Anthem Workers Advance Challenge to 401(k) Plan Fees

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By Jacklyn Wille

Anthem Inc.'s pension committee must defend allegations that the company’s 401(k) plan carried excessive fees ( Bell v. Pension Comm. of ATH Holding Co. , 2017 BL 92116, S.D. Ind., No. 1:15-cv-02062-TWP-MPB, 3/23/17 ).

The proposed class action accuses the committee of including high-fee mutual fund share classes in Anthem’s 401(k) plan and paying excessive record-keeping fees to Vanguard Group Inc. A federal judge largely denied the committee’s motion to dismiss on March 23, saying that choosing high-fee share classes when identical lower-fee classes were available could constitute fiduciary breach under the Employee Retirement Income Security Act.

This victory for St. Louis law firm Schlichter Bogard & Denton comes one day after the firm advanced a similar lawsuit against software manufacturer Oracle Corp. The firm is fighting an uphill battle in its challenge to Chevron Corp.'s 401(k) plan fees. A federal judge dismissed that case in August 2016 but allowed Schlichter an opportunity to replead its claims.

“The Court ruled that our claims of unreasonable investment management and administrative fees will go forward, including the claims that this very large plan had retail mutual funds when far lower cost identical institutional funds were easily available, and that the administrative fees were asset based, no bid fees,” Jerry Schlichter, attorney for the plan participants and founding partner at Schlichter Bogard, told Bloomberg BNA in an emailed statement.

“As to the dismissed stable value claim, we will be filing an amended count providing more detail about that, as the court allowed,” Schlichter said.

Counsel for Anthem’s pension committee declined to comment on the ruling.

Most Claims Move Forward

The Anthem plan participants levied three main charges against the plan’s oversight committee: (1) It opted for high-fee share classes when lower-fee classes were available; (2) it compensated Vanguard through a revenue-sharing arrangement that led to excessive record-keeping fees; and (3) it included a poorly performing money-market fund without considering whether a stable value fund would be a better option.

In defending the challenged share classes, the committee argued that it satisfied its legal duties by including a wide range of investment options. The judge disagreed. Offering higher-fee share classes when identical options were available at a lower price could be a fiduciary breach under ERISA, the judge said.

The participants also attacked the plan’s revenue-sharing arrangement with Vanguard, which served as the plan’s record keeper. Revenue sharing—which is common in the 401(k) industry—allows record keepers to receive a portion of the fees charged to the plan’s investment options as compensation for their services. The participants argued that revenue sharing allowed Vanguard to collect fees disproportionate to the amount of work it performed, while a flat, per-participant fee would be more reasonable.

In refusing to dismiss this claim, the judge said that the Anthem participants could challenge revenue sharing without alleging that the defendants engaged in self-dealing. They accused the committee of failing to solicit bids from other record keepers and failing to monitor Vanguard’s fees, the judge said, finding that to be sufficient.

Despite these losses, the Anthem defendants scored one victory in the ruling: The judge dismissed claims challenging their decision to offer a money market fund in lieu of a stable value fund. The judge called this claim “conclusory,” adding that the committee had no absolute duty to provide a stable value fund.

By rejecting the stable value fund challenge, the judge followed recent rulings in cases involving the 401(k) plans of Chevron and Insperity Inc.

Judge Tanya Walton Pratt of the U.S. District Court for the Southern District of Indiana wrote the decision.

Seyfarth Shaw LLP represents the Anthem pension committee.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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