2023 Retirement Plan Judicial Update

Each year, our Technical Services Committee creates a Regulatory Update covering the legislative, regulatory, and litigation developments affecting retirement plans. While plenty of news is still focused on ERISA fee litigation in 2023, there seems to be a slowdown compared to 2022, which saw 89 cases filed. In 2023, fewer cases have been filed in the first half of the year, according to analysis from Euclid Fiduciary, who estimate 40-50 cases will be filed this year.

In review of the analysis, there has been an increase in Investment Prudence Claims, particularly for imprudently retaining expensive, underperforming investments. Many allegations deemed these funds "mediocre" or funds with "chronic underperformance."

Additionally, recordkeeping fee allegations are now including participant fee disclosures. Usually, a plaintiff firm will start with the 5500 filing to determine whether to include an inflated excess fee estimation within the allegation. In a recent case, the plaintiff's attorney compared the participant fee disclosure to the Form 5500 and noted that the indirect payments were not disclosed to the participant on the fee disclosure. The participant fee disclosure shows the revenue sharing and each investment. It is good to see some plaintiff attorney finally using the correct fees from the fee disclosure rather than making an estimation from the 5500 filing.

Lastly, many allegations for excessive fee litigation still include claims that allege failure to use the lowest available share class. Plaintiff attorneys are aware that excess fee claims that include a failure to use the lowest share class are less likely to be dismissed at the pleading stage. It is highly likely that claims where the lowest share class is not used will continue to be a staple in excessive fee claims.

There continues to be a great deal of ERISA and retirement litigations. Here are some of the more substantive cases we are following.

Confusing Jury Verdict in Vellali vs. Yale University

The Yale University case was one of the first excessive fee suits filed against a university 403(b) plan. The case has finally been decided in favor of the university. The plaintiffs alleged Yale's management of the plan resulted in excessive recordkeeping fees, imprudently retaining long-underperforming funds, and the use of multiple recordkeepers (again, resulting in excessive or duplicate fees).

The case went to a jury trial, which is uncommon, and resulted in a unique and somewhat confusing outcome. The jury determined that Yale did breach their duty of prudence by allowing what they determined to be unreasonable fees for recordkeeping and administrative services.

However, the jury also decided that prudent fiduciaries could have arrived at the same decisions.

As a result, they determined that the plaintiffs did not prove any damages and, therefore, found in favor of the defendants. The jury also found for Yale on three other claims: failing to appropriately monitor the plan's investments, failure to select appropriate share classes, and agreeing to offer certain investments required by the recordkeeper. The plaintiffs’ attorney, Jerry Schlichter, has indicated their intent to appeal the decision.

This outcome seems favorable for other defendants facing similar excessive fee lawsuits. However, it may also show the complexity and nuance involved in these cases. This is especially true when presented to a jury. Determining that a breach of the duty of prudence occurred but that other fiduciaries could arrive at the same decision seems very inconsistent.

A further determination that there was no proof of damages despite a finding that there were excessive fees is also inconsistent. It is unclear what impact, if any, this decision may have as similar suits navigate the legal system.

Managed Accounts

A class action lawsuit has been brought against Dover Corporation, alleging excessive recordkeeping fees and managed account fees offered within Dover Corporation retirement plan.

The suit also alleges that the plan fiduciary's continued retention of the managed account provider, Financial Engines, violates ERISA. The complaint notes that Dover Corporation "unreasonably failed" to leverage the plan size to pay reasonable fees for plan recordkeeping and managed account services. Many prior suits have included similar allegations where plan sponsors hired and retained Financial Engines as a managed account provider. In this lawsuit, Financial Engines is not named as a defendant, but its actions and operations are featured in the allegations. In contrast, the prior cases were allegations directly against Financial Engines.

Personalized investment services like managed accounts are becoming more popular, which is a great reminder of the ongoing responsibility of the fiduciary to monitor the service.

If you have or are considering adding managed accounts, you may review our fiduciary education piece that provides guidance on selecting and monitoring these services.  

9th Circuit Decision Shines a Spotlight on ‘Prohibited Transaction’ Definition

The 9th Circuit Court of Appeals reversed a lower court’s summary judgment decision in favor of AT&T in the case Bugielski v. AT&T. The decision is contrary to two other circuit court decisions and could significantly expand what is considered a prohibited transaction as it relates to defined contribution retirement plans. The discrepancy with the other courts could also pave the way to the U.S. Supreme Court.


