Seibert v. Nokia of Am. Corp.

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SEIBERT, et al., Plaintiffs, v. NOKIA OF AMERICA CORPORATION, et al., Defendants.

Civil Action No. 21-20478 (ES) (AME)

United States District Court, D. New Jersey

August 8, 2023

Not for Publication

OPINION

Esther Salas, U.S.D.J.

Plaintiffs Paul Seibert, Thomas Solury, Dana Molineaux, Henry Worcester Stephanie Schnepp, John Strong, Jr., and Scott Allen (together “Plaintiffs”) filed this putative class action bringing claims for breach of fiduciary duty under the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001, et seq. against Defendants Nokia of America Corporation (“Nokia”), the Board of Directors of Nokia (the “Board”), and the Nokia 401(k) Committee (the “Committee”) (together “Defendants”).^[1] (D.E. No. 1 (“Complaint” or “Compl.”)). Before the Court is Defendants' motion to dismiss the Complaint. (D.E. No. 20). Having considered the parties' submissions, the Court decides this matter without oral argument. See Fed.R.Civ.P 78(b); L. Civ. R. 78.1(b). For the following reasons Defendants' motion is GRANTED-in-part and DENIED-in-part.

I. BACKGROUND

A. Factual Allegations

As alleged in the Complaint, Plaintiffs are participants of the Nokia Savings/401(k) Plan (the “Plan”)^[2] who invested in options offered by the Plan. (Compl. at 1; id. ¶¶ 17-24 & 45). The Plan is a “defined contribution” or “individual account” plan within the meaning of ERISA § 3(34), 29 U.S.C. § 1002(34), “in that the Plan provides for individual accounts for each participant and for benefits based solely upon the amount contributed to those accounts, and any income, expense, gains and losses, and any forfeitures of accounts of the participants which may be allocated to such participant's account.” (Id. ¶ 46). The Plan here is vast. According to the Complaint, the Plan had at least $6.3 billion dollars in assets under management at all times during the Class Period and had over 29,000 participants as of the end of 2020. (Id. ¶¶ 9 & 39).

Defendant Nokia, is the Plan sponsor. (Id. ¶ 26). Plaintiffs allege that Nokia, acting through the Board, appointed the Committee to, among other things, “ensure that the investments available to Plan participants were appropriate, had no more expense than reasonable and performed well as compared to their peers.” (Id. ¶ 30). The Complaint alleges that, pursuant to the Plan document, the Committee had full discretionary authority to determine the number and type of investment options administered by the Plan. (Id. ¶ 34).

The Plan is governed under ERISA, and Plaintiffs claim that Defendants are fiduciaries of the Plan and breached their ERISA-imposed fiduciary duties in several ways. First, Plaintiffs claim that the Committee breached its fiduciary duty of prudence by failing to adequately review the Plan's investment portfolio with due care to ensure that each investment option was prudent in terms of cost and management fees. (Id. ¶¶ 11 & 64). This alleged breach resulted in several funds in the Plan being more expensive than comparable funds found in similarly-sized plans with more than $1 billion in assets. (Id. ¶ 64). According to the Complaint, each of the funds offered by the Plan has an associated cost, including for investment management. (Id.). Plan participants pay for costs associated with each fund “via the fund's expense ratio, evidenced by a percentage of assets.” (Id. ¶ 65). For example, “an expense ratio of .75% means that a plan participant will pay $7.50 for every $1,000 in assets.” (Id.). Because the expense ratio reduces the participant's return, Plaintiffs allege that prudent plan fiduciaries must consider the effect expense ratios have on investment returns. (Id.). Plaintiffs identity seventeen funds offered by the Plan that they allege had excessively high expense ratios. (Id. ¶¶ 69-70). Plaintiffs compare these expense ratios to median and average costs of funds according to a study conducted by the Investment Company Institute (“ICI”) and argue that the expense ratios are “excessively high” when compared to the ICI Medians and ICI Averages. (Id.). Plaintiffs further allege that though the Plan's funds, which are pooled separate accounts, should have been less expensive than their mutual fund counterparts, they were much more expensive. (Id. ¶ 71). According to the Complaint, these excessively high costs are circumstantial evidence that the Plan was managed imprudently. (Id. ¶ 72).

