by the recordkeeper for
`
`providing RK&A services.
`
`34.
`
`There are two types of essential recordkeeping services provided by all
`
`national recordkeepers for large plans with substantial bargaining power (like the Plan).
`
`First, an overall suite of recordkeeping services is provided to large plans as part of a
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`“bundled” arrangement for a buffet style level of service (meaning that the services are
`
`provided, in retirement industry parlance, on an “all-you-can-eat” basis), including, but
`
`not limited to, the following services:
`
`i.
`
`Recordkeeping;
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`ii.
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`Transaction processing (which includes the technology to process
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`purchases and sales of participants’ assets, as well as providing the
`
`participants access to investment options selected by the plan sponsor);
`
`iii.
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`Administrative services related to converting a plan from one
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`recordkeeper to another;
`
`iv.
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`Participant communications (including employee meetings, call
`
`centers/phone support, voice response systems, web account access,
`
`and the preparation of other materials distributed to participants, e.g.,
`
`v.
`
`vi.
`
`summary plan descriptions);
`
`Maintenance of an employer stock fund (if needed);
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`Plan document services, which include updates to standard plan
`
`documents to ensure compliance with new regulatory and legal
`
`requirements;
`
`vii.
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`Plan consulting services, including assistance in selecting the
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`investment lineup offered to participants;
`
`viii.
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`Accounting and audit services, including the preparation of annual
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`reports, e.g., Form 5500s (excluding the separate fee charged by an
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`independent third-party auditor);
`
`ix.
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`Compliance support, including assistance interpreting plan provisions
`
`and ensuring the operation of the plan complies with legal
`
`requirements and the provisions of the plan (excluding separate legal
`
`services provided by a third-party law firm); and
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`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 14 of 52
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`x.
`
`Compliance testing to ensure the plan complies with U.S. Internal
`
`Revenue Service nondiscrimination rules.
`
`35.
`
`This suite of essential RK&A services can be referred to as “Bundled
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`RK&A” services. These services are offered by all recordkeepers for one price (typically
`
`at a per capita price), regardless of the services chosen or utilized by the plan. Anyone
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`who has passing familiarity with recordkeepers’ responses to requests for proposals,
`
`their bids and their contracts understands and appreciates that the services chosen by a
`
`large plan do not affect the amount charged by recordkeepers for such basic and
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`fungible services and any claim by Defendants that recordkeeping expenses depend
`
`upon the service level provided to a plan with respect to the above services is both false
`
`and frivolous. Nonetheless, as is all too often the case, fiduciary-defendants often
`
`disingenuously assert that the cost of Bundled RK&A services depend upon service
`
`level (even though such an assertion is plainly untrue based upon the actual
`
`marketplace for such services), as part of attempt to perpetuate misunderstanding by
`
`the less informed in order to stave off breach of fiduciary duty claims.
`
`36.
`
`The second type of essential RK&A services, hereafter referred to as “A La
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`Carte RK&A” services, provided by all national recordkeepers, often has separate,
`
`additional fees based on the conduct of individual participants and the usage of the
`
`services by individual participants. These fees are distinct from the Bundled RK&A
`
`arrangement to ensure that one participant is not forced to help another cover the cost
`
`of, for example, taking a loan from their plan account balance. These A La Carte RK&A
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`services typically include, but are not limited to, the following:
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`i.
`
`ii.
`
`iii.
`
`iv.
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`Loan processing;
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`Brokerage services/account maintenance (if offered by the plan);
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`Distribution services; and
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`Processing of qualified domestic relations orders.
`
`37. All national recordkeepers have the capability to provide all of the
`
`aforementioned RK&A services to all large defined contribution plans, including those
`
`much smaller than the Plan.
`
`38.
`
`For large plans with greater than 5,000 participants, any minor variations
`
`in the way that these essential RK&A services are delivered have no material impact on
`
`the fees charged by recordkeepers to deliver the services. That fact is confirmed by the
`
`practice of all recordkeepers quoting fees for the Bundled RK&A services on a per-
`
`participant basis without regard for any individual differences in services requested—
`
`which are treated by recordkeepers as immaterial because they are, in fact,
`
`inconsequential to recordkeepers from a cost perspective.
