Court Rejects Excessive Fee Claims Against Principal

McCaffree argued that Principal’s selection of 63 separate accounts in the initial investment menu constituted both an exercise of discretionary authority over plan management and over plan administration, so it owed a fiduciary duty to make sure fees for the accounts were reasonable. However, the appellate court noted that the contract clearly identified each account’s management fee and authorized Principal to pass through expenses to participants. The court said sister circuits have held that a service provider’s adherence to its agreement with a plan sponsor does not implicate any fiduciary duty where the parties negotiated and agreed to the terms of the agreement in an arm’s-length bargaining process. Up until it signed the agreement with Principal, McCaffree remained free to reject its terms and contract with another service provider.                        

McCaffree argued that Principal acted as a fiduciary when it selected from the 63 accounts identified, the 29 accounts made available to plan participants. The company contends this winnowing process, after the parties entered into the contract, gave rise to a fiduciary duty to ensure the fees associated with the accounts were reasonable. The court found that McCaffree did not assert that only some of the 63 accounts had excessive fees or that during the winnowing process, Principal made sure participants only had access to the higher-fee accounts. The action subject to complaint is that excessive fees were charged for all the accounts in the contract, so McCaffree cannot base its excessive fee claims on any fiduciary duty Principal may have owed while selecting the 29 accounts, the court concluded.

The appellate court also rejected McCaffree’s argument that Principal’s discretion to increase fees and adjust amounts charged to participants supports its claim that Principal was a fiduciary. Again, the court said the company failed to plead any connection between this and its excessive fee allegations. McCaffree did not allege that Principal exercised this authority, resulting in excessive fees.

Similarly, the court found McCaffree’s allegation that Principal was a fiduciary because it provided participants with “investment advice” was unrelated to the context of the lawsuit. McCaffree also argued Principal inadequately disclosed the additional layer of management fee for the underlying Principal mutual funds in which the separate accounts were invested, but the court found the mutual fund fees were not subject to complaint, so this argument does not apply to the decision whether Principal was a fiduciary for actions relating to the complaint.