A California district court recently denied a motion to dismiss claims that the fiduciaries of a 401(k) plan breached their ERISA fiduciary duties of prudence and loyalty by selecting underperforming, high-cost investments and causing the plan to pay excessive fees for services. The decision is notable for illustrating how pleading standards in investment performance and
Defense counsel frequently lament the difficulties of defending 401(k) investment and recordkeeping fee litigation when different judges render conflicting rulings on motions to dismiss seemingly indistinguishable complaints. Even when the judges purport to apply the same legal standards, the outcomes can differ. For that reason, we thought it would be interesting to track the decisions…
The decision in Bolton v. Inland Fresh Seafood Corp. of America Inc., No. 22-cv-4602 (N.D. Ga. Dec. 5, 2023)should serve as a reminder to all ERISA practitioners that, if litigating in courts of the Eleventh Circuit, participants must exhaust a plan’s claims procedures before commencing a lawsuit—regardless of the type of ERISA claim asserted.…
The Second Circuit recently held that in order to state a claim for a prohibited transaction pursuant to ERISA section 406(a)(1)(C), it is not enough to allege that a fiduciary caused the plan to compensate a service provider for its services. Instead, “the complaint must plausibly allege that the services were unnecessary or involved unreasonable compensation.” Cunningham v. Cornell Univ., 2023 WL 7504142 (2d Cir. Nov. 14, 2023). Separately, the Second Circuit affirmed summary judgment for the defendants in connection with the plaintiffs’ fiduciary breach claims that were premised on allegations of excessive recordkeeping fees, underperforming investment funds, and the defendants’ failure to transition to lower-cost share classes of certain mutual funds.
A federal district court judge in the Eastern District of Kentucky has enforced an ESOP’s arbitration clause, sending P.L. Marketing Inc. employees’ breach of fiduciary duty claims on behalf of a putative class to individual arbitration. The case is Merrow et al. v. Horizon Bank et al., No. 2:22-cv-123, 2023 WL 7003231, at *1 (E.D. Ky. Oct. 24, 2023).
Plaintiffs, participants in P.L. Marketing, Inc.’s ESOP, sued the plan’s trustee, Horizon Bank, alleging that Horizon violated ERISA’s fiduciary duties and prohibited transaction rules by causing the ESOP to overpay for company stock. The ESOP plan document included a mandatory arbitration clause as well as a waiver of class arbitration. Defendants moved to dismiss the complaint, arguing in part that the district court lacked jurisdiction to hear the claims because they fell within the scope of the ESOP’s arbitration clause.
We have previously blogged on the flurry of class action lawsuits challenging 401(k) plan investments in the BlackRock LifePath Index Target Date Funds. District courts around the country—seven of them in total—have granted motions to dismiss claims by 401(k) plan participants because their copy-cat allegations of underperformance were insufficient to raise a plausible inference of imprudence. That is, until now. Last week, a federal district court judge in the Eastern District of Virginia became the first to conclude that the participants’ allegations of imprudence related to the BlackRock Funds were plausible. Trauernicht v. Genworth, No. 22-cv-532, 2023 WL 5961651 (E.D. Va. Sept. 13, 2023).
A recent Ninth Circuit decision has generated considerable controversy amongst employee benefits practitioners by holding that plan fiduciaries engaged in prohibited transactions when they amended the plan’s existing recordkeeping contract to add brokerage and investment advisory services. In so ruling, the Court remanded the case to the district court to consider whether the transactions fell within the exemption for reasonable service agreements and, independently, whether it was imprudent for plan fiduciaries not to consider third-party compensation earned by the plan’s recordkeeper. The case is Bugielski v. AT&T Services, Inc., 76 F. 4th 894 (9th Cir. 2023).
Participants in AT&T’s 401(k) plan sued the plan administrator and the plan’s investment committee, alleging that defendants engaged in prohibited transactions and breached their duty of prudence by failing to investigate and evaluate all compensation earned by the plan’s longtime recordkeeper. The claims apparently were prompted by amendments to AT&T’s contract with its recordkeeper, which gave plan participants access to the recordkeeper’s brokerage account platform and to investment advisory services through a third-party advisor. Under these arrangements, the recordkeeper received revenue-sharing fees from the mutual funds available to participants via the brokerage account platform; and, through its own agreement with the investment advisor, the recordkeeper received a portion of the fees that the investment advisor earned from managing participant accounts.
In a case of first impression in the Tenth Circuit, the Court recently joined the chorus of circuit courts in holding that a 401(k) plan participant alleging excessive investment management or recordkeeping fees must assert a “meaningful benchmark” in order to survive a motion to dismiss. In addition to rejecting commonly pleaded “benchmarks” because they were not meaningful, the Court’s ruling is of particular significance because, unlike some other courts, it dismissed the participants’ “share-class claim”—ruling on a motion to dismiss that their allegation that cheaper share classes of the same mutual fund were available to the plan was demonstrably false. The case is Matney v. Barrick Gold, No. 22-4045, 2023 WL 5731996 (10th Cir. Sept. 6, 2023).
