Recently, telecommunications giant AT&T withstood a class-action lawsuit alleging that it failed to evaluate and monitor the retirement plan’s recordkeeping fees paid to Fidelity Investments Institutional Operations Company Inc., the plan provider. AT&T’s victory could help other plan sponsors defend against similar disputes in the future.

Many business enterprises have been affected by the flood of class action in recent years based on allegations that 401(k) plan fees are excessive. As more companies litigate these cases instead of settling them, AT&T’s defense could serve as a practical blueprint for gathering and presenting the evidence necessary 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, an attorney who defends plan sponsors and fiduciaries against Employee Retirement Income Security Act (ERISA) class actions. “It’s food for thought on what evidence is needed to prove your defenses.”

AT&T was sued in 2017 in a U.S. District Court in Central California in a class action (Alas v. AT&T Servs., Inc., C.D. Cal., No. 2:17-cv-08106) that included 245,000 members of its 401(k) plan. In addition to the allegations regarding the misconduct related to the record-keeping fees, the suit alleged that AT&T breached its fiduciary duties for other acts, including claims related to the administrative fees paid to the plan provider, Fidelity.

Federal judge Virginia Phillips stated that AT&T presented “extensive evidence” that its benefit plan committee acted prudently in monitoring the plan’s record-keeping expenses. She added that the benefits committee did, in fact, periodically review disclosures and invoices from Fidelity and that it retained third-party experts to evaluate the reasonableness of Fidelity’s compensation. Philips also said that the benefit committee obtained a lower price for record-keeping fees after consulting with the accounting firm, Deloitte, on the negotiations of a new contract.

AT&T announced that it was 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.”

Defense attorneys say the decision shows ERISA 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, an attorney 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.

Others, like Jerry Schlichter, whose firm was the first to bring cases targeting exorbitant plan fees, say that the ruling is very fact-specific and should not encourage challenges to similar claims if they involve different issues. 

The case demonstrates that AT&T did the right things and asked the right questions to validate 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, an attorney who deals with ERISA litigation. “Certainly, this case suggests if you have a good record, the judge is going to see it for what it is.”

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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