Previously, we wrote about the increasing number of lawsuits filed against plan sponsors or providers, and steps that sponsors could take to guard against potential litigation (see below for link). Although these lawsuits have been focused on sponsors of very large plans, we specifically noted that it was only a matter of time before these effects began to trickle down, and smaller companies became targets as well. Little did we know how soon this would actually happen.

Now catching our eye is a May 23, 2016 InvestmentNews article, “Excessive-fee suit targeting $9 million 401(k) plan could be ‘harbinger’ for industry.” Similar to lawsuits against larger plans, this law suit, Damberg et al v. LaMettry’s Collision Inc. et al, alleges, among other things, that plan fiduciaries:

  • Breached their duties under ERISA by allowing excessive fees to be charged for investments, record keeping, and administration.
  • Did not follow a prudent process to evaluate service providers and assess the reasonableness of fees.

While there is nothing unusual about these allegations, what is different is the size of the plan – $9.2 million in assets and 114 active participants as of the 2014 year end. This is in sharp contrast to the multi-billion dollar plans that have thus far been the primary focus of such suits. Marcia Wagner, an ERISA expert with The Wagner Law Group, was quoted in the article, noting that “this suit could mean small- and mid-sized 401(k) plans are now coming into the crosshairs of the plaintiff’s bar.” She further commented that “this may well be a test case.”

Also of note to small plan sponsors is that the defendants include the president and chief financial officer of the sponsor, highlighting that plan fiduciaries are subject to personal liability.

How lawsuits involving smaller plans will play out remains to be seen, but one thing is clear: you can no longer put off evaluating your plan’s exposure to such suits.

For those who missed our March newsletter article, “Litigation Storms Impacting the 401(k) Climate,” please click here to access a copy which includes steps you can take with your own plan to help guard against potential litigation.