Following a three-day bench trial in a class action accusing B.Braun Medical Inc. and its 401(k) plan committee of imprudently allowing excessive record-keeping fees and high-cost investments, a Pennsylvania district court found that the committee's conduct was objectively prudent in its monitoring and selection of investment funds and record-keeping fees. The case is Nunez v. B. Braun Medical Inc., case number 5:20-cv-4195, in the U.S. District Court for the Eastern District of Pennsylvania, August 18, 2023.
Significance of Decision
This decision is significant since it is unusual for excessive fee class actions to go to trial. The vast majority are settled because of the existence of factual issues that cannot survive a motion to dismiss and the unwillingness of defendants to pay the hefty legal fees incurred in going to trial. This bench trial victory for Braun clearly demonstrates that prudent plan governance is the best line of defense when confronted with plaintiff litigation.
At trial, Braun demonstrated to the judge, based on the evidence and testimony regarding plan governance, that it followed prudent processes for its investment and recordkeeping services through continuous efforts to negotiate fees with providers and closely monitoring underperforming investments.
Specific Findings
The court found that the 401(k) plan committee acted prudently by meeting regularly to evaluate the plan's investment options with the assistance of advisers' opinions to make sure funds were not underperforming, and voting to remove the ones that were. The court also found that throughout the class period (Aug. 26, 2014 through August 18, 2023) the committee made prudent decisions such as moving funds to lower-fee share classes and adopting collective investment trusts (CITs). Further, the court emphasized that the investment options themselves were prudently chosen and the plan's overall offerings performed in the top half of comparable funds for the majority of the class period.
The court also concluded that Braun succeeded in showing that it acted prudently in its process of monitoring record-keeping fees and selecting a new record-keeper. In particular, the court pointed out that during the trial, the committee showed it negotiated down the plan's record-keeping fees per participant several times. It also employed third-party consultants to monitor the plan's record-keeping fees, and transitioned the plan to a fee leveling arrangement which the committee believed would more evenly distribute fees among plan participants — a year after such an option became available.
Moreover, said the court, all the above decisions were documented in the minutes of regular committee minutes which reflected discussions with the plan advisers. This is important since the U.S. Supreme Court has made clear that while securing independent advice from a consultant is “some evidence” of a thorough investigation, plan fiduciaries must “make certain that reliance on the expert’s advice is justified” through, for example, robust discussions and questions when consultants present their reports at committee meetings. (see U.S. Supreme Court decision in Tibble v. Edison, 135 S.Ct. 1823).
Good Fiduciary Practices Made the Difference
This decision underscores the critical importance of plan governance practices and that plan sponsor employers and trustees who have adopted prudent processes do not always have to settle.
Robust practices and processes, combined with an independent operational compliance review that provides evidence of a thorough investigation and validation of procedural and substantive process standards, such as ours (see, e.g., https://cohenbuckmann.com/fiduciary-audit) is the best line of defense.
This decision is truly welcome news, not only for plan sponsors who have embraced robust compliance practices, but also for the dedicated and hard working benefit plan consultants that support them in their efforts.