Dover Corporation Faces ERISA Suit Over Managed Account Fees

Plaintiffs have filed a new Employee Retirement Income Security Act lawsuit in the U.S. District Court for the Northern District of Illinois, naming the Dover Corporation and various related entities as defendants.

The proposed class action lawsuit suggests the Dover Corporation permitted the payment of excessive recordkeeping and managed account fees within the defined contribution retirement plan it offers to its employers. The suit also suggests the plan fiduciaries’ retention of the managed account provider, Financial Engines, constituted a violation of ERISA.

“Defendants, as fiduciaries of the plan, breached the duty of prudence they owed to the plan by requiring the plan to pay excessive recordkeeping fees and managed account fees, and by failing to timely remove their high-cost recordkeepers,” the complaint states. “These objectively unreasonable recordkeeping and managed account fees cannot be contextually justified and do not fall within the range of reasonable judgments a fiduciary may make based on her experience and expertise.”

According to the complaint, the defendants “unreasonably failed” to leverage the size of the plan to pay reasonable fees for plan recordkeeping and managed account services.

“ERISA’s duty of prudence applies to the conduct of the plan fiduciaries in negotiating recordkeeping and managed account fees based on what is reasonable (not the cheapest or average) in the applicable market,” the complaint states. “The unreasonable recordkeeping and managed account fees paid inferentially tells the plausible story that defendants breached their fiduciary duty of prudence under ERISA. These breaches of fiduciary duty caused plaintiff and class members millions of dollars of harm in the form of lower retirement account balances than they otherwise should have had in the absence of these unreasonable plan fees and expenses.”

Dover Corporation declined to comment about the allegations in the lawsuit.

The suit’s filing comes in the wake of multiple prior suits that have included substantially similar allegations against other defendants who hired and retained Financial Engines as a managed account provider. In the new lawsuit, Financial Engines itself is not named as a defendant, but its actions and operations feature in the allegations.

Some of the prior cases, on the other hand, have included allegations leveled directly against Financial Engines, such as in the ERISA lawsuit filed in 2018 against Home Depot. In that case, the district court issued a detailed ruling that addressed respective motions to dismiss filed by Alight Financial Advisors, Financial Engines Advisors and the Home Depot defendants. The court granted Alight’s and Financial Engines’ motions to dismiss, in which the defendants argued they were not, given their contracted roles and inability to set their own compensation levels as service providers, liable for the fiduciary breach claims alleged in the suit. The dismissal motion filed by the fiduciary Home Depot defendants, on the other hand, was denied.

The new case against Dover Corporation comes at a time when the broader retirement plan industry is increasingly focused on personalized investment services. For example, according to Deloitte’s new report, “The Rewards and Risks of Managed Account Programs in the Wealth Management Industry,” assets in managed account programs have grown by 117% since 2012, and they now make up a substantial portion of assets under management and a majority of new asset flows for the wealth management industry.

The Deloitte report says this growth reflects a long-term industry trend away from commission-based brokerage offerings towards fee-based advisory offerings. Managed account programs are poised for continued growth, the report concludes, especially as more firms have announced plans to make them a strategic priority.