A district judge in Kentucky found the analysis presented by the financial expert witness limited.
This class action arises under the Employee Retirement Income Security Act of 1974 (“ERISA”). On behalf of the Humana Retirement Savings Plan (the “Plan”) and its participants, Plaintiffs brought claims for (1) “Breach of Fiduciary Duty of Prudence” and (2) “Failure to Adequately Monitor Other Fiduciaries.” Defendants were fiduciaries of the Plan which existed to help its participants save for retirement. They hired Charles Schwab as the recordkeeper for the Plan during the class period.
Defendants conducted two requests for proposals (“RFP”)—via Institutional Investment Consulting (“IIC”), which it hired to conduct the processes—in 2014 and 2019, and an additional RFP outside the class period after 2019. After considering more than 125 vendors, Schwab was selected out of 15 candidates in the 2014 RFP, and again out of more than 10 candidates in the 2019 RFP. Although it was not the only factor considered in Schwab’s selection, Schwab offered the lowest recordkeeping cost among finalists in both the 2014 and 2019 RFP. Plaintiffs alleged that Defendants used an “imprudent process” to administer the Plan which led to excessive recordkeeping fees, despite engaging in RFPs for the Plan and performing annual benchmarking using reports from third-party consultants.
Throughout the class period, the Plan grew from roughly $3.5 billion with 49,150 participants in 2015 to roughly $6.5 billion with 58,735 participants in 2022.
Defendant retained Pete Swisher to evaluate the process followed by Humana to oversee and monitor the recordkeeping services and fees associated with the Plan. Swisher opined on the reasonableness of the recordkeeping fees incurred by the Plan during the Class Period.
Plaintiff retained Veronica Bray to analyse the decisions and actions Defendants took during the class period.
Financial Expert Witnesses
Pete Swisher is currently the founder and president of Waypoint Fiduciary, LLC and co-founder and managing partner of Group Plan Systems, LLC. He has published papers, articles, and a textbook and is involved in the leadership of professional trade organizations in the field. He holds a B.A. in Linguistics from the University of Virginia and is a certified financial planner.
Veronica Bray has over two decades of experience in the retirement plan industry. She currently serves as the founder and Chief Executive Officer of Retirement Plan Advisor Search, which assists retirement plan fiduciaries and plan sponsors with finding service providers for their retirement plans. She holds a B.S. in Business Administration from the University of North Carolina in Greensboro, as well as Financial Industry Regulatory Authority Series 6 and 63 licenses and a North Carolina Life Insurance license, among other “industry related designations.”
Discussion by the Court
Pete Swisher
Plaintiffs advanced two broad grounds to exclude Swisher’s expert opinion as unsupported ipse dixit. First, they argued Swisher provided no basis for concluding that Defendants’ use of RFPs and benchmarking through Roland Criss amounted to a prudent process, and his conclusion deviated from case law.
Second, they argued Swisher had no basis for concluding the Plan’s recordkeeping fees were reasonable. Plaintiffs contended that Swisher applied circular reasoning since Swisher is essentially saying, “The fiduciary process was prudent because fees were reasonable, and the fees were reasonable because the fiduciaries followed a prudent process.”
I. Swisher’s Opinion on the Committee’s Process
Plaintiffs pointed out that Swisher admitted in deposition testimony that he was not aware of whether the Committee attempted to reduce its fees between 2015 and 2019. However, the Plaintiffs themselves acknowledged that Swisher was explicit that this information was irrelevant to his conclusions, explaining that “typical industry practice is that fees are not negotiated until the term of the contract nears expiration.”
Plaintiffs also argued that the Roland Criss benchmarking reports were unreliable because they included “smaller plans with smaller participant sizes,” and Swisher admitted in his deposition testimony that “he had no way of knowing how many plans in the Benchmarking report were smaller or larger.” The Court held that Swisher explained his basis for crediting the Roland Criss reports as reliable benchmarks in his report when he had drawn from his experience to gather that benchmarking peer groups typically included plans that were both smaller and larger, in terms of assets and participants, than the plan being benchmarked. Even if Swisher did not know exactly how many comparators were larger than the Plan in the reports, he provided sufficient basis for crediting them based on his industry knowledge, and Courts have allowed experience-based testimony about industry practice.
