REI Beats Legal Challenge to Retirement Plan’s Fee Threshold

Retailer REI defeated a proposed class action targeting its practice of charging 401(k) recordkeeping and administrative fees only to employees with account balances of at least $5,000.

REI—formally known as Recreational Equipment Inc.—didn’t breach its fiduciary duties of prudence or loyalty by charging administrative fees only to larger accounts, Judge Tiffany M. Cartwright said Wednesday for the US District Court for the Western District of Washington. The company is accused of allocating fees in a discriminatory manner, but this legal theory “ignores the obvious fact that every method of allocating RKA fees could be described as resulting in some plan participants subsidizing the costs of administration for others,” Cartwright said.

There’s “nothing irrational” about this method for charging fees, and the plaintiffs—two former REI employees—didn’t cite any authority showing that it could violate the company’s fiduciary duties under the Employee Retirement Income Security Act, the judge said.

REI also argued that the $5,000 threshold is written into its 401(k) plan document and therefore not a fiduciary act subject to liability under ERISA’s fiduciary obligations. Cartwright wasn’t persuaded by this argument, explaining that the plan document gives REI’s retirement plan committee “some discretion” to alter the threshold.

The seven-month-old lawsuit initially accused REI of improperly using the unvested 401(k) contributions forfeited by departing workers for its own benefit—a legal theory that has been raised against dozens of large employers. The employees filed an amended complaint in April, swapping their forfeiture allegations for the instant challenge to how recordkeeping fees are charged.

Walcheske & Luzi LLC and DeBofsky Law Ltd. represent the employees. Morgan, Lewis & Bockius LLP represents REI.

The case is Smith v. Recreational Equipment Inc., 2025 BL 248345, W.D. Wash., No. 3:24-cv-06032, 7/16/25.