Fiduciary Update | November 2026

Competitive Market Research Required to Check Reasonableness of Recordkeeping Fees

Fiduciaries of the Trader Joe’s 401(k) plan were sued for retaining underperforming investments and overpaying for recordkeeping services, among other things. Although they demonstrated an adequate investment review process, they could not establish a similarly robust process to support what they paid in recordkeeping fees. The plan fiduciaries were found to be liable for $1.19 million in overpaid recordkeeping fees. Stephan v. Trader Joe’s Company (D. Mass. 2026).

In evaluating the investment claim, the court noted that the committee met quarterly and at various times placed the challenged actively managed mutual fund investment on watch status. The committee also considered actively managed alternates to the challenged fund but, taking a long-term view, decided to retain the challenged fund. They also added an indexed investment of the same style as the actively managed fund. Finding in favor of the plan fiduciaries, the court concluded that the “committee engaged in a sufficiently robust process in reviewing the [challenged fund] by taking into consideration several varied criteria as permitted by the IPS, and closely and consistently monitoring the [funds] performance” over time.

However, the court found the “soft RFP” conducted by the committee’s financial advisor was inadequate. This soft RFP was an informal price check with two other recordkeepers, which both came back with a higher proposed fee than the $48 per participant the plan was currently paying to Capital Group for recordkeeping Trader Joe’s $2 billion 401(k) plan. Plaintiffs alleged that 77 percent of Capital Group’s 401(k) plans have less than $10 million in assets and that this should have prompted the Trader Joe’s fiduciaries to perform a market check. The court observed that midway through the period covered by the litigation, Capital Group voluntarily lowered its fee to $40 per participant without any prompting by or discussion with the committee.

Note: An RFP process solicits formal service proposals, including pricing, from competing firms. An RFI (request for information) process solicits competitive fee quotes from potential service providers. In both scenarios, competing firms receive detailed information about the subject retirement plans.

In response to Capital Group reducing the recordkeeping fee to $40 per participant, the Trader Joe’s investment committee asked their advisor for fee benchmarking. However, the court found that the benchmarking provided alone was not sufficient to demonstrate a robust fiduciary process in this case. The court observed that “conducting an RFP or RFI would have strongly indicated that the committee engaged in a competitive process to engage a lower or more ideal recordkeeping fee.” The lack of negotiation with the recordkeeper, combined with the lack of either a true RFP process or an RFI was the “nail in the fiduciaries’ coffin.”

Supporting its conclusion that the fiduciaries breached their duties, the court noted that the Trader Joe’s plan fiduciaries had not received fiduciary training that included monitoring and evaluating plan expenses.

Independent Fiduciary Carries the Water Alone in Pension Risk Transfer Case

At least eight lawsuits have been filed against plan fiduciaries who selected Athene as the annuity provider in recent pension risk transfer (PRT) transactions. In a PRT, a plan sponsor purchases annuities for pension plan participants to provide the benefits previously promised under a pension plan. This transfers pension obligations to the annuity provider and removes pension liabilities from the plan sponsor’s financials. These annuities are purchased from an insurance company, and the selection of an annuity provider is a highly regulated fiduciary decision. The fundamental claim in these cases is that Athene is not as financially sound as other insurers in the market, and selecting it violates the federal rule that the “safest available” annuity provider be selected.

One of these lawsuits was filed in connection with a PRT by AT&T. In that case, AT&T retained State Street Global Advisors as an independent fiduciary to select the annuity provider. AT&T’s plan fiduciaries retained only the authority to purchase annuity contracts from the recommended annuity provider. AT&T’s fiduciaries were not involved in the annuity provider selection, and there were no allegations that they had any awareness of a potential breach by State Street. The judge in this case recently decided that State Street alone bears potential responsibility for the annuity provider selection, and dismissed AT&T from the lawsuit. The case against State Street will proceed. Piercy v. AT&T Inc. (D. Mass. 2026). This case illustrates the shielding effect of retaining an independent fiduciary to make fiduciary decisions.