`
`39. While recordkeepers in the defined contribution industry attempt to
`
`distinguish themselves through marketing and other means, they all actually offer the
`
`same bundles and combinations of services as their competitors. Accordingly, the
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`market for defined contribution plan RK&A services has become increasingly price
`
`competitive, particularly for larger plans that, like the Plan, have a considerable number
`
`of participants and significant assets.
`
`40.
`
`The marginal cost of adding an additional participant to a recordkeeping
`
`platform is relatively low. These economies of scale are inherent in all recordkeeping
`
`-15-
`
`
`
`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 16 of 52
`
`arrangements for defined contribution plans, including the Plan. As a plan’s participant
`
`count increases, the recordkeeper’s fixed costs of providing RK&A services are spread
`
`over a larger population, thereby reducing the average unit cost of delivering services
`
`on a per-participant basis.
`
`41. Due to these economies of scale that are part of a recordkeeping
`
`relationship, and because the incremental variable costs for providing RK&A are
`
`dependent on the number of participants with account balances in a defined
`
`contribution plan, the cost to the recordkeeper on a per-participant basis declines as the
`
`number of plan participants increases and, as a result, a recordkeeper is willing to
`
`accept a lower fee to provide RK&A as the number of participants in the plan increases.
`
`42. As a result, it is axiomatic in the retirement plan services industry that, all
`
`else being equal: (1) a plan with more participants can and will receive a lower effective
`
`per-participant fee when evaluated on a per-participant basis; and (2) that as participant
`
`counts increase, the effective per-participant RK&A fee should decrease, assuming the
`
`same services are provided.
`
`43.
`
`Similarly, the average cost to a recordkeeper of providing services to a
`
`participant does not hinge on that participant’s account balance. In other words, it costs
`
`a recordkeeper the same amount to provide services to a participant with an account
`
`balance of $10,000 as it does to provide services to a participant with a balance of
`
`$1,000,000.
`
`44.
`
`Informed, prudent plan fiduciaries are aware of these cost structure
`
`dynamics. Understanding these marketplace realities and facts, prudent fiduciaries of
`
`-16-
`
`
`
`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 17 of 52
`
`large plans (like the Plan) will leverage the plan’s participant count to obtain lower
`
`effective per-participant fees.
`
`45.
`
`Because recordkeeping fees are actually paid in dollars, prudent
`
`fiduciaries evaluate the fees for RK&A services on a dollar-per-participant basis. This is
`
`the current standard of care for ERISA fiduciaries and has been throughout the Class
`
`Period.
`
`46.
`
`Prudent fiduciaries will regularly ensure that a plan is paying fees
`
`commensurate with its size in the marketplace by soliciting competitive bids from
`
`recordkeepers other than the plan’s current provider. Recognizing that RK&A services
`
`are essentially uniform in nature, and that small differences in the services required by
`
`a large plan are immaterial to the cost of providing such services, most recordkeepers
`
`only require a plan’s participant count and asset level in order to provide a fee quote.
`
`These quotes are typically provided on a per-participant basis, enabling fiduciaries to
`
`easily compare quotes on an apples-to-apples basis to determine if the current level of
`
`fees being charged by a plan’s recordkeeper is reasonable.
`
`47. Once a prudent fiduciary has received quotes, if necessary, the fiduciary
`
`can then negotiate with the plan’s current provider for a lower fee or move to a new
`
`provider to provide the same (or better) services for a competitive (or lower) reasonable
`
`fee. This is because prudent fiduciaries understand that excessive fees significantly and
`
`detrimentally impact the value of participants’ retirement accounts.
`
`48. After negotiating the fee to be paid to the recordkeeper and electing to
`
`have the plan (i.e., participants) pay that fee, the fiduciaries can allocate the negotiated
`
`-17-
`
`
`
`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 18 of 52
`
`fees among participant accounts at the negotiated per-participant rate or pro rata based
`
`on participant account balances, among other less common ways.
