The plaintiffs in an excessive fee claim brought against the fiduciaries of a $9 million 401(k) plan have dropped their lawsuit.

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 The case was “voluntarily withdrawn” less than one month after its initial filing, according to court documents.

The initial claim captured the attention of retirement policy advocates and ERISA legal experts across the country for the fact that the plaintiffs’ echoed similar allegations brought against sponsors of “mega” 401(k) plans over the past decade.

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

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

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

Some of those experts expressed concern that a rash of lawsuits against small plan sponsors would be counterproductive to addressing that nation’s collective retirement savings shortfall. Bipartisan efforts at the federal and state level are hoping to expand access to workplace retirement plans to the tens of millions employed by small businesses currently not offering a savings option.

“This suit tolls the end of what seemed to be small to mid-sized plans’ former exemption from lawsuits,” wrote Gretchen Russell, a lawyer and ERISA researcher for Pension Consultants, a Missouri-based consultancy with $2.4 billion retirement assets under advisement.

“Lawsuit threats are now real to plans of all sizes,” said Russell in blog post published before the case was withdrawn.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

The allegations

In the claim filed in May, the plaintiffs alleged that plan participants paid “hundreds of thousands of dollars” in excessive fees to Voya Retirement Insurance and Annuity Co., the service provider and record keeper to the plan. Voya was not named as a defendant in the case.

The plan’s sponsor fiduciaries, LaMettry president Joanne LaMettry and CFO Steven Daniel, allowed retail class shares of mutual funds when more inexpensive institutional shares were available, and failed to actively monitor the fees paid to Voya and fees on the investments, alleged the plaintiffs.

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

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

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

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

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

An institutional class share of Vanguard’s FTSE All-World ex-US Index Fund was available for 14 basis points, alleges the complaint.

Apples-to-oranges comparison?

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

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

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

Moreover, the American Funds option and Vanguard option do not share the same investment style.

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

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

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

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

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

Voya was the recordkeeper to the plan, not Fidelity. Recordkeeping fees

In the complaint, plaintiffs’ attorneys also allege that for retirement plans with over 100 participants, “a reasonable annual per capita fee paid by retirement plan participants should not exceed $18.”

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

“The complaint is largely copied from the complaint filed in 2011 against Ameriprise in the same district court,” said Thomas Clark, and ERISA specialist and of counsel of Boston-based The Wagner Law Group.

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

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

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

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

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 than the $18 maximum suggested by the plaintiffs’ attorneys in the complaint, even though the LaMettry plan had far fewer participants than 200, which would increase the per-head cost of recordkeeping.

LaMettry plan’s healthy account balance

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

Nonetheless, based on the average account balance, LaMettry’s plan fairs well by many measurements. According to data from Judy Diamond Associates, a business unit of ALM Media, the parent company of BenefitsPro, the average 401(k) account balance for plans across all industries with 51 to 100 participants is about $44,000. It is about $41,500 for plans with 100 to 500 participants.

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

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

“There is nothing in the claim that alleged the fiduciaries did anything to benefit themselves,” Roberts told BenefitsPro several weeks before the complaint was withdrawn.

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

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

“The average balance tells me there is a high value being delivered — someone is certainly adding value somewhere,” said Roberts.

The allegedly high cost of the funds provided in the LaMettry plan could have been chosen for revenue sharing agreements to help offset the cost of plan services. Institutional share classes rarely come with the revenue sharing agreements that help sponsors pay for the cost of providing and servicing a plan. Roberts estimates that 90 percent of the 401(k) plans in the country use investment funds with revenue sharing agreements.

LaMettry fiduciaries feel 'frustrated'

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

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

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

“We saw no merit in the allegations and thought the claim seemed misguided,” said Sjoholm. “My clients were totally surprised by this.”

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

“Their side of the story was never able to be filed, and there’s nothing that can be done about that,” he added. “My clients are understandably frustrated by that.”

The plaintiffs were represented by J. Ashwin Madia, the founder of Madia Law, a Minneapolis-based firm with three attorneys that specializes in litigating labor issues, and in “beating giants.”

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

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

Instant Insights /

Case against small plan sponsor voluntarily withdrawn

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