Third Circuit Reinstates Excessive Fee Fiduciary Claim

August 13, 2024

On July 24, 2024, in Kruchten v. Ricoh USA, Inc., et al., the US Court of Appeals for the Third Circuit (Third Circuit) reversed the dismissal of an ERISA excessive fee claim by the US District Court for the Eastern District of Pennsylvania (district court). During the appeal process, the Third Circuit reversed the opinion of the case on which the district court relied (Mator v. Wesco Distrib. Inc.) and clarified the pleading standards for excessive fee claims under ERISA, rejecting the narrow, more stringent standard suggested by the district court. As a result, the Third Circuit reversed the motion to dismiss and remanded the matter to the district court for further proceedings.

As background, the lawsuit alleges that Ricoh USA, Inc., et al. (the defendants), in their roles as plan sponsor and fiduciary of the Ricoh USA defined contribution retirement plan (the plan), allowed excessive recordkeeping and administrative (RK&A) services fees to be charged. The plaintiffs, who are former employees who participated in the plan, contend that the defendants breached their fiduciary duty by not controlling plan costs and not using their substantial bargaining power due to the plan’s size to negotiate lower plan fees. Due to the costs of the recordkeeping services, the defendants imposed administration fees on all investment options in the plan. Two of these options charged additional revenue-sharing fees that further raised the total recordkeeping fees paid by participants.

On appeal, the Third Circuit referred to the recent Mator ruling, noting that RK&A fees can be considered excessive based on factual comparisons to other similar plans. Applying that concept here, the Third Circuit observed that the plaintiffs established a meaningful benchmark to allege that plan fees were excessive by compiling a list of retirement plans and the RK&A fees they charged and explaining why those other plans were comparable. They also alleged that all plans above 10,000 participants cited as comparators received the same services, measured by Form 5500 service codes, and that larger plans have greater bargaining power to reduce fees. The Third Circuit concluded the plaintiffs had established that the comparisons they provided were appropriate and sufficient to plead a plausible claim.

Plan sponsors have fiduciary duties under ERISA to act in the best interest of plan participants and beneficiaries, which includes the duty of prudence and maintaining reasonable plan administration fees. Although the case is still at an early stage in the legal process, it serves as another reminder to employers of their ERISA fiduciary obligations to prudently select and monitor vendor relationships and to carefully document their processes. As with other cases we have discussed recently in Compliance Corner on June 18, 2024, the ruling also provides insights as to a court’s considerations when considering an excessive fee claim and how the law in this area is evolving.

Kruchten v. Ricoh USA, Inc., et al. »