`
`D. Defendants’ Breaches of Fiduciary Duties
`
`49. As discussed in detail below, Defendants have severely breached their
`
`fiduciary duties of prudence and/or loyalty to the Plan in several significant ways.
`
`Plaintiffs did not acquire actual knowledge regarding Defendants’ breaches at issue
`
`here until shortly before this Complaint was filed.
`
`1.
`
`The Plan’s Excessive Recordkeeping/Administrative Costs
`
`50. An obvious indicator of Defendants’ breaches of their fiduciary duties is
`
`the Plan’s excessive RK&A costs. The impact of such high fees on participant balances
`
`is aggravated by the effect of compounding, to the significant detriment of participants
`
`over time. This effect is illustrated by the below chart, published by the SEC, showing
`
`the 20-year impact on a balance of $100,000 by fees of 25 basis points (0.25%), 50 basis
`
`points (0.50%), and 100 basis points (1.00%).
`
`
`
`-18-
`
`
`
`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 19 of 52
`
`51. During the Class Period, participants paid Fidelity for RK&A services
`
`indirectly through asset-based revenue sharing. The RK&A services provided to the
`
`Plan are and were the same standard services identified above, and those provided to
`
`comparable plans. There are no services provided to the Plan and its participants by
`
`Fidelity that are unusual or out of the ordinary. Regardless, for large plans, like the
`
`Plan here, any differences in services are immaterial to pricing considerations, the
`
`primary drivers of which are the number of participants and whether the plan
`
`fiduciaries employed a competitive process of soliciting bids to determine the
`
`reasonable market rate for the services required by the plan.
`
`52.
`
`Since the start of the Class Period, Defendants allowed the Plan to be
`
`charged total amounts of RK&A fees that far exceeded the reasonable market rate. The
`
`table below sets forth the annual amounts per participant the Plan ultimately paid to
`
`Fidelity in RK&A fees via revenue sharing, calculated using the schedules attached to
`
`the Plan’s Form 5500s.5
`
`Participant Accounts with a Balance
`Indirect Compensation
`Fidelity RK&A Fee ($/pp)
`
`2016
`15,652
`
`890,823$
`$57
`
`2017
`16,471
`
`1,131,360$
`$69
`
`2018
`17,060
`
`$65
`
`1,110,903$
`
`2019
`17,960
`
`$79
`
`1,423,037$
`
`2020
`18,580
`
`$93
`
`1,732,052$
`
`Average
`17,145
`
`1,257,635$
`$73
`
`
`
`
`5Plaintiffs acknowledge that the Plan’s arrangement with Fidelity provides for the
`rebate to the Plan of certain excess revenue sharing amounts, but the narrative
`describing this arrangement and, specifically, the revenue sharing amounts, in the Form
`5500s is inconsistent with what is calculable based on actual publicly available Plan
`asset levels and revenue sharing schedules. Accordingly, it is reasonable to infer that
`the language in the Form 5500s is erroneous, and indicative of Defendants’ failure to
`grasp the true amounts that were being remitted to Fidelity.
`
`-19-
`
`
`
`Case 1:22-cv-10069 Document 1 Filed 01/18/22 Page 20 of 52
`
`53. Given the Plan’s size, expected growth, and resulting negotiating power,
`
`with prudent management and administration, the Plan should unquestionably have
`
`been able to obtain reasonable rates for RK&A services that were significantly lower
`
`than the effective per-participant RK&A rates set forth above.
`
`54. According to publicly available data and information from the Form 5500
`
`filings of similarly sized defined contribution plans during the Class Period, other
`
`comparable plans were paying much lower fees than the Plan throughout the Class
`
`Period. That is clear and compelling evidence that the reasonable market rate is lower
`
`than what the Plan was paying since these comparable plans were able to negotiate
`
`lower fees for materially identical services.
`
`55.
`
`The table below lists the RK&A fees paid by similarly sized defined
`
`contribution plans, which represent the prices available to the Plan du
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