District Court Dismisses ERISA Fee Litigation against 401(k) Plan for Failure to Exhaust

Proskauer - Employee Benefits & Executive Compensation Blog

A federal district court in Georgia recently dismissed claims brought by a participant in the Rollins, Inc. 401(k) Plan (the “Plan”), on behalf of a putative class of all plan participants, alleging that defendants breached their fiduciary duties by charging excessive recordkeeping fees, selecting and retaining costly and underperforming funds in the Plan and failing to diversify the Plan’s investment options. Defendants moved to dismiss on the basis that plaintiff’s claims were barred by her failure to exhaust the Plan’s administrative remedies prior to filing suit, among other reasons. In response, plaintiff argued that her claims were “deemed exhausted” because the Plan did not provide an administrative procedure for breach of fiduciary duty claims and because exhaustion would be futile. The court sided with defendants, first explaining that in the Eleventh Circuit, the exhaustion requirement is not limited to individual benefit claims under a particular plan, but also applies to claims arising from the substantive provisions of ERISA, such as those here. The court rejected plaintiff’s “deemed exhausted” argument because the Plan broadly defined “claim” as “any grievance, complaint or claim concerning any aspect of the operation or administration of the Plan or Trust, including but not limited to claims for benefits and complaints concerning the investments of Plan assets.” Given this definition, the court held that the Plan’s provisions requiring exhaustion of “claims” encompassed plaintiff’s claims for statutory breaches of fiduciary duty. The court also rejected plaintiff’s argument that exhaustion would be futile and an “empty exercise in legal formalism” because the lawsuit was in its infancy and the development of a factual record through the administrative process would be beneficial. The court also noted that the Eleventh Circuit disfavors a finding of futility where a plaintiff “completely bypasse[s]” the administrative process, as was the case here.

The case is Fleming v. Rollins, Inc., No. 19-cv-5732 (N.D. Ga. Nov. 23, 2020).

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