Indirect Recordkeeper Revenue Must Be Considered – Earlier Ruling Narrowed

It is widely understood that plan fiduciaries must periodically ensure they are paying reasonable fees for recordkeeping services. We previously reported on a court of appeals decision mandating that plan fiduciaries consider all compensation received by plan recordkeepers—including indirect compensation. Bugielski v. AT&T Services, Inc. (9th Cir. 2023). In Bugielski, it was alleged that the plan’s fiduciaries did not consider indirect revenue received by Fidelity through managed account fees and self-directed brokerage fees. The case was sent back to the district court for further consideration.

The district court’s reconsideration addressed the adequacy of Fidelity’s disclosures but not the continuing obligation to review fee reasonableness. After initially deciding that Fidelity’s fee disclosures on its self-directed brokerage program were inadequate, the district court reconsidered and found that the disclosures met the Department of Labor’s requirements. However, this adjustment does not change the requirement that plan fiduciaries periodically review the reasonableness of all plan fees—including those paid directly by plan participants. The case is still pending at the district court for a decision on the reasonableness of Fidelity’s fees. Alas v. AT&T Inc. (C.D. Cal. 2026).

Forfeiture Cases Not Finished: Plan Sponsor Settles for $42.7 Million

Forfeitures occur when a plan participant leaves employment before the plan sponsor’s contributions to the participant’s account have vested. Numerous lawsuits have been filed challenging 401(k) plan fiduciaries’ use of participant forfeitures to offset employer contributions rather than to pay plan expenses that were paid by plan participants. These cases have, in large measures, been dismissed. However, in a departure from that trend, Providence Health & Services has settled claims against its fiduciary committee for $42.7 million, half of which will be funded from unallocated plan assets. Halter v. Providence Health & Services (W.D. Wash. 2026).

This settlement is significant among ERISA cases, and extraordinary among forfeitures cases. Per the complaint, the plan document mandates how forfeitures are used: first, to pay plan expenses not paid by Providence; second, to restore forfeited accounts when appropriate; and third, to offset employer contributions to the plan. According to the complaint, this hierarchy was not followed, and forfeitures were used, at least in part, to pay employer contributions to the plan. The 202,000 class members will receive $106 each from the plan’s forfeiture and unallocated assets accounts. Providence will also pay $15.3 million in plan expenses over the next three years that participants would otherwise have paid. This equates to about $76 per participant.

This settlement is likely a result of plan fiduciaries not following clear and direct plan provisions on the use of forfeitures. Most plan documents are less prescriptive than Providence’s, providing that forfeitures may be used either to pay plan expenses or to offset employer contributions. Many courts have held that this optionality gives plan fiduciaries the latitude to do either, and dismissed the cases. Other courts have allowed the cases to proceed to trial on the issue of whether plan fiduciaries were bound by their fiduciary duties to pay plan expenses rather than offset the employer’s plan contributions even if the plan document allows both options. In currently pending appeals on this issue, the DOL has filed amicus briefs supporting the position that optionality in plan documents permits plan fiduciaries to use forfeitures for either purpose, which has long been permissible under federal law.

Here is a sample of other forfeiture case decisions this quarter.

