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Pfizer 401k Plan Hit with ERISA Lawsuit

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Were fiduciaries required to get the best deal on administrative services?

Kalamazoo, MI On June 8, Matthew Miller, a participant in the Pfizer Savings Plan, brought a class action ERISA lawsuit against fiduciaries of the plan. The lawsuit alleges that the fiduciaries breached their duties under ERISA by permitting the $22 billion plan to pay Fidelity, the plan’s recordkeeper, excessive administrative and recordkeeping fees. The key to understanding Matthew A. Miller v. Pfizer, inc., like many other lawsuits that make similar claims, is that “mega plans” can often negotiate lower prices for relatively standard services. The 55,000 participants seek damages from 2017 to the date of judgment.

What does a 401k recordkeeper do?

It is important to realize, at the outset, that plan sponsors commonly outsource routine, nondiscretionary functions, and possibly some fiduciary functions to third party service providers. Under ERISA, however, plan fiduciaries retain the legal responsibility to oversee and monitor whether these outsourced functions are performed for the sole benefit of the participants and beneficiaries.

Among the outsourced functions is recordkeeping. The  third party recordkeeper is essentially a bookkeeper that keeps track of who participates in an employer’s plan, what investments they own, what investment choices participants have chosen, as well as their contributions and distributions. Recordkeepers often also manage the website participants use to access their retirement accounts. The cost of recordkeeping services is passed along to plan participants.

Miller argues that these services have become standardized. They are “fungible commodities,” in the terms of the Complaint. Other factors aside, one recordkeeper is likely to do as competent a job as another. Consequently, price becomes an important consideration. The cost of recordkeeping and administrative services is charged to participants’ accouts.

Many recordkeepers are reportedly willing to offer a better price per service to plans that have greater assets. One study found that large plans, with more than $100 million in assets, have fees below 1 percent. The fees for the very largest plans are usually below 0.50 percent.

Miller alleges that the plan had more assets than 99.99 percent of the similar plans in the United States. Nonetheless, participants paid nearly double the price for recordkeeping and administrative services than participants in other very large plans paid. Instead, the Complaint argues, the fiduciaries should have reduced the plan’s total recordkeeping and administrative expenses by soliciting bids from vendors and negotiated with service providers using the plan’s “massive size and correspondent bargaining power” to negotiate for fee rebates. The fiduciaries failure to do so and the decision to retain cost participants tens of millions of dollars in lost retirement savings.

ERISA fiduciary duty      

The primary responsibility of ERISA fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. Fiduciaries must act prudently and must diversify the plan's investments in order to minimize the risk of large losses. In addition, they must follow the terms of plan documents to the extent that the plan terms are consistent with ERISA. Courts may take whatever action is appropriate against fiduciaries who breach their duties under ERISA. The 2023 Seventh Circuit decision in Hughes v. Northwestern University restates the established principle that plan fiduciaries have a continuing duty to monitor their expenses to make sure that they are not excessive with respect to the services received.

Focus in the process

In a defined contribution plan, like the Pfizer plan, fiduciaries are not required to guarantee a certain rate of return or a defined benefit at the time that a participant retires. As a result, there is always a speculative element in 401k breach of fiduciary lawsuits that focus on the harm caused to participants and beneficiaries by excessive fees.

In general, participants are more likely to succeed when they can show that the fiduciaries’ decision-making process was flawed rather than demonstrating that, in hindsight, a particular decision was the wrong one. The court’s decision in Miller, should the lawsuit go to trial, may depend on how long the plan retained Fidelity as the recordkeeper and the relative frequency (or infrequency) with which the fiduciaries sought competing bids from third party recordkeepers. A strong process may, conversely, put a quick end to the litigation in a successful motion to dismiss.


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