Second Circuit Affirms Dismissal of ERISA Breach of Fiduciary Duty Claims Alleging Excessive Recordkeeping Fees

In a recent decision by the United States Court of Appeals for the Second Circuit, the case of Singh v. Deloitte LLP, No. 23-1108, __F.4th__, 2024 WL 5049345 (2d Cir. Dec. 10, 2024), has garnered attention for its implications on ERISA fiduciary duties regarding recordkeeping fees. The plaintiffs, a group of Deloitte employees, alleged that Deloitte LLP and its plan fiduciaries breached their fiduciary duties under ERISA by allowing excessive recordkeeping fees in their 401(k) plan. The focus was on whether these fees were excessive compared to the services rendered, a key component in determining a breach of fiduciary duty under ERISA.

Plaintiffs argued that the fees were exorbitant compared to other similar plans, suggesting a failure by Deloitte to negotiate favorable terms. The district court previously dismissed their complaint, noting the plaintiffs failed to provide sufficient specific allegations that would allow a plausible inference of imprudence in the fees relative to services provided. The Second Circuit, applying de novo review, affirmed the district court’s decision, finding that the plaintiffs’ amended complaint remained insufficient.

The court emphasized the necessity of context-specific allegations to support claims of excessive fees. Plaintiffs’ comparisons (six other large plans) were deemed lacking as they failed to detail the specifics of the recordkeeping services provided to the Deloitte plan versus those of the comparator plans. The court noted that merely claiming the fees were higher than those of other plans without detailing what services were provided was not enough to show imprudence. It stressed that a prudent fiduciary’s decision could involve higher fees if justified by better or more comprehensive services.

Additionally, the court pointed out that Plaintiffs’ comparisons were flawed as they compared only the direct costs of the Deloitte plan with those of other plans, failing to account for indirect costs, such as revenue sharing. This oversight was critical because indirect costs could significantly impact the total fees paid. Plaintiffs’ allegations, based on these comparisons, did not establish a plausible claim, as they lacked the necessary context to indicate that the fees were excessive.

The decision also highlighted Plaintiffs’ reliance on outdated and irrelevant benchmarks, such as past market surveys, which did not provide a meaningful comparison to the services rendered during the class period in question. Moreover, the court was unpersuaded by Plaintiffs’ claims that the longevity of Deloitte’s relationship with its recordkeeper, Vanguard, suggested imprudence, as this assertion was speculative without concrete evidence of excessive fees relative to services.