Second, Plaintiffs allege that the Committee breached its fiduciary duty of prudence by subjecting the Plan to excessive recordkeeping and administrative costs. (Id. ¶ 73). “Recordkeeping” refers to the “suite of administrative services typically provided to a defined contribution plan by the plan's ‘recordkeeper.'” (Id. ¶ 74). According to the Complaint, recordkeeping services are generally provided as a bundle at a per-capita price-regardless of whether a plan makes use of all of the services-or a la carte for an additional cost based on the usage of the services by individual participants. (Id. ¶¶ 75-77). Plaintiffs allege that the price for recordkeeping often “depends on the number of participants” in a plan, and because of “economies of scale,” large plans can negotiate lower per-participant recordkeeping fees. (Id. ¶ 79). Plaintiffs further claim that recordkeeping services “can either be paid directly from plan assets, or indirectly by the plan's investments in a practice known as revenue sharing.” (Id. ¶ 80). While the Complaint alleges that revenue sharing is not per se imprudent, “unchecked, it is devastating for Plan participants” because it is a way to hide fees. (Id. ¶ 81).

To show that the Plan's recordkeeping and administrative fees were excessive, Plaintiffs compare its fees to those of other plans. (Id. ¶ 93). From 2015 to 2020, Plaintiffs allege that the Plan's per participant administrative and recordkeeping fees ranged from $76.59 to $116.26, which they characterize as “astronomical.” (Id. ¶¶ 87-88). Plaintiffs allege that the per participant fees in seven other comparable plans with at least 30,000 participants and $3 billion in assets show fees in the range of $21 to $34 per participant in 2019. (Id. ¶ 93). Plaintiffs also provide data from a 2020 report by a consulting group called NEPC that found that the majority of plans with over 15,000 participants paid under $40 per participant in recordkeeping, trust and custody fees. (Id. ¶¶ 91-92). In addition, Plaintiffs allege that fiduciaries should remain informed about overall trends in the recordkeeping fee marketplace by conducting a Request for Proposal (“RFP”) at “reasonable intervals” to determine if a plan's recordkeeping and administrative expenses appear high in relation to the general marketplace. (Id. ¶¶ 84-85). Because the Plan paid yearly amounts in recordkeeping fees that increased each year, Plaintiffs allege that there is “little to suggest” that the Committee conducted an RFP at reasonable intervals, “or certainly at any time prior to 2015 through the present.” (Id. ¶ 85). Instead, Plaintiffs allege that the Plan stuck with a recordkeeping charge to participants based on the Plan's total assets-causing the per participant charge to increase each year as the assets of the Plan increased-even though the number of participants in the Plan remained relatively unchanged. (Id. ¶¶ 86-88). Plaintiffs allege that such an asset-based approach made little sense given that recordkeeping expenses are driven by the number of participants in a plan and the vast majority of plans are charged on a per-participant basis. (Id. ¶¶ 79 & 86). Further, Plaintiffs allege that in this matter using a combination of an asset-based fee with revenue sharing “resulted in a worst-case scenario for the Plan's participants because it saddled [them] with above-market recordkeeping fees.” (Id. ¶ 83). According to the Complaint, these excessive recordkeeping and administrative costs are circumstantial evidence that the Plan was managed imprudently. (Id. ¶ 95).

B. Procedural History

Plaintiffs initiated this putative class action on December 13, 2021, on behalf of themselves and “[a]ll persons, except Defendants and their immediate family members, who were participants in or beneficiaries of the Plan, at any time between December 13, 2015 through the date of judgment.” (Id. ¶ 38). The Complaint asserts two counts against (i) the Committee for breach of fiduciary duties of prudence (“Count I”); and (ii) Nokia and the Board for failure to adequately monitor other fiduciaries (“Count II”). (Id. ¶¶ 96-110). More specifically, in Count I, Plaintiffs allege that the Committee and its members breached their fiduciary duty of prudence in violation of 29 U.S.C. § 1104(a)(1) by (i) failing to adequately review the Plan's investment portfolio with due care to ensure that each investment option was prudent, in terms of cost, and (ii) subjecting the Plan to excessive recordkeeping and administrative costs. (Id. ¶¶ 11 & 96-103). In Count II, Plaintiffs allege that Nokia and its Board breached their fiduciary duties by failing to monitor the Committee to ensure it avoided those same excessive fees and costs. (Id. ¶¶ 104-110). On July 28, 2022, Defendants moved to dismiss the Complaint under Federal Rule of Civil Procedure 12(b)(6), challenging the sufficiency of Plaintiffs' allegations supporting all counts. (D.E. No. 20-1 (“Mov. Br.”)).

The motion is fully briefed. (D.E. No. 21 (“Opp. Br.”); D.E. No. 22 (“Reply”)). Since the filing of Defendants' motion, the parties have also submitted supplemental notices of authority addressing similar allegations. (D.E. Nos. 23-25, 28-31, 33, 35-36, 38-40, 43-44, 46, 48 & 50-53).

II. LEGAL STANDARD

In assessing whether a complaint states a cause of action sufficient to survive dismissal under ...