Goldman Sachs Gets a Surprising Win in Its 401(k) Excessive-Fee Suit

While there’s been a flurry of activity on the excessive-fee–litigation front, Wall Street powerhouse Goldman Sachs last week won its big class-action excessive-fee suit, which was brought on behalf of 17,000 participants in the company’s $7.5 billion 401(k) plan.

The suit, brought by participant Leonid Falberg, alleged that by investing in its own proprietary mutual funds, Goldman and its in-house fiduciaries breached their duties under the Employee Retirement Income Security Act (ERISA) by “only reluctantly and belatedly” removing underperforming Goldman investment funds as options in 2017, failing to consider lower-cost institutional investment vehicles, and failing to claim “free rebates” on behalf of the plan that allegedly were available to other similarly situated retirement plans which invested in the Goldman funds.

Falberg also said that Goldman funds were not broadly recommended by Goldman’s outside investment adviser, the funds were higher-cost than other options, the funds consistently underperformed their benchmarks, and finally the plan did not have an investment policy statement.

The court, however, disagreed on all fronts. The court saw the fiduciary breach claim as turning primarily on Goldman’s lack of an investment policy statement for the plan. Although the plaintiff’s experts testified that having an investment policy statement is a common and indeed “best practice,” and even the defendant’s expert testified that it was one sign of a well-run plan, because an investment policy statement is not strictly required under ERISA, the court concluded that the lack of such a policy does not establish imprudence.

Falberg focused primarily on the minutes from committee meetings, arguing that they revealed that the committee at most engaged in a cursory review of the challenged funds. But, again, the court focused on the lack of any requirement in ERISA that minute meetings be more robust. Ultimately, the court concluded that Falberg’s prudence claim failed because he could not show that a prudent fiduciary in the defendant’s position would have acted differently.

The court concluded that because the plan was treated the same with respect to the revenue sharing as any other retirement plan which had the same recordkeeper during the same period, the plan was treated on a “no less favorable basis” than other plans in similar circumstances.

From: BenefitsPRO