In a rare jury trial on April 23, 26,000 employees were awarded $38,760,232 in an ERISA (Employee Retirement Income Security Act) fiduciary breach lawsuit over unreasonable recordkeeping and administrative fees from their 401(k) retirement plan, which was administered by fiduciaries of Pentegra’s $2 billion Multiple Employer Defined Contribution Plan for Financial Institutions, a multiple employer plan (MEP) that 250 banks adopted for their employees.
The case was set to continue with court proceedings before a judge in order to resolve prohibited transaction claims, focusing on equitable remedies given that the plaintiffs sought to remove the plan’s fiduciaries and reorganize the plan. However, the court was alerted last week that Pentegra settled the remainder of the suit with the plaintiffs. The employees were seeking to recover up to $157 for a second claim, alleging that Pentega committed prohibited transactions by causing the plan to retain Pentegra Services Inc. (PSI) and pay plan assets to PSI. Now both parties “have reached a settlement in principle … the parties shall either move for preliminary approval of the settlement or file a joint letter advising the court of the status … by May 16, 2025,” wrote Judge Philip Halpern of the Southern District Court of New York on May 2.
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This case was yet another win for law firm Schlichter Bogard, which has been representing many plaintiffs in the onslaught of 401(k) and 403(b) excessive fee cases over the past few years. Jerry Schlichter, founder of Schlichter Bogard, is a pioneer in legal action against 401(k) and 403(b) plan sponsors on behalf of retirees and savers.
In the Pentegra case, the amount awarded—$38,760,232—is believed to be the highest jury verdict in an excessive fee lawsuit. In Khan et al. v. Board of Directors of Pentegra Defined Contribution Plan, the jury found that fiduciaries of Pentegra’s MEP breached their fiduciary duties under ERISA by paying unreasonable recordkeeping and administrative fees. The class-action case, which alleged that “the fees paid by participants have far exceeded the rates of comparable plans,” was originally filed in a New York district court in 2020 by employees Imran Khan, Joan Bullock, and Pamela Joy Wood, who represented themselves and all others with retirement savings in the plan since September 15, 2014.
According to the lawsuit, in 2014 the plan paid Pentegra at least $9.52 million in direct recordkeeping and administration fees, or an average of $359.70 per participant, while a comparable plan, Nike’s 401(k) plan, with approximately 19,000 to 26,000 participants, paid $21 per participant for recordkeeping services in 2012 and 2016. Pentegra was accused of failing to regularly monitor administrative fees or solicit competitive bids from third-party providers. Since the plan is considered a “mega” plan based on its assets, Pentegra had tremendous “bargaining power” to obtain low recordkeeping fees, alleges the lawsuit.
In March 2022, a federal court found most of the plaintiffs’ ERISA fiduciary breach claims were sufficient to advance the litigation process, and in 2023, Judge Halpern ruled that the participants could try the bulk of their case before a jury, while many courts had previously ruled that ERISA lawsuits seek equitable remedies that must be tried by a judge instead of a jury.
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From: BenefitsPRO
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
