Goldman Sachs dismisses 401(k) excessive fees lawsuit

Another lawsuit for excessive fees — and this one involving equity — has been decided in favor of the plan’s trustees.

The winner here – Goldman Sachs and its $7.5 billion 401(k) plan on behalf of some 35,000 participants, according to the lawsuit – another filed by Nichols Kaster PLLP (and MKLLC Law). The suit (Falberg v Goldman Sachs Grp., Inc.SDNY, No. 1:19-cv-09910, Complaint dated 10/25/19) alleged that Goldman Sachs defendants “…have retained these proprietary funds despite persistent underperformance and a sharp decline in assets, negatively affecting participant balances while allowing Goldman Sachs to continue to collect fees and stem the consequences of the loss of one of the largest investors in the funds, the Plan.

And although these trustees did, in fact, withdraw these funds from the plan in 2017, the plaintiffs allege they did so “only reluctantly and belatedly” – “after other independent companies were brought into successful justice for similar practices”, when – they claim – an “objective fiduciary in the same position would have withdrawn these funds quickly at the beginning of the class period, and certainly before 2017”.

Ultimately, the lawsuit asserted that “the circumstances of Defendants’ retention and late withdrawal of these proprietary funds demonstrate that Defendants’ process for managing the Plan and monitoring the Plan’s investments was deeply flawed and improperly influenced by the interests of Goldman Sachs, in breach of defendants’ fiduciary duties.”


The text of the opinion issued last week by Judge Edgardo Ramos of the United States District Court for the Southern District of New York, was limited to “selected parties”.[1] but a note to file indicates that Goldman Sachs’ February motion for summary judgment was granted, while the plaintiff’s motion for partial summary judgment was denied and the case closed.[2] This is the same Judge Ramos who denied Goldman Sachs’ motion to dismiss in July 2020,[3] as well as a motion to expedite the appeal of this decision to the United States Court of Appeals for the Second Circuit.

The justification

A lot of evidence has been presented (Falberg vs. Goldman Sachs Grp. Inc.SDNY, No. 1:19-cv-09910, notice issued 9/15/22) that the Goldman Sachs committee received training,[4] met regularly (quarterly, as well as ad hoc meetings, including eight of the latter during the reporting period), discussed in some detail specific issues related to the various investments[5] (assisted by investment consultant Rocaton Investment Advisors LLC), including the caution/risk of continuing to include proprietary funds in the lineup.

Judge Ramos noted that during the class period, “the committee was made up of 10 to 12 sophisticated financial professionals who held senior positions at Goldman Sachs.” He went on to note that even according to the plaintiff’s expert, Marcia Wagner, “the members of the pension committee were ‘accomplished financial professionals,’ with ‘deep market expertise,'[6] and that their experience “compares favorably” with that of other major plan committees.

IPS impact?

In Judge Ramos’ ears, the plaintiff’s arguments were largely based on the absence of a formal investment policy statement (IPS). Indeed, he commented that Plaintiff’s “Falberg’s allegation that Defendants breached their duty of care rests on a single factor: the committee failed to adopt an IPS. Falberg argues that a prudent fiduciary in the defendants’ place would have ‘acted differently’ in maintaining an IPS, and that because the committee had no IPS, it had no criteria to assess and monitor the plan’s investments, and therefore its decisions relating to GSAM funds, were not the result of a deliberative process. Without such a process, Falberg argues, the Committee could not have properly reviewed GSAM funds, and had it adopted an IPS, Falberg argues, the Committee would not have kept GSAM funds in more investment vehicles. expensive, rather than cheaper non-proprietary options. ; would not have failed to obtain discounts on fund fees; and would have removed underperforming and poorly rated funds much sooner than it did.

“But it is undisputed that an IPS is not required under ERISA,” Justice Ramos countered. “While Falberg argues that an IPS is ‘best practice’, his expert Wagner conceded that duty of care does not mandate ‘best practice’. And, despite Falberg’s suggestions to the contrary, the Department of Labor does not never took the position that an IPS is necessary to satisfy the obligations of a fiduciary.

