Retirement: Excessive fees suit is dismissed

Where the member of a retirement plan alleged her employer permitted excess fees to be charged to plan member accounts for managed-account services and legal fees, but she failed to plead facts making these claims plausible, they were dismissed.

Background

Erin Naylor’s first amended complaint, or FAC, alleges seven violations of the Employee Retirement Income Security Act, or ERISA. Plaintiff’s FAC advances two types of claims: (1) that BAE Systems Inc. misused forfeitures in violation of its fiduciary duties under ERISA and (2) that defendant permitted excess fees to be charged to plan member accounts for managed-account services and legal fees. Defendant has filed a motion to dismiss the FAC, and plaintiff has filed a motion to disqualify defendant’s counsel.

Forfeitures

            Plaintiff appears to claim that under ERISA, defendant had a fiduciary duty to use the forfeiture to pay administrative expenses, given its obligation to act solely in the best interests of the plan participants and since any other use would place defendant’s own interests over those of the plan participants. On the other hand, plaintiff essentially disclaims reliance on any overriding ERISA duty to use forfeitures to pay plan expenses and simply “alleges that Defendant breached its duties of prudence and loyalty by failing to have any process in place to consider doing anything with forfeited funds – except to take those funds for Defendant’s sole benefit.”

The plan requires, without any discretion reserved to the defendant, that forfeitures be directed towards restoring employer contributions for returning employees and offsetting contributions, and if forfeitures exceed contributions in a given payroll period, such “excess shall not be allocated but shall be carried forward and included with Employer Contributions during the next succeeding payroll period until such excess has been depleted.” Thus, it is unclear how under these plan provisions any forfeiture amount during the relevant years could have been directed towards any other purpose than offsetting contributions when the employer contribution amount each year exceeded the available forfeiture amounts.

On the other hand, section 12.6 does confer discretion on the administrative committee to use forfeitures to cover plan expenses. A number of considerations lead to the conclusion that that given the employer’s obligation to follow the terms of a plan, § 12.6 can only be reasonably read to confer discretion in those situations where such forfeitures are not needed to satisfy their required, mandatory use, as any other reading essentially nullifies these mandatory-use provisions. Accordingly, plaintiff’s claims regarding fiduciary breaches relating to forfeitures will be dismissed for failure to state a claim.

Plaintiff’s claim that defendant violated ERISA’s anti-inurement provision fails for the same reason. Plaintiff’s claims regarding prohibited transactions similarly fail because, as defendant argues, “[i]n the absence of a predicate fiduciary act, there is not a basis for concluding there was a prohibited transaction.”

Fees

Plaintiff also brings claims of breaches of ERISA fiduciary duties relating to the payment of recordkeeping fees to the plan recordkeeper for the professional management program, or PMP, and legal fees to Groom Law Group (counsel for defendant in this action).

Plaintiff’s allegations concerning excessive fees fail to allege facts sufficient to make plausible that the PMP fees were excessive and provided “zero benefit” to plan members. For example, the plaintiff does not provide any “meaningful benchmarks” for comparison between the PMP and other plans that offer similar services. At bottom, plaintiff’s claims are simply that PMP fees are too high — but that is not enough to state a plausible claim for imprudence.

And the FAC does not provide anything beyond conclusory allegations regarding the Groom Law Group’s fees. For example, there are no facts alleged with respect to the services that Groom Law Group provided to the plan as compared to services provided to the other clients identified in the FAC.

Disqualify

Plaintiff has also moved to disqualify Groom from representing defendant in this action on the theory that because Groom has provided services to defendant as to its administration of the plan, Groom is now in an attorney-client relationship with the plan itself and therefore should be deemed to be counsel for both the plaintiff and the defendant in the same case in violation of the Virginia Rules of Professional Conduct. However Fourth Circuit caselaw directly forecloses plaintiff’s position.

Defendant’s motion to dismiss granted. Plaintiff’s motion to disqualify counsel denied.

Naylor v. BAE Systems Inc., Case No. 1:24-cv-00536, Sept. 5, 2024. EDVA at Alexandria (Trenga). VLW 024-3-476. 18 pp.