The plaintiffs in an excessive fee claim brought againstthe fiduciaries of a $9 million 401(k) plan have dropped theirlawsuit.

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The case, Damberg v. LaMettry’s Collision Inc., whichwas brought under the Employee Retirement Income Security Act, wasfiled in U.S. District Court for the District of Minnesota thispast May. The case was “voluntarily withdrawn” less than one monthafter its initial filing, according to court documents.

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The initial claim captured the attention of retirement policyadvocates and ERISA legal experts across the country for the factthat the plaintiffs’ echoed similar allegations brought againstsponsors of “mega” 401(k) plans over the past decade.

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Related: 7 things fiduciaries shouldn't say incourt

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But the claims against LaMettry’s Collision, a Minneapolis-basedfamily owned auto body repair business with eight locations in theMinneapolis-St. Paul metro region, were distinct for the fact thatallegations of imprudence, disloyalty and a failure to monitor planfees and the plan service provider were brought against the sponsorof a relatively small 401(k) plan.

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LaMettry’s 401(k) profit-sharing plan had approximately 114active participants and roughly $9.2 million in assets in 2014,according to the initial claim. The two named plaintiffs wereformer employees with 30 and 25 years of service to the company,which was founded in 1976.

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Many ERISA experts and industry stakeholders perceived that caseas a potential harbinger for a new era of 401(k) lawsuits broughtagainst small business employers.

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Some of those experts expressed concern that a rash of lawsuitsagainst small plan sponsors would be counterproductive toaddressing that nation’s collective retirement savings shortfall.Bipartisan efforts at the federal and state level are hoping toexpand access to workplace retirement plans to the tens of millionsemployed by small businesses currently not offering a savingsoption.

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“This suit tolls the end of what seemed to be small to mid-sizedplans’ former exemption from lawsuits,” wrote Gretchen Russell, alawyer and ERISA researcher for Pension Consultants, aMissouri-based consultancy with $2.4 billion retirement assetsunder advisement.

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“Lawsuit threats are now real to plans of all sizes,” saidRussell in blog post published before the case was withdrawn. “Thatis bad news.”

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The allegations

In the claim filed in May, the plaintiffs alleged that planparticipants paid “hundreds of thousands of dollars” in excessivefees to Voya Retirement Insurance and Annuity Co., the serviceprovider and record keeper to the plan. Voya was not named as adefendant in the case.

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The plan’s sponsor fiduciaries, LaMettry president JoanneLaMettry and CFO Steven Daniel, allowed retail class shares ofmutual funds when more inexpensive institutional shares wereavailable, and failed to actively monitor the fees paid to Voya andfees on the investments, alleged the plaintiffs.

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The plan’s investment menu included 11 mutual funds, sevenpooled separate accounts, and a Voya guaranteed investmentcontract, according to the complaint.

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A Voya money market fund, and seven other Voya funds, whichincluded an index investment option and small and mid-cap funds,were among the options available to participants. So wereinvestment options from eight other fund companies.

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As has been a trend in the body of ERISA litigation over thepast decade, attorneys for the plaintiffs compared the fundsoffered in the LaMettry plan to lower cost institutional shares offunds with similar investment styles offered by Vanguard.

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LaMettry fiduciaries breached their obligation under ERISA “byfailing to consider low cost institutional funds and investments”available to a plan with more than $9 million in assets, arguedattorneys for the plaintiffs in the withdrawn claim.

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In the example of one comparison provided by the plaintiffs,participants in the plan were offered R-3 class shares AmericanFunds New Perspectives Fund at a cost of 110 basis points pershare.

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An institutional class share of Vanguard’s FTSE All-World ex-USIndex Fund was available for 14 basis points, alleges thecomplaint.

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Apples-to-oranges comparison?

But a review of LaMettry’s Form 5500 filing for 2014 shows thatthe institutional share class of the Vanguard fund may not havebeen available to a plan of LaMettry’s size.

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In 2014, plan participants had $703,674 invested in AmericanFunds New Perspective Fund, according to LaMettry’s Form 5500filing.

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But in order to access the institutional share class of theVanguard FTSE All-World ex-US Index Fund, a minimum investment of$5 million dollars would be required by the plan, according toVanguard’s website. In fact, a minimuminvestment of $5 million is required to access the institutionalshares of all of Vanguard’s funds, according to information on thefirm’s website.

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Moreover, the American Funds option and Vanguard option do notshare the same investment style.

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Nearly 50 percent of the American Funds New Perspective Fund isinvested in U.S.-based companies, while the Vanguard FTSE All-Worldex-US Index Fund is invested entirely outside of the UnitedStates.

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The Form 5500 filing shows that the Voya Fidelity VIP Mid Capseparate account fund held the largest share of LaMettryparticipants’ investments, at about $1.2 million in 2014.

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That separate account fund cost participants 118 basis points.In the complaint, attorneys for the plaintiffs argue the FidelityMid-Cap Stock Fund K — the institutional share of the fund — wouldhave been the more prudent option, as it was available at 76 basispoints.

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But a review of the summary prospectus for the Fidelity Mid-CapStock Fund K, dated June 29, 2016, shows that fund may not havebeen available as an option to LaMettry’s fiduciaries.

