Court Grants Summary Judgment to Humana in Excessive 401(k) Fee Case

June 18, 2024

On May 23, 2024, in Moore et al v. Humana Inc. et al., the US District Court for the Western District of Kentucky (the court) granted summary judgment in favor of defendants Humana Inc. and the Humana Retirement Plans Committee (the defendants) in their roles as plan sponsor and fiduciary of the Humana Retirement Savings Plan (the plan). The class action case, filed in 2021, alleged a breach of the ERISA fiduciary duty of prudence in administering the plan due to excessive recordkeeping fees. The plaintiffs also claimed Humana failed to adequately monitor other fiduciaries.  

The defendants retained Charles Schwab (Schwab) as their plan recordkeeper after issuing requests for proposals (RFPs) and evaluating the responses thereto. They also performed annual benchmarking using reports from third-party consultants. Nonetheless, the plaintiffs contended that the defendants used an “imprudent process” to administer the plan and that Schwab’s recordkeeping fees were unreasonably high. 

Both parties motioned for summary judgment and to exclude the other party’s expert witness testimony. The court denied the plaintiffs’ motion to exclude the testimony of the defendants’ expert, Pete Swisher. Swisher’s opinion, based on his experience and industry knowledge, was that reliance on RFPs and benchmarking reports resulted in a prudent process.  

However, the court granted the defendants’ motion to exclude the testimony of the plaintiffs’ expert, Veronica Bray. Bray attempted to compare Humana’s recordkeeping fees to those of other retirement plans but did not provide a reasonable explanation for the choice of the specific plans used for the comparison. Therefore, the court determined that Bray’s opinion did not provide any reliable methodology to address whether the defendants’ process was prudent and whether their plan’s recordkeeping fees were excessive relative to the services rendered.  

The court then turned to the motions for summary judgment and explained that for the plaintiffs to prevail on their claims, they must show both that the defendants breached their fiduciary duty of prudence and that Schwab’s recordkeeping fees were ultimately unreasonable. The defendants argued that a prudent fiduciary would recognize that the fees were excessive and negotiate reasonable fees but significantly, could not cite a defect in the plan’s process for monitoring recordkeeping fees.  

Upon review, the court found the plaintiffs’ argument that the plan’s failure to have a fee policy statement amounted to an imprudent process unpersuasive. Second, the court noted that ERISA imposed no explicit duty on the defendants to attempt to negotiate a lower fee. Rather, the defendants maintained that their method for ensuring the fee remained reasonable (i.e., using RFPs and annual benchmarking) was a responsible method and consistent with industry practices. Additionally, the defendants pointed out that their RFP process accounted for a broad set of factors beyond price alone, including the plan’s size, relationship with Schwab, Schwab’s compensation, and Schwab’s services and offerings. Furthermore, the court observed that ERISA does not require fiduciaries to scour the market for the cheapest available option.  

As a result, the court found that the plaintiffs failed to prove that the defendants’ vendor selection process was not prudent and the fees were excessive. Because the defendants were entitled to summary judgment on their breach of fiduciary duty claim, their derivative failure to monitor claims also failed. 

This ruling is instructive in highlighting a court’s considerations when determining if a retirement plan fiduciary’s exercise of discretion in selecting a service provider is reasonable. The case serves as an important reminder to employers of their ERISA fiduciary obligations to prudently select and monitor vendor relationships and to carefully document their processes.  

Moore v. Humana Opinion and Order