Huang v. Trinet HR III, Inc.

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SHIQIONG HUANG, CHRIS R. STOKOWSKI, EVERETT UHL, and MARK J. HEARON, Plaintiffs, v. TRINET HR III, INC., et al., Defendants.

No. 8:20-cv-2293-VMC-TGW

United States District Court, M.D. Florida, Tampa Division

April 26, 2023

ORDER

VIRGINIA M. HERNANDEZ COVINGTON, UNITED STATES DISTRICT JUDGE.

This matter is before the Court on consideration of the Motion for Summary Judgment (Doc. # 92), filed on November 18, 2022, and the Daubert Motion to exclude the testimony of Plaintiffs' expert (Doc. # 93), filed on November 21 2022, by Defendants TriNet HR III, Inc., TriNet HR IV, Inc. the Board of Directors of TriNet III, Inc., the Board of Directors of TriNet IV, Inc., the Investment Committee of TriNet Group, Inc., and John Does 1-30. Plaintiffs responded to Defendants' Motions on December 9, 2022, and December 12, 2022, respectively. (Doc. ## 98, 100). Defendants replied on December 23, 2022. (Doc. # 103). For the reasons that follow, both Defendants' Daubert Motion and Motion for Summary Judgment are granted.

I. Background

This is a class action brought under the Employee Retirement Security Act of 1974 (“ERISA”) by Plaintiffs Shiqiong Huang, Chris R. Stokowski, Everett Uhl, and Mark J. Hearon, participants in the TriNet Select 401(k) Plan (“Plan”). Plaintiffs allege that the authorities responsible for overseeing the Plan breached their fiduciary duties under ERISA in two respects: (1) by selecting high-cost, underperforming investment options and (2) by causing the Plan participants to pay excessive recordkeeping fees. (Doc. # 23 at ¶¶ 117-130). The Court previously certified the following class to pursue these claims:

All persons, except Defendants and their immediate family members, who were participants in or beneficiaries of the TriNet IV Plan, at any time between September 29, 2014 through the date of judgment.

(Doc. # 85 at 30).

A. TriNet and the Retirement Committee

TriNet Group, Inc. (“TriNet”) provides human resources services to small and medium-sized businesses and offers its client-employers the opportunity to participate in one of two defined contribution 401(k) plans: the TriNet 401(k) Plan (“TriNet III”) and the Plan at issue. (Doc. # 23 at ¶¶ 24, 41).

At the beginning of the Class Period, the Plan had 8,417 participants. The number of participants steadily climbed: 11,877 in 2017, 14,420 in 2018, 16,167 in 2019, and 18,200 in 2020. (Doc. # 92-19 at 145). The Plan is a multiple employer plan (“MEP”) with more than 1,200 participating employers. (Doc. # 92-2 at ¶ 3).

From September 29, 2014, to the present (“Class Period”), the Retirement Committee (“RC”) was delegated authority to administer the Plan, including retaining a recordkeeper and selecting and monitoring the Plan's investment options. (Id. at ¶ 6). The RC comprised between five and seven TriNet employees with expertise in different subject areas, including in finance, human resources, and law. (Id. at ¶ 7).

B. Plan Investment Options

The Plan's Investment Policy Statement established guidelines for the selection, monitoring, and removal of investment options, including identifying qualitative and quantitative factors to consider. (Id. at ¶ 9). The RC was advised during the Class Period by two independent investment advisors with significant investment expertise: NFP Retirement (“NFP”) until February 2016, and DiMeo Schneider (“DiMeo”) from 2016 onward. (Doc. # 92-15 at 107-18). Before each RC meeting, the Plan's investment consultant distributed materials containing detailed information regarding the Plan's investments and potential alternatives. (Id. at 11718). The consultant's investment reviews contained a scorecard that evaluated the Plan's funds relative to their benchmarks and peer groups across numerous criteria, and identified any funds for the RC to “watch” or “discuss” based on those factors. (Doc. # 92-5 at 17-78; Doc. # 92-6 at 1 291). The scorecards consistently indicated that the Plan's investments had below-average fees relative to peers. (Id.).

Throughout the Class Period, the Plan offered participants a broad range of investment strategies with differing management styles and risk-return characteristics. (Doc. # 92-17 at 13-14).

C. Plan Recordkeeping Costs

In 2015, NFP assisted the RC in conducting a Request for Proposal (“RFP”) for the Plan's recordkeeping services. (Doc. # 92-2 at ¶ 22). The 2015 RFP was issued to six recordkeepers with experience with MEPs, and it consisted of hundreds of questions examining, among other things, each vendor's relevant experience, structure and organization, systems, capacity for growth, account management plan, technological services, personnel, data security and risk management, participant disclosures, and communications and education. (Id. at ¶¶ 22-23; Doc. # 92-10 at 13-87). In addition to the six to which it issued the 2015 RFP, the RC also approached other large recordkeepers, including Fidelity and Vanguard; however, they were not interested in submitting a response. (Doc. # 92-2 at ¶ 22).

