I was reading the latest in the 401k litigation space on a recent case against Pentegra. InKhan v. Board of Directors of Pentegra Defined Contribution Plan, participants of a $2 billion multiple employer 401(k) plan alleged that Pentegra Services Inc. (PSI) and its fiduciaries breached their duties under ERISA by causing the plan to pay excessive recordkeeping and administrative fees. The plaintiffs, represented by Schlichter Bogard LLC (!!!), claimed that PSI failed to leverage the plan's bargaining power to secure reasonable fees, resulting in significant financial losses for plan participants.
In April 2025, a federal jury in the Southern District of New York found PSI, its former CEO John E. Pinto, and the plan's board liable for these breaches, awarding over $38 million in damages to a class of approximately 26,000 participants.This verdict is notable as jury trials in ERISA cases are rare, with most claims typically resolved by judges.
Following the verdict, the court stayed all remaining deadlines to allow the parties to formalize a class action settlement, with a status update due by May 16, 2025.
Of particular note is that MEPs are frequently marketed as an "economies of scale" plan that will generate lower fees. The suit claims that Pentegra did not follows its fiduciary duty thus resulting in $70 million in losses from September 2014 through September 2020. The suit also calculated that the plan suffered an additional $60 million in losses from September 2014 - 2018 or roughly $65 per participant.
In 35 years in the industry, I know that loss calculations are rarely 100% accurate and are frequently challenged. If you want to have some fun and/ or edification in this realm, look at any contentious divorce filings and see the vast disparities between what one party says they are owed and what the other party thinks is a fair number.
Still, what do plan sponsors learn from the Pentegra case? Certainly, this case underscores the importance of fiduciaries diligently monitoring plan fees and acting in the best interests of participants, especially in large multiple employer plans where economies of scale should lead to lower administrative costs.
But an interesting questions came up. Do plan sponsors only prepare for or operate based on fear of litigation? Do plan sponsors act based on the best interests of participants, lessons to be learned, proactively defending the plan, bullet-proofing (to the extent possible) from suit, while at the same time asking one important question. The question would be along the lines of, given this recent litigation/ action/ lawsuit/ case, how are we doing as a plan? When did we last benchmark the investments/ plan fees/ advisor fees/ record keeper/ Third Party Administrator? In other words, a good plan sponsor looks at someone else playing with fire and seeks to defend their plan from similar issues while proactively doing everything they can to offer a participant-focused retirement plan.
The Parting Glass
I am not saying if this or similar litigation should or not have legs but what can we draw from it? Can we do something differently? Getting sued is always in the back of our minds as sponsors and advisors but participant needs must be first and foremost our focus. We must play both defense and offense at the same time.