Schuster v. Swinerton Incorporated

Background

Michael S. Schuster and Juan C. Del Barco, former Swinerton employees and participants in Swinerton’s Section 401(k) defined-contribution plan, filed a proposed class action under the Employee Retirement Income Security Act (ERISA). The defendants were Swinerton, the Swinerton Board of Directors, and the Swinerton 401(k) and Savings Committee. The opinion refers to these entities collectively as the plan fiduciaries.

The plan used John Hancock Retirement Plan Services as its recordkeeper from August 9, 2018, through January 31, 2019. Principal Life Insurance Company then became the recordkeeper. The plaintiffs alleged that the plan paid excessive recordkeeping and administrative fees, which they called recordkeeping and administrative, or “RKA,” fees. Their amended complaint focused on fees related to recordkeeping.

The plaintiffs asserted two ERISA claims: that the fiduciaries breached their duty of prudence by paying excessive fees, and that they failed to monitor the plan committee fiduciaries responsible for paying those fees. The defendants moved to dismiss the amended complaint for failure to state a claim.

Judicial Notice

The court took judicial notice of the existence of Form 5500 filings for the Swinerton plan and ten comparator plans, Department of Labor publications, and a publicly available blog post. But the court would not accept disputed facts in the Form 5500 filings as established or infer from those filings that the comparator plans received different services or that the plaintiffs’ calculations were incorrect.

Duty of Prudence

ERISA requires plan fiduciaries to act with the care, skill, prudence, and diligence that a prudent person would use in similar circumstances. The plaintiffs alleged that, from 2018 through 2023, the plan paid an average annual RKA fee of about $124 per participant, while comparable plans paid about $43 per participant. They alleged that the plan had approximately 3,800 participants and that the services were standardized and offered by major recordkeepers.

The plaintiffs based their comparison on fees paid by ten plans of similar size that allegedly received materially similar services. The defendants argued that the sample was too small, that the plaintiffs had not shown that the plans provided the same specific services, and that the plaintiffs’ methodology was flawed.

The court held that these allegations were sufficient at the motion-to-dismiss stage. It noted that the Swinerton plan and comparator plans used overlapping service codes for recordkeeping and information-management services. The court also relied on the plaintiffs’ allegations that the services were comparable in type and quality and that nothing in the financial-statement notes suggested that the Swinerton plan received unusual or customized services.

The court rejected the defendants’ argument that the change from John Hancock to Principal showed that the fiduciaries had acted prudently. The amended complaint alleged that the fees increased after the change, and the court concluded that the defendants’ argument required drawing inferences in their favor rather than inferences supporting the plaintiffs’ allegations.

The court also rejected the argument that the plaintiffs’ use of five comparator plans for 2018 and five for 2021 was necessarily too small. It concluded that the plaintiffs had plausibly alleged excessive fees and that the defendants’ challenges to the value of the services or the accuracy of the calculations could potentially be addressed at summary judgment or trial, rather than on the pleadings.

Duty to Monitor

The parties agreed that the failure-to-monitor claim was derivative of the duty-of-prudence claim. Because the court found that the plaintiffs plausibly alleged a breach of the duty of prudence, it also found that they plausibly alleged the related failure-to-monitor claim.

Ruling and Case Status

The court denied the defendants’ motion to dismiss and vacated the scheduled April 24, 2025 hearing. The defendants’ answer was due within 21 days. The court also set an initial case-management conference for June 11, 2025, and stated that the order disposed of Docket No. 27.