The Court had held that Swisher’s expert report had outlined his extensive professional experience and the industry resources he had drawn upon to form his opinion, but the Plaintiffs had challenged none of it.
II. Swisher’s Opinion on Whether Fees Were Reasonable
Plaintiffs asserted that the fees were not reasonable because NEPC surveys were not a “meaningful benchmark” for comparison. The Court did not find that Swisher’s consideration of NEPC surveys rendered his testimony unreliable, as this was just one piece of the foundation for his opinions.
Finally, the Court disagreed with Plaintiffs’ argument that Swisher’s opinion rests on circular logic. The Court held that it was the nature of the inquiry-a prudent process involving competitive bidding (the RFPs), coupled with the Roland Criss reports and an independent comparison to NEPC surveys which Swisher used to show median recordkeeping fees, could form a basis for concluding that the fees were reasonable. The 2014 and 2019 RFPs not only could constitute part of a prudent process, but they also provided data that Swisher could consider to determine whether Schwab’s recordkeeping fees were reasonable. The same is true for the annual Roland Criss reports, which provided data to support Swisher’s opinion that the recordkeeping fees paid by the Plan were reasonable.
The Court held that it was logical for Swisher to rely on this same data to determine that the fee was reasonable, given that he believed the process that produced the RFPs and the Roland Criss reports was a prudent process, and that he also looked to outside data such as NEPC reports.
Veronica Bray
Bray concluded that “Defendants failed to effectively negotiate reasonable recordkeeping fees, understand total compensation being paid to the Plan’s recordkeeper, and employ other strategies to reduce fees being charged to Plan participants,” which resulted in unreasonably high fees that “cost Plan participants millions of dollars from their retirement accounts.”
Defendants argued that Bray’s opinion should be excluded because she (1) provided no basis for “how she arrived at the $12 to $20 PPPY range” that Plaintiffs say the Plan could have paid in recordkeeping fees, (2) offered “no evidence to show the [six plans selected] are actually comparable to the Humana Plan,” and (3) “ignored more than half of the Class Period” by limiting her analysis to between 2020 and 2022.
I. Bray’s opinion on whether Defendants’ actions were consistent with the standard of care practiced by a prudent fiduciary
Bray’s opinion focused largely on the reasonableness of the recordkeeping fees paid by the Plan as compared to six other plans she chose for evaluation in her report. Bray concluded that a reasonable fee would have been in the range of $12 to $20 PPPY—the fee range achieved by these six plans. The Court held that she chose these plans merely “to kind of give an example of the buying power that these smaller plans had,” and could not give an example of a comparable plan that achieved similarly low recordkeeping fees at her deposition.
Bray herself admitted that she compared only the fees from the six plans she selected to the Humana Plan—she did not analyze other aspects of those plans, or the recordkeeping services provided to them at all.
The Court held that while Bray is generally qualified by knowledge and experience in this field, with over two decades of professional involvement within the industry in various roles, her opinion applies no reliable methodology to the pertinent questions in this litigation: whether Defendants’ process was prudent and whether recordkeeping fees were ultimately “excessive relative to the services rendered.”
Held
The Court denied Plaintiffs’ motion to exclude Pete Swisher but granted Defendants’ motion to exclude Veronica Bray under Daubert and Rule 702.
Key Takeaways:
- The Court found that Swisher’s opinion, stating that Defendants’ reliance on RFPs and benchmarking reports resulted in a prudent process, was based on his experience and knowledge of industry practices. This is an acceptable basis for Swisher’s expert opinion, particularly because that experience explicitly relates to conclusions outlined in his expert report.
- The Court held that Bray’s method—essentially, reasoning by inference that, because the six smaller plans were able to achieve a fee in the $12-$20 range, it followed that Humana should have also been able to negotiate for fees in that range—was not a reliable basis for concluding the fees were unreasonably high.
Case Details:
| Case Caption: | Moore Et Al V. Humana Inc. Et Al |
| Docket Number: | 3:21cv232 |
| Court: | United States District Court, Kentucky Western |
| Order Date: | May 22, 2024 |
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