Patrick Miller-Bartley
Tue, 08/08/2023
On July 27, 2023, a federal judge in Colorado denied DaVita, Inc.’s motion to dismiss class action claims that it breached its fiduciary duty to its 401(k) plan by allowing higher-than-average recordkeeping costs and offering investment funds with higher-than-necessary management fees. DaVita, which provides dialysis services, had moved to dismiss the claims on the grounds that the plaintiffs lacked standing to allege that DaVita had improperly offered high-management-fee investment funds, because none of the plaintiffs named in the lawsuit had actually invested in the funds. Additionally, it argued that, while the plan’s overall recordkeeping fees were higher than a reasonable benchmark, each of the Plaintiffs had actually paid a lower amount in recordkeeping fees than that benchmark.
The Court agreed in part with DaVita on the management fee claims, holding that, while the Plaintiffs did not need to have invested in all of the plans they alleged had improperly high fees, they needed to have invested in at least one of them, which they had not done. Absent such investment, the Plaintiffs could not show that they had been sufficiently injured by the high fees, and therefore did not have standing to sue. The Court explained that Plaintiffs only needed to show that they had invested in one of the high-fee funds because their claim was “rooted in Defendants’ conduct in managing all the funds as a group.” As such, while the Court dismissed this claim, it gave Plaintiffs until August 31st to amend their complaint to allege that at least one of the named Plaintiffs had invested in at least one of the high-fee funds.
Regarding the recordkeeping fee claims, the Court held that, because the Plaintiffs were able to identify a comparator plan, belonging to the financial services company Fidelity, that paid a much lower amount in recordkeeping fees than DaVita, it would not dismiss those claims. While the Court acknowledged DaVita’s argument that the difference in cost may be the result of significant differences between the plans, it explained that evaluating such an argument would be fact-intensive, and not appropriate at the motion to dismiss stage.
401(k) plans are often convoluted, and their various funds and fee structures may be difficult to understand. It is for this reason that an employer has an obligation to manage its 401(k) plan in the best interest of its employees. If you have questions or concerns about how your 401(k) plan is being administered, do not hesitate to contact us.
