Just back from the annual National Association of Plan Advisors 401k summit. Over the coming days, I will share my learnings but one that jumped to mind was a discussion on excessive fee litigation and the concept of prudence. I must admit every time I hear the word, "Prudence", I think about the film, "Across The Universe" and the character of "Prudence", acted and sung by the amazing T. V. Carpio. But this is not an article about the music of The Beatles albeit I do recommend the film.
Excessive fee litigation has become one of the defining pressure points in the defined contribution landscape, and it has materially reshaped how courts interpret fiduciary prudence under ERISA. The key is this: courts are not judging outcomes—they are judging process. But plaintiffs have become increasingly sophisticated in attacking that process indirectly through fees.
Excessive Fee Litigation—What It Really Targets
At its core, these cases allege breaches of fiduciary duty under ERISA Sections 404(a)(1)(A) and (B)—the duties of loyalty and prudence. The typical claims fall into a few consistent categories:
First, recordkeeping fees. Plaintiffs argue that plans failed to monitor per-participant recordkeeping costs and allowed them to remain materially above “reasonable” levels. This often includes claims that plans did not leverage scale as assets grew or failed to renegotiate vendor pricing.
Second, investment management fees. Here, the focus is on offering higher-cost share classes when lower-cost institutional or collective investment trust (CIT) versions were available. Plaintiffs often frame this as a failure to control costs when identical or substantially similar investments were accessible at lower expense ratios.
Third, revenue sharing conflicts. Many lawsuits argue that fiduciaries allowed revenue sharing arrangements that inflated costs or created biased fund menus—particularly where those arrangements benefited the recordkeeper rather than participants.
Fourth, imprudent investment selection or retention. While historically tied to performance, this has evolved into a fee-centric argument—i.e., why retain a higher-cost fund when a cheaper alternative exists?
The litigation trend has been aggressive, but not uniformly successful. Courts are increasingly dismissing weak claims, especially when plaintiffs fail to establish a meaningful comparator.
The Scope of Prudence—What Courts Actually Expect
The governing standard comes from ERISA itself and has been shaped heavily by case law, including Tibble v. Edison International and Hughes v. Northwestern University.
The prudent expert standard requires fiduciaries to act:
With the care, skill, prudence, and diligence of a knowledgeable professional
Based on a documented and repeatable process
With ongoing monitoring—not a “set it and forget it” approach
What’s critical is how courts interpret that standard today:
1. Prudence is about process, not price alone A plan does not need to offer the cheapest funds. Courts have consistently rejected the notion that ERISA requires “lowest cost.” The real question is whether fiduciaries had a rational, documented basis for their decisions.
2. Continuous duty to monitorTibble established that fiduciaries must regularly review investments and fees. This is where many plans get exposed—not in initial selection, but in failure to revisit decisions as conditions change.
3. Meaningful benchmarking is essential Courts are increasingly focused on whether fiduciaries used appropriate comparators. Weak or superficial benchmarking—particularly on recordkeeping—creates vulnerability. This ties directly to your ongoing point: benchmarking must reflect services, not just price.
4. Context matters—especially plan size and services A $50M plan and a $5B plan are not held to identical expectations in terms of pricing leverage. However, failing to scale fees downward as assets grow is a recurring litigation trigger.
5. Menu structure is under scrutiny Post-Hughes, simply offering a broad range of options does not insulate fiduciaries. The presence of prudent options does not excuse the inclusion of imprudent ones.
My $0.02? Push and pull.
The litigation wave has been both necessary and, at times, excessive.
It has forced discipline into areas where many plans were historically complacent—particularly recordkeeping fees and revenue sharing opacity. That is a net positive.
However, the plaintiffs’ bar has also pushed theories that stretch ERISA beyond its intent—particularly the idea that every fiduciary decision must minimize participant costs. Courts are increasingly pushing back on that narrative, which is a healthy correction.
The Parting Glass
What can plan sponsors do to try to protect themselves and their plan from litigation? In practical terms, the defensible position is straightforward but requires rigor:
A formal fee benchmarking process, conducted regularly and tied to services
Clear documentation of why each investment and share class is selected
Active monitoring and periodic RFPs or fee renegotiations
Explicit review of revenue sharing and potential conflicts
Investment committee minutes that reflect deliberation, not conclusions
If I had to distill it: sponsors do not lose these cases because fees were high—they lose because they cannot prove they knew what they were doing.
That distinction is the entire game in excessive fee litigation.