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“Shares generally are available only to employer-sponsoredretirement plans for which Fidelity provides recordkeeping servicesor that already have a qualifying investment in the fund,”according to language in the fund’s prospectus.

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Voya was the recordkeeper to the plan, not Fidelity.Recordkeepingfees

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In the complaint, plaintiffs’ attorneys also allege that forretirement plans with over 100 participants, “a reasonable annualper capita fee paid by retirement plan participants should notexceed $18.”

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That claim caught the attention of at least one ERISA expert,and was also inconsistent with independent data on recordkeepingcosts for all 401(k) plans.

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“The complaint is largely copied from the complaint filed in2011 against Ameriprise in the same district court,” said ThomasClark, and ERISA specialist and of counsel of Boston-based TheWagner Law Group.

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“It will be very difficult to prove a $9 million plan shouldonly pay $18 per head,” Clark told BenefitsPro in the days afterthe case was first filed, before the announcement that the claimhad been voluntarily withdrawn.

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According to the 15the edition of the "401(k) AveragesBook," which benchmarks 401(k) plan costs thoroughSeptember 2014, the average separated cost of recordkeeping, perparticipant, was $31 dollars for plans with 100 participants and $5million in assets. Data from that year shows that for plans with100 participants, the highest range of per-participantrecordkeeping costs was $150.

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The "401(k) Averages Book" segments data by plan size, accordingto the number of participants and the size of the plan byassets.

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It does not have specific data a plan of LaMettry’s size — 114participants with more than $9 million in assets.

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The closest benchmark data by asset provided in the book— $10 million in assets for a plan with 200 participants —shows the average per-head recordkeeping cost at $23, higher thanthe $18 maximum suggested by the plaintiffs’ attorneys in thecomplaint, even though the LaMettry plan had far fewer participantsthan 200, which would increase the per-head cost of recordkeeping.

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LaMettry plan’s healthy account balance

The average account balance of the plan was $81,000. Averagebalances alone do not indicate the overall efficiency of a 401(k)plan’s design, as the average can be over or underweighted by theage of participants, among other factors.

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Nonetheless, based on the average account balance, LaMettry’splan fairs well by many measurements. According to data fromJudy Diamond Associates, a businessunit of ALM Media, the parent company of BenefitsPro, the average401(k) account balance for plans across all industries with 51 to100 participants is about $44,000. It is about $41,500 for planswith 100 to 500 participants.

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LaMettry’s plan actually competes well with plans of similarsize in more affluent industries, like physician groups, law firmsand engineering firms, when comparing the number of participants toaverage account balances, according to Judy Diamond's data.

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That reality, among others, sparked Jason Roberts’ suspicionswhen the complaint against LaMettry was first filed.

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“There is nothing in the claim that alleged the fiduciaries didanything to benefit themselves,” Roberts told BenefitsPro severalweeks before the complaint was withdrawn.

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“ERISA requires prudent decisions, and for sponsors to putparticipants best interests before their own. None of the claims inthis case factored in the value of the services participantsreceived,” said Roberts, CEO of the Pension Resource Institute, andan attorney and ERISA consultant with the Retirement Law Group.

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The high level of average account balances in the LaMettry plancould be an indication that the plan’s fiduciaries have supportedLaMettry participants with education and communication tools beyondthe status quo, noted Roberts.

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“The average balance tells me there is a high value beingdelivered — someone is certainly adding value somewhere,” saidRoberts.

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The allegedly high cost of the funds provided in the LaMettryplan could have been chosen for revenue sharing agreements to helpoffset the cost of plan services. Institutional share classesrarely come with the revenue sharing agreements that help sponsorspay for the cost of providing and servicing a plan. Robertsestimates that 90 percent of the 401(k) plans in the country useinvestment funds with revenue sharing agreements.

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LaMettry fiduciaries feel 'frustrated'

Several requests for comment from LaMettry in the weekspreceding the case’s withdrawal were not returned.

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William Sjoholm, an attorney with Minneapolis-based DeWitt,Mackall, Crounse and Moore and the lead counsel in defending theclaims against LaMettry, was scheduled to file the first responseto the complaint on July 1.

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More than relief over the case being voluntarily withdrawn,Sjoholm said his clients feel “frustration.”

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“We saw no merit in the allegations and thought the claim seemedmisguided,” said Sjoholm. “My clients were totally surprised bythis.”

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Prior to the lawsuit, there had never been a complaint about thecost or the administration of the plan. Sjoholm described a companyculture at LaMettry’s Collision that places a high imperative onthe employee morale. “They take great pride in their 401(k) plan,”said Sjoholm.

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“Their side of the story was never able to be filed, and there’snothing that can be done about that,” he added. “My clients areunderstandably frustrated by that.”

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The plaintiffs were represented by J. Ashwin Madia, the founderof Madia Law, a Minneapolis-based firm with three attorneys thatspecializes in litigating labor issues, and in “beatinggiants.”

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Inquires as to Mr. Madia’s experience litigating ERISA claimswere not returned throughout reporting on the case.

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Court documents gave no reason as to why the claim wasvoluntarily withdrawn by the plaintiffs.

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