The recent settlement of the Anthem class action lawsuit (Bell v. ATH Holding Company, LLC) reflects some trends in 401(k) litigation: the focus on share classes, arguments to support inclusion of non-mutual fund investments in defined contribution plans and developments in monitoring service providers.
The suit against Anthem and its fiduciary plan committee alleged that, among other issues, they selected overly expensive share classes (considering what was available to a multi-billion dollar plan). The case was recently settled for $23,650,000 and for certain nonmonetary conditions. In this piece, we review and comment on the nonmonetary conditions.
The complaint contains allegations about the investments and recordkeeping costs, but the more striking allegations regard the investments:
In other words, as in other similar cases, the plaintiffs here argued that the plan committee had to seek the lowest-cost share classes available to the plan regardless of other relevant factors. They also argued that the committee needed to investigate whether the plan had access to reasonably similar collective trusts or separately managed accounts that would have been cheaper still. The message plaintiffs are sending to plan committees and their advisors is that—in the plaintiffs’ view—the lowest cost rules, and, in pursuit of this, the investment search obligation has evolved beyond mutual funds.
While the monetary settlement was quite large, there were also several “Nonmonetary Terms”:
So what does the settlement show us? Here are our key observations:
Plan committees and their advisors should resist the temptation to dismiss the Anthem allegations and settlement as applying only to large plans. Instead, they need to consider that the case illustrates possible trends that the plaintiffs’ bar is asserting about the fiduciary processes that plan committees need to follow … or proceed at their peril. They need to be aware of the costs of both services and investments and weigh the impact on participants. Since plan committees may not be aware of all the alternatives and may lack the resources to gather relevant information and make decisions, they should consider obtaining professional advice from advisors that have worked with plans similar to theirs. And these advisors should consider the benefit to themselves and their clients of taking on a fiduciary role.
Download a PDF of the alert