Three recordkeepers (MassMutual, Transamerica, and Voya) responded to the 2015 RFP. (Id. at ¶¶ 23-24). The other three recordkeepers declined because they were either unable to meet the pre-established minimum bid requirements or had capacity concerns. (Id. at ¶ 25) . The RC chose MassMutual, which submitted the lowest price quote of the three responding recordkeepers, and negotiated a further price reduction before retaining its services. (Id. at ¶¶ 25-26).

In 2018, DiMeo assisted the RC in issuing a Request for Information (“RFI”) for the plan's recordkeeping services to the three prior responding vendors (MassMutual, Transamerica, and Voya). (Id. at ¶ 27). DiMeo and the RC evaluated the responses based on numerous criteria, including pricing. (Id. at ¶ 28). Again, MassMutual provided the lowest price and the RC concluded that the existing structure with MassMutual as the recordkeeper was “working well.” (Id. at ¶ 29).

In 2021, DiMeo once again assisted the RC in issuing an RFP for the Plan's recordkeeping services. (Id. at ¶ 30). DiMeo issued the 2021 RFP to four recordkeepers: Empower (which had acquired MassMutual's recordkeeping business), Transamerica, Voya, and Northwest Plan Services. (Id.). The 2021 RFP solicited information on each recordkeeper's organization, capabilities, services, and fees. (Id. at ¶ 31; Doc. # 92-12 at 53-61). The two finalists, Empower and Transamerica, provide nearly identical price quotes. (Doc. # 92-12 at 82). The results of the 2021 RFP were discussed at the February, August, September, and October 2021 board meetings. (Doc. # 96-2 at 29-31, 36-41).

As a result of the 2021 RFP, the RC consolidated the recordkeeping services for TriNet III and the Plan, securing Empower as the vendor for both. (Id. at 41). The consolidation resulted in a fee reduction for the Plan. (Doc. # 92-2 at ¶¶ 32-33).

In the intervals between the 2015 RFP, 2018 RFI, and 2021 RFP, DiMeo regularly reviewed the Plan's recordkeeping arrangement and presented the RC with information regarding the recordkeeping costs of other plans. (Id. at ¶ 34; Doc. # 92-13 at 1-39).

D. Expert Testimony

1. Defendants' Experts

Defendants offer the testimony of three experts: Steven Case, Dr. Jennifer Conrad, and Peter Swisher. Mr. Case is a former investment consultant, who opined that the RC's processes for monitoring the Plan's investment options and recordkeeping expenses were “consistent with best fiduciary practices.” (Doc. # 92-16 at 10). Dr. Conrad, a tenured professor of finance at the Kenan-Flagler Business School, University of North Carolina at Chapel Hill, explained that (1) fees of index funds “are not meaningful benchmarks for actively managed funds' fees,” and (2) that it is appropriate to include actively-managed options in retirement plans because research indicates that active management produces superior results in certain market conditions. (Doc. # 92-17 at 12-25).

Mr. Swisher, an expert in MEPs with nearly ten years' experience administering and selecting recordkeepers for a large MEP, opined that the RC followed best practices in conducting competitive bidding through the 2015 RFP, 2018 RFI, and 2021 RFP. (Doc. # 92-18 at 11-13). He further noted that recordkeeping fees for single-employer plans are not comparable to those for MEPs. (Id. at 40, 52). Mr. Swisher explained that the Plan includes well over 1,000 distinct participating employers and most recordkeeping services for an MEP must be performed on an employer-by-employer basis. (Id. at 51-53). The process of onboarding new client employers “is a substantial cost for MEP recordkeepers” and the Plan onboards ten to twenty new employers per month. (Id. at 4142, 51-52; Doc. # 92-13 at 37). He added that IRS regulations governing MEPs require each participating employer to be treated separately for purposes of tests related to nondiscrimination, top-heaviness, participation and coverage, and highly compensated employees. (Doc. # 92-18 at 15-17, 45 47). Finally, Mr. Swisher determined that, based on the data utilized by Plaintiffs' expert, the TriNet Plans paid some of the lowest recordkeeping fees of any MEP in the market, and noted that all MEPs paid more than $30 per participant. (Id. at 62-65).

2. Plaintiffs' Expert

Plaintiffs offer the testimony of Frances Vitagliano as to the reasonableness of the Plan's recordkeeping fees.

(Doc. # 92-19 at 23:3-24:1). Mr. Vitagliano has “35 years of experience in the record keeping and administration business and the related asset management processing.” (Id. at 134).

In approximately 1980, he established an MEP, the National Pension Group (“NPG”) and worked closely with his co-founder “in the design, implementation and pricing of the record keeping...