ERISA Class Action Watch

Retirement plan fees are a very hot topic among employers. More than a dozen class action lawsuits involving 401(k) fees have been filed in the last twelve months. These suits allege that 401(k) plan sponsors violated their fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”) by allowing their plans to offer investment options that charged excessive fees.

Prior suits have primarily targeted the 401(k) plans of Fortune 100 corporations, but plaintiffs’ lawyers now appear to have a new target: the 403(b) plans commonly offered by non-profit groups. 

A prominent class-action firm named Keller Rohrback has filed a purported class action suit against the National Education Association (“NEA”), Nationwide Life Insurance, and Security Benefit. The complaint alleges that NEA, the nation’s largest organization of educators, accepted payments from Nationwide and Security Benefit in return for giving them exclusive endorsements as 403(b) providers.

According to plaintiffs, annuities offered by Nationwide and Security Benefit charged “grossly excessive” fees. NEA’s alleged failure to control these expenses violated its duty of prudence under ERISA. In addition, the suit alleges that these Nationwide and Security Benefit violated their fiduciary duties by benefiting from improper revenue sharing arrangements with the mutual funds they selected for the 403(b) plan.

These allegations are similar to those made in the prior suits targeting Fortune 100 401(k) plans. The success of those suits has been mixed so far: district courts have refused to dismiss cases against Kraft, Exelon, and other major corporations, but a district court in Wisconsin recently dismissed a case against Deere.

The complaint is also very similar to Montoya v. ING, another suit regarding 403(b) plan endorsements which Keller Rohrback is also involved in. Montoya, however, was an offshoot of Spitzer’s investigations against ING and the New York State United Teachers. The new suit against NEA appears to indicate that Keller Rohrback thinks there may be broader possibilities for 403(b) fee actions.

The outcome of the suit against NEA, Nationwide, and Security Benefit cannot be predicted, but the suit appears to face a number of obstacles — not the least of which is showing that the NEA Valuebuilder Program at issue is truly an ERISA plan. Still, it seems likely that other suits will follow. Non-profit organizations that sponsor or endorse a 403(b) plan should view this suit as reminder to review the fees charged by their plans and investment options.

• Daniels-Hall et al v. NEA complaint