Third Circuit Revives Excessive Fee Litigation, Finding Plaintiffs Adequately Allege Violation of ERISA Fiduciary Duties

In Kruchten v. Ricoh USA, Inc., et al., No. 23-1928, 2024 WL 3518308 (3d Cir. July 24, 2024), a nonprecedential opinion, the Third Circuit reversed the district court’s dismissal of Plaintiffs’ lawsuit against Defendants alleging that the Ricoh USA, Inc. defined contribution plan charged excessive recordkeeping and administrative services fees between 2016 and 2020. The district court’s decision relied heavily on a district court opinion that the Third Circuit reversed in Mator v. Wesco Distrib., Inc., 102 F.4th 172 (3d Cir. 2024). Based on the pleading standards for excessive fee claims under ERISA articulated in Mator, the court agreed with Plaintiffs that they stated a claim that Defendants violated their fiduciary duties under ERISA, 29 U.S.C. § 1104. The court remanded the matter to the district court for further proceedings.

Here, there is no dispute that the retirement plan is subject to ERISA and that Defendants, as fiduciaries of the Plan, were required to monitor the Plan’s investment performance and costs, including recordkeeping and administrative service fees. Plaintiffs alleged that Defendants failed to control the Plan’s costs between 2016 and 2020 which led the Plan’s participants to pay millions of dollars in unnecessary expenses. They further allege that due to the Plan’s size it had substantial bargaining power to negotiate lower fees. During the relevant period, Plan participants were paying average annual fees ranging from $61 to $103. Plaintiffs compiled a list of comparable plans and calculated average fees in the range of $23 to $36 per participant. They also cited case law and industry surveys to argue that the industry standard for fees was around $35 per participant.

The district court dismissed Plaintiffs’ complaint, finding that the comparisons were not meaningful, and that Plaintiffs did not plead sufficient facts to show that the services provided by the various plans were indeed similar. In exercising plenary review of the district court’s decision to dismiss the complaint, the Third Circuit determined that Plaintiffs established a meaningful benchmark to plausibly allege that the Plan fees were excessive. Plaintiffs also alleged that Defendants did not solicit bids from competing recordkeeping providers. Any potential flaws in the fee comparisons made by Plaintiffs is not fatal to the complaint as a whole which states a plausible claim. The court also rejected Defendants’ argument that this case is distinguishable from Mator and Sweda v. Univ. of Pa., 923 F.3d 320 (3d Cir. 2019) because in those cases the fees were at least three times greater than the industry average and here the alleged gap is around two times the industry average. The court explained that those cases provide guidance on evaluating the factual context around excessive fees and did not prescribe a particular level where fees are acceptable. The court further explained that the lesson from Mator is that plaintiffs need to establish that the comparison plans are similar. In this case, Plaintiffs have met this requirement.