Minutes of meetings

He went on to note that “Falberg makes much of the fact that a ‘significant majority’ of large pension plans have adopted an IPS and both investment advisors and party experts have recommended its use. But that’s not the point: that the adoption of an IPS is common practice among pension plans does not suggest that choosing to forego it is a breach of any fiduciary duty under ERISA, and Falberg points to no authority to the contrary. Judge Ramos noted that “to support his contention that the committee had no ‘deliberative process’ with respect to disputed funds – a process which he maintains an IPS would have ensured – Falberg focuses almost entirely on the minutes of committee meetings. In particular, Falberg argues that the sparse, “boilerplate” minutes of the meeting reveal that the Committee engaged in at most a cursory review of the disputed funds, effectively ignoring them.

But Judge Ramos agreed with the plan’s fiduciary defendants’ position that “it is not necessary for the minutes of the meeting to be a verbatim transcript of all matters considered by the fiduciaries.” Indeed, Falberg’s expert Wagner previously acknowledged that meeting minutes “need not be long” and testified that “the documentary record need not be verbatim” . He also cited Wagner’s testimony that “more robust” minutes “are not a positive obligation in themselves”. He concluded that “in any event, Falberg provides no evidence that an IPS would have caused the Committee to act differently”.

Conflicts of interest

Regarding the potential conflict of interest in the selection of GSAM funds, Judge Ramos pointed to the training committee members received (“including the need to treat GSAM funds the same as non-GSAM funds” ), the fact that no member of the committee had a personal financial situation. urging preference for GSAM funds over non-proprietary options, committee members’ testimony that “they applied no different standards for GSAM funds than for any other fund, and that they evaluated each investment option based on its merits”.

Beyond a “general assertion that defendants’ treatment of GSAM funds as a whole creates an inference of favoritism, Falberg points to no authority showing that failure to promptly remove underperforming funds amounts to a breach of duty of loyalty,” Ramos wrote.

“Fundamentally, as the defendants note, the mere possibility that the members of the committee could have been influenced by a desire to benefit Goldman Sachs is not enough to demonstrate a breach of the duty of loyalty; Falberg pointed to no evidence that the Committee “acted for the purpose” of advancing the interests of Goldman Sachs. Therefore, his conflict of interest argument cannot support an allegation of breach of duty of loyalty.

What does that mean

Once again, a careful, well-documented process, underpinned by committee members with expertise, bolstered by training, and backed by advice from investment experts (and legal advisors) prevailed.


[1] “The Clerk of the Court is further requested to restrict access to this notice to the viewing level of the ‘selected party’.

[2] In addition, Plaintiff Falberg’s motion to compel documents designated as privileged and Defendants’ motions to overrule expert opinions and to compel arbitration of certain class members were dismissed as “moot.”

[3] At the time, Judge Ramos – accepting as true all of the factual allegations made by the original suit and making “all reasonable inferences in favor of the plaintiff” found Goldman Sachs’ arguments that (a) the plaintiff had no failed to file claims in a timely manner (GS had argued that the parties had agreed via the terms of the plan document to a two-year statute of limitations for filing claims, but Ramos found no compelling evidence except to support any anything shorter than ERISA’s six-year term following “actual knowledge” of a breach), (b) that the claimant had not exhausted the claims process detailed in the plan document (yet once, finding no compelling legal argument for this position), and that (c) the plaintiff did not have standing to sue on behalf of the group of participants because he had invested in only three of the five funds pr owners in question (considering many cases where this argument had been refuted).

[4] According to Judge Ramos, after joining the committee, each new member participated in a one-on-one training session with Goldman Sachs’ senior ERISA attorney covering a range of topics, including fiduciary responsibilities, the company’s prohibited transaction rules ‘ERISA, Conflicts of Interest and Disclosure Obligations. He noted that Committee members also receive periodic training on their fiduciary responsibilities during Committee meetings, as well as updates on legal and regulatory developments.

[5] Although the plaintiff’s expert witness, Marcia Wagner, argued that the time spent reviewing the Plan’s investments (reportedly 15 to 30 minutes, according to committee member testimony) and Rocaton’s ratings at meetings of the Committee “would not have been enough to have meaningful conversations about investments. »

[6] Although she apparently pointed to a ‘disconnect’ between their ‘financial professionalism’ and ‘how they used that financial professionalism’.

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