Following a rare trial in a 401(k) excessive fee lawsuit in a New York federal district court, the jury awarded more than $38 million to over 26,000 current and former bank employees. The case is Khan et al. v. Board of Directors of Pentegra Defined Contribution Plan, No. 7:2020cv07561 (S.D.N.Y. 2023). The case involves the Multiple Employer Defined Contribution Plan for Financial Institutions, which Pentegra's fiduciaries administer. The 401(k) plan contains over $2 billion in assets and covers employees of 250 banks. The total damages awarded may be the highest jury verdict in an excessive fee suit under the Employee Retirement Income Security Act (ERISA).
ERISA actions typically result in a settlement or a trial before a judge, as many courts have held that the suits contain equitable claims that a judge must hear, as opposed to claims for monetary damages that a jury can hear and decide. Nonetheless, some judges in the Second Circuit, including New York, have allowed jury trials in these types of cases.
In the Khan case, the jury found that Pentegra's fiduciaries breached their duties under ERISA by charging plan members unreasonable recordkeeping and administrative fees. According to the class action lawsuit, which three employees initially filed in 2020, the fees paid by class members dating back to September 15, 2014, exceeded those paid by members of comparable plans. They further claimed that Pentegra failed to monitor the amount of administrative fees or to solicit bids from other service providers. As the plan qualifies as a "mega" plan due to the value of its assets, Pentegra allegedly could have obtained lower fees for plan members by using its immense bargaining power.
A federal court denied Pentegra's motion to dismiss the suit in March 2022, with a judge finding that most of the plaintiffs' ERISA fiduciary breach claims had sufficient merit to proceed to trial.
Additional cases related to excessive fees in retirement plans may be forthcoming after the U.S. Supreme Court seemed to favor the claims of Cornell University's 28,000 employees during arguments in an excessive fee case earlier this month. The Court's ruling is expected at any time before the end of its term in June.
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