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AT&T Win Is Road Map for Defense of 401(k) Fees, Lawyers Say

Oct. 1, 2021, 9:31 AM

AT&T’s defeat of a massive class action challenging its retirement plan’s record-keeping fees could help other plan sponsors defend against similar disputes.

The telecommunications giant beat back a class action this week involving more than 245,000 members of its 401(k) plan. The lawsuit accused AT&T of failing to evaluate and monitor the record-keeping fees it pays Fidelity Investments Institutional Operations Company Inc.

The flood of class actions brought in recent years over allegedly excessive 401(k) plan fees isn’t letting up. But with more companies choosing to fight rather than settle, defense attorneys say AT&T’s case could serve as a road map for what evidence needs to be produced to prevail at trial.

“This decision really does help to define some of the evidence that courts will look at when making these decisions on a summary judgment,” said Stacey Cerrone, a principal at Jackson Lewis PC, who defends plan sponsors and fiduciaries against complex Employee Retirement Income Security Act (ERISA) class actions.

“It’s food for thought on what evidence is needed to prove your defenses.”

‘Food for Thought’

In her order, Judge Virginia Phillips on the U.S. District Court for the Central District of California said AT&T presented “extensive evidence” that its benefit plan committee acted prudently in monitoring the plan’s record-keeping expenses.

Not only did the benefits committee periodically review disclosures and invoices from Fidelity, Phillips said, it hired outside experts to evaluate the reasonableness of Fidelity’s compensation and obtained a lower price for record-keeping fees after hiring Deloitte to consult on the negotiations of a new contract.

In a statement, A&T said it’s pleased with the court’s decision.

“We help our employees prepare for retirement by offering 401(k) plans that feature a broad array of fund choices and a generous company match,” the company said.

Meanwhile, defense attorneys say the decision shows ERISA—the federal law governing employee benefit plans—is working as intended.

If a plan sponsor follows the right process and keeps record of it, it shouldn’t be afraid it’s going to be found to have breached its fiduciary duties under the law, said Josh Lichtenstein, a partner at Ropes & Gray LLP, who represents plan sponsors and investment fiduciaries.

“The problem is, unfortunately, following the right process can’t prevent you from having to exhaustively demonstrate that process in court,” he said.

No Sigh of Relief

That’s why retirement plan sponsors can’t breathe a sigh of relief just yet.

The decision won’t stop challenges from being filed. It does, however, show AT&T asked the right questions about its record-keeping fees.

“Anyone who feels their record is as good as that feels a little emboldened to take their case through discovery and defend themselves,” said Myron Rumeld, co-chair of ERISA litigation at Proskauer Rose LLP. “Certainly this case suggests if you have a good record, the judge is going to see it for what it is.”

Jerry Schlichter, whose firm was the first to bring cases targeting high plan fees, said the ruling is very fact specific and shouldn’t be all that encouraging to plans facing similar claims if there are issues that aren’t involved here.

“If a defendant is emboldened by this, they are emboldened at their own peril,” the founding and managing partner of Schlichter Bogard & Denton LLP said.

Attorneys for the class did not respond to a request for comment.

Disclosure Forms

The class action against AT&T also accused the company of failing to report Fidelity’s compensation accurately on the annual Form 5500, which must be filed with the Labor Department’s Employee Benefits Security Administration. That form details the plan’s financial information, including the number of plan participants, the amounts of plan assets, and certain kinds of compensation paid to service providers.

Phillips said the fees Financial Engines Advisors LLC paid Fidelity on behalf of AT&T employees didn’t have to be disclosed to the Labor Department. The payment falls under the form’s own definition of eligible indirect compensation that doesn’t need to be listed, she said. AT&T had a contract with Financial Engines to provide advisory and managed account services to the plan, and Financial Engines paid Fidelity to access the accounts of plan participants.

ERISA attorneys say this is the first time they’ve seen a judge go into this level of detail on what needs to be disclosed on the Labor Department form.

It sends a positive message to plan sponsors in that diligently preparing the 5500s that shouldn’t itself become a trap for the unwary and a cause for litigation, Lichtenstein said.

“I think the judge was sort of deferential to reasonableness in filling out the 5500s and recognizing that there can be a range in the way some things may be disclosed,” he said. “The reality is that the 5500 is a pretty complicated form.”

The case is Alas v. AT&T Servs., Inc., C.D. Cal., No. 2:17-cv-08106, 9/28/21.

To contact the reporter on this story: Lydia Wheeler in Washington at lwheeler@bloomberglaw.com

To contact the editor responsible for this story: Brent Bierman at bbierman@bloomberglaw.com

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