The size of the plan is a bit smaller, the plaintiff’s law firm relatively unknown in these cases, but the claims are familiar.
This time, the plaintiff suing is Grace Angelo – the targeted plan, the NCLC 401(k) plan, together with NCL Corporation LTD, and the plan administrator, NCL (BAHAMAS) LTD, a Bermuda company for having breached their fiduciary duties in violation of the Employees Retirement Income Security Act (ERISA). The plan is relatively small for such actions – $218,255,089 in assets and 2,357 participants at the end of 2020. That said, the allegations are familiar – rather than “leveraging the enormous power of negotiation of the plan for the benefit of participants and beneficiaries, defendants chose underperforming investments, inappropriate and costly classes of mutual fund shares, and forced the Plan to pay unreasonable and excessive fees for holding registers and other administrative services.
The lawsuit, filed on behalf of the plaintiff in the United States District Court for the Southern District of Florida (Angelo c. NCL Corp. ltd.SD Fla., n° 1:22-cv-22962, complaint of 09/16/22) by Wenzel Fenton Cabassa PA (they filed similar pension lawsuits against Gerdau Ameristeel US Inc. and Laboratory Corp. of America Holdings last month).
The lawsuit asserted that “based on reasonable inferences from the facts set forth in this complaint, during the Class Period, Defendants failed to establish an appropriate review system to ensure that Plan Participants were charged appropriate and reasonable fees for each of the Plan’s investment options, and the Defendants failed to leverage the size of the plan to negotiate the lowest expense ratio available for certain investment options. investments maintained and/or added to the plan during the Class Period. The defendants also caused the plan and its participants to pay excessive administration fees and excessive compensation to service providers.
The lawsuit says, “Defendants should have been aware of the existence and availability of lower-cost share classes of identical funds and should have promptly shifted the Plan’s investments in those funds to the conservative share classes. However, the defendants did not do so in a careful manner. Further, “a prudent fiduciary conducting an impartial review of the Plan’s investments would have identified the cheapest classes of stock available and shifted the Plan’s investments in the aforementioned funds into institutional stocks as soon as possible.” Yet, despite the availability of lower-cost stocks, the defendants did not shift plan holdings in any of these funds from the higher-priced stock classes to the cheaper institutional stock classes, in violation of their fiduciary duties.
Like other lawsuits of this type, this one states that “based on information and belief, the defendants failed to undertake a request for proposals during the class period. Had Defendants undertaken a request for proposals to compare the costs of Prudential Retirement Insurance and Annuity Company with those of others in the market, Defendants would have acknowledged that Prudential Retirement Insurance and Annuity Company’s compensation for record keeping services during the Class Period was (and remains) unreasonable and excessive.” How excessive? Well, turning to the 401k Averages Book (20th ed. 2020) and looking at fees for plans with less than $200 millions of dollars in assets (i.e., significantly smaller than the plan), they found that as plan assets grew, record-keeping costs generally decreased per participant.” But here , the opposite is happening. As the assets of the plan increase, the costs of maintaining records also increase,” the lawsuit alleges. They claim that for a plan with 200 members and 20 mi millions of dollars in assets, the average cost of record keeping and administration (through direct compensation) is $12 per member – and that for a plan with 2,000 members and $200 million in assets, the cost means of record keeping and administration the cost (by direct compensation) is $5 per participant. Instead, the lawsuit claims that during the class period, the plan paid between $22.04 and $80.41/participant.
Beyond that, the lawsuit asserts that “Prudential Retirement Insurance and Annuity Company did not receive only the direct compensation noted above – it received significantly more compensation for record keeping and other administrative services by through revenue-sharing payments”. Overall, the lawsuit asserts that “the total amount of recordkeeping costs (both through direct and indirect payments) is currently at least $150 per participant per year (or more), so that a reasonable fee should not exceed $25 per participant per year.”
Perhaps more specifically, the lawsuit says that “defendants agreed that Prudential could retain all interest earned on plan participants’ accounts while participants’ money is in Prudential’s clearing account,” but that “Prudential has not tracked, monitored, or negotiated the amount of compensation Prudential receives from the revenue it earns from participants’ money. The defendants breached their fiduciary duty of care by allowing Prudential to receive compensation from plan participants without even knowing the amount of compensation Prudential collects from interest on participants’ money.
“In summary, given the size of the plan’s assets during the Class Period and the total number of participants, in addition to the general downward trend in recordkeeping expenses in the market as a whole, the Defendants could have obtained comparable record-keeping services for the Plan equal to or better than the typical services provided by the Plan’s Archivist at less cost. Defendants failed to do so and, therefore, breached their fiduciary duties by under ERISA.
Do you think the court will be convinced? We will see…