A U.S. District Court judge in Cleveland issued a split decision in an ERISA case against KeyCorp, dismissing some charges but denying the company's request to dismiss all charges filed by participants in a 401(k) plan.
The participants sued in June 2020, alleging among other things, that the plan's fiduciaries allowed "excessive" record-keeping fees and administrative expenses starting in June 2014 in the case of Gregory Stark et al. vs. KeyCorp et al. They also accused KeyCorp of failing to monitor the plan's fiduciaries, the Trust Oversight Committee.
"Plaintiffs have stated a cognizable failure to monitor claim," wrote U.S. District Court Judge Pamela A. Barker on Tuesday, rejecting KeyCorp's motion to dismiss. Plaintiffs argued that the Cleveland-based bank holding company had failed to monitor committee members' fiduciary processes, Ms. Barker wrote.
Ms. Barker also supported the participants in rejecting KeyCorp's motion to dismiss allegations of excessive administrative expenses, violating ERISA's duty of prudence rule. Although fiduciaries negotiated a rate with the plan's record keeper, that "does not mean that a prudent fiduciary would have negotiated the same rate," the judge wrote.
However, when the plaintiffs argued that these fees also violated the ERISA's duty of loyalty rule by claiming fiduciaries were self-dealing, Ms. Barker supported KeyCorp. "To assume the defendants engaged in self-dealing without additional factual allegations is too speculative," the judge wrote.
The judge also ruled for KeyCorp, rejecting the plaintiffs' allegations that a stable value fund performed poorly and charged high fees.
Ms. Barker ruled against KeyCorp in the allegation that managed account fees were excessive. "Plaintiffs have pled sufficient facts showing that the managed account fees were unreasonable," she wrote.
As of Dec. 31, 2018, the KeyCorp 401K Savings Plan, Cleveland, had $3.1 billion in assets, according to the most recent Form 5500 filing.