After what seems like a brief respite, another multi-billion dollar 401(k) has been targeted by an excessive fee lawsuit.
The plaintiffs here – Keith K. Kruchten, Angel D. Muratalla and William Begani – are suing on behalf of the $2.1. billion Ricoh USA, Inc. Retirement Savings Plan. They’re represented by Capozzi Adler PC, which means he’s relying on a base of allegations that are essentially a ‘rinse and repeat’ of other lawsuits – and, certainly in relation to lawsuits brought by companies like Schlichter Bogard & Dutton – it will be relatively short.
Indeed, the suit (Kruchten v Ricoh USA, Inc., ED Pa., No. 2:22-cv-00678, Complaint 2/22/22) is only 27 pages. It alleges that the Ricoh Defendants as Trustees “breached their duty to the Plan, the Plaintiffs and other Plan Participants by, among others, (1) failing to objectively and adequately review the Plan’s investment portfolio with due diligence to ensure that each investment option was prudent, in terms of cost; and (2) failing to control the plan’s record-keeping administration costs” – and that these shortcomings were not only a breach of fiduciary duty, but “…are contrary to the actions of a fiduciary reasonable and cost the plan and its members millions of dollars.
“In theory,” the plaintiffs note, “the committee determines the suitability of the plan’s investment offerings, monitors investment performance, and reviews the total costs of the plan and the fund each year…the committee has not achieved these goals. trustees. »
Now, this lawsuit – as is often the case with these – acknowledges that plaintiffs lack “actual knowledge” of the careful process that the Ricoh board actually uses, but warns that they can infer a lack of said process by the resulting fund menu. That said, they said they had already written to Ricoh asking for copies of the minutes, but that request was denied.
The lawsuit claims that “the plan’s expense ratios were artificially high to pay for the plan’s excessive administration and recordkeeping costs, which is at the heart of this lawsuit…the defendants chose to add 9 basis points to each plan fund to offset Plan administration and recordkeeping costs. He notes that “even a fund that would have a normally low expense ratio, such as a Vanguard index fund, would be considered to have excessive expense ratios after applying these 9 basis points. For example, throughout the Class Period, the Plan had the Vanguard Total Stock Market Index fund. In 2021, this fund reported an expense ratio of 0.14%, which is well above the ICI median of 0.04% for index funds… Adding the 9 basis points to each fund to pay the already excessively high administration and recordkeeping fees strongly suggests that the defendants failed to follow a proper careful process when selecting funds and a fee structure for the plan. »
The lawsuit goes on to infer that “there is little to suggest that the defendants have conducted a proper request for proposals at reasonable intervals – or certainly at any time before 2016 to the present – to determine whether the regime could get better record keeping and administrative fee pricing from other service providers given that the record keeping market is very competitive, with many providers also able to provide a high level of service,” as the Plan paid annual amounts in recordkeeping fees that were well above industry standards each year during the Class Period.
With respect to these comparisons, the lawsuit cites (as others have already) the fees Fidelity stipulated in a separate, unrelated dispute of $14-$21/participant, along with a table of plans ostensibly comparable (at least based on the number of participants) who paid $23 to $35/participant, and – although not cited (with the exception of the reference to “certain authorities cited in case law dating six years”) – that the rate per participant for similar plans would be in the order of $35/participant. In contrast, the lawsuit claims that the Ricoh plan charged between $61/participant and $103/participant during the time period in question.
And as is common in such litigation, in addition to the breaches cited above, the lawsuit also targets the company itself and board defendants who plaintiffs allege breached their fiduciary duty to oversee properly the trustees of the plan.
Will these allegations survive a motion to dismiss? Stay tuned.
REMARK: In litigation, there are always (at least) two sides to every story. As factual as it may turn out to be, the initial trial in any action is only one side, and usually designed for a particular outcome. In our coverage, you’ll see descriptions of events qualified by statements such as “the lawsuit says” or “the plaintiffs allege” – and the qualifiers should serve as a reminder of that reality.