• Bilodeau v. Verizon Communications, Inc. (S.D. N.Y. 2026): Plan allowed forfeitures to be used for either plan expenses or to offset employer contributions. Dismissal was denied; the case will proceed for the court to decide whether ERISA’s fiduciary duties required the fiduciaries to use forfeitures to pay plan expenses rather than offset the employer’s contributions—in a plan providing optionality.
• Halamek v. Philips North America LLC (D. Mass. 2026): Plan allowed forfeitures to be used for either plan expenses or to offset employer contributions. Dismissal was denied; the case will proceed for the court to decide whether ERISA’s fiduciary duties required the fiduciaries to use forfeitures to pay plan expenses rather than offset the employer’s contributions—in a plan providing optionality.
• Perez v. Liberty Mutual Group, Inc. (N.D. Cal. 2026): Plan required forfeitures to be used to offset employer contributions. Case was dismissed because the plan’s provisions were followed.
• Hendrickson v. Elevance Health Inc. (S.D. Ind. 2026):Plan allowed forfeitures to be used for either plan expenses or to offset employer contributions. Case was dismissed because the plan’s provisions were followed.
• Lapko v. United Wholesale Mortgage LLC (E.D. Mich. 2026):Plan allowed forfeitures to be used for either plan expenses or to offset employer contributions. Case was dismissed because the plan’s provisions were followed.
• Ventura v. Lithia Motors, Inc. (C.D. Cal. 2026):Plan allowed forfeitures to be used for either plan expenses or to offset employer contributions. Case was dismissed because the plan’s provisions were followed.

Fiduciary Responsibility Continues Past Employment: Duty to Pass on Material Information

Anthony Vigil began working for Taos Ski Valley in 1982 and enrolled in both employer-provided life insurance, which was paid by his employer, and supplemental life insurance, which he paid himself. He was diagnosed with cancer in 2018 and worked until 2022. Eventually, his work terminated, and he later died. When his wife sought supplemental life insurance proceeds of $95,000, the insurance company denied the claim because premiums had not been paid. However, the insurance company communicated to the employer that coverage would be reinstated if back premiums of less than $1,300 were paid. The employer did not pay the back premiums or inform the surviving spouse of the opportunity. Rather, the employer indicated to the insurance company that the coverage had lapsed. The surviving spouse sued Taos Ski Valley for the $95,000 insurance proceeds.

The court rejected the employer’s contention that its fiduciary responsibility ceased when Anthony Vigil’s voluntary insurance coverage ended. The court said, “A fiduciary forfeits that role only when it ceases exercising discretionary authority or control over plan management or assets.” The employer continued to have communications with the insurance company reflecting the employer’s ongoing discretionary control. The court found that the surviving spouse had properly alleged that the employer was a fiduciary whose actions—failure to convey the opportunity to reinstate the lapsed insurance with payment of missed premiums—caused harm to the surviving spouse. Vigil v. Taos Ski Valley, Inc. (D. N.M. 2026). The case will proceed to trial if it is not settled.

Substantial Compliance with Beneficiary Designation Rules: Unwritten Requirements Not Met

Ya-Xia Liu worked for Kaiser Permanente and earned a pension benefit. She did not have a spouse or children, but while on her deathbed designated her sister, Sherri, to be the beneficiary of a lump-sum pension benefit of $678,000. Although the beneficiary designation was received, Kaiser Permanente denied the benefit to Sherri contending that the beneficiary designation had not been finalized. Kaiser Permanente found that although the required form had been submitted before Ya-Xia’s death, a second step of having the participant confirm her new election and personal information was not met. The Kaiser Permanente committee decided that substantial compliance does not apply in ERISA cases. Sherri sued Kaiser Permanente alleging that Ya-Xia had substantially complied with beneficiary designation process. The district court ruled in favor of Kaiser Permanente, concluding that substantial compliance does not apply.

The Ninth Circuit Court of Appeals reversed the decision, finding that substantial compliance can apply in ERISA cases. The court also noted that the second step in Kaiser Permanente’s beneficiary designation process—confirming the change with the participant—is not made publicly available to plan participants. The court noted that the doctrine of substantial compliance is intended to circumvent harsh results from a formalistic overly technical adherence to the exact words of a change of beneficiary process. Failure to apply this doctrine would undermine strong public policy in favor of recognizing employee pension rights. Indeed, the right to designate a beneficiary may be more important than the right to receive benefits during an employee’s lifetime. Liu v. Kaiser Permanente Employee Pension Plan for the Permanente Medical Group, Inc. (9th Cir. 2026)