The main component of the case focused on fees paid to the plan’s recordkeeper, Fidelity, from brokerage and managed account services that were added to the plan. These services were optional, and the fees were paid by participants using the services. The plaintiffs alleged that AT&T failed to monitor compensation paid to their recordkeeper, Fidelity, from its proprietary brokerage provider and a third-party advisor Financial Engines Advisors. The lower court, ruling in favor of AT&T, determined that the plan sponsor had no obligation to consider this arm’s length compensation and, therefore did not constitute a prohibited transaction as defined by ERISA Section 406(a). That provision states that a fiduciary shall not cause the plan to engage in a transaction between the plan and a party in interest if it results in furnishing goods, services, or facilities between the plan and a party-in-interest. The 9th Circuit Court disagreed, determining that the arrangement served Fidelity’s interests at the expense of plan participants and was therefore, a prohibited transaction.


The determination that there was a prohibited transaction does not mean the plaintiffs will win the case. A prohibited transaction can still be legal if it meets a statutory exemption. To meet this exemption the arrangement must be reasonable, must be necessary and no more than reasonable compensation may be paid for the service. With the 9th Circuit’s determination that there was a prohibited transaction, the case is remanded to the lower court to determine whether the arrangements meet that statutory exemption. It is unclear where the case will go from here, but one avenue could be for AT&T to seek Supreme Court review.

We will continue to monitor this case and its implications on plan fiduciaries' role as it relates to indirect compensation paid to their service providers.

Dismissal of Another Lawsuit Targeting BlackRock LifePath Target Date Funds

Eleven lawsuits were filed over the 2022 summer months challenging the use of the BlackRock LifePath suite of target date funds. Motions to dismiss were granted in several of the cases. The most recent, Bracalente v. Cisco Systems, was dismissed by a district judge in California. This is one more example of courts making the right decision in these lawsuits that focus almost exclusively on investment returns.

The decision follows a similar theme as the other dismissals; the courts will not second-guess fiduciary decisions based solely on the outcome of those decisions. In these cases, allegations focused solely on underperformance of the LifePath suite of target date funds, are insufficient compared to other target date funds. The plaintiffs cannot look back and cherry-pick comparative investments and timeframes to allege a breach of fiduciary duty. They must point to additional facts, such as failure to follow a prudent process in selecting the target date suite.

In this decision, it was noted that in 2022, the LifePath target date suite has outperformed some of the comparative funds identified in the lawsuit. The court also noted that it was aware of similar lawsuits and that several have also been dismissed. Judges for the remaining cases should follow suit in what should hopefully be the beginning of the end of frivolous lawsuits targeting retirement plans and plan fiduciaries.

Dismissal of Lawsuit Targeting DOL Cryptocurrency Bulletin

In March 2022, the Department of Labor (DOL) released a compliance assistance bulletin cautioning plan fiduciaries in offering access to cryptocurrency investments in retirement plans. The bulletin outlined five risks and challenges related to offering cryptocurrency in retirement plans.

Retirement plan recordkeeper ForUsAll, Inc. filed suit against the DOL, alleging the department did not follow proper administrative procedure and requested relief, forcing the department to rescind the bulletin. ForUsAll offers access to cryptocurrency through a self-directed brokerage window and alleged damages because as many as one-third of their prospective clients interested in offering cryptocurrency stopped discussions with ForUsAll following the issuance of the bulletin.

A District of Columbia court judge dismissed the case, ruling that ForUsAll had no basis for the complaint and that the relief requested would not provide relief to support the complaint. Specifically, there was no indication that the relief requested would result in prospective clients renewing their discussions. The DOL bulletin did not restrict offering cryptocurrency as an investment option but highlighted risks it sees in offering it in a retirement plan.

While a jury will not decide this case, the public jury is still out on using cryptocurrency in retirement plans.

Small Plan Settlement

In last year's Regulatory Update, we addressed the case of Aquino v 99 Cents Only Stores LLC, where we saw litigation begin to move down market and represented one of the smallest plans to be targeted. The $76 million plan with approximately 5,700 participants is awaiting court approval for a $750,000 class settlement, which was about 25% of the plaintiff's estimated damages. While we have not seen litigation targeting other plans this size, the positive settlement for the plaintiff could result in a trend of increased focus on smaller plans.  

Untitled - 2023-09-26T113102.443Click here to download a full copy of our 2023 Regulatory Update covering all the legislative, regulatory, and litigation developments affecting retirement plans this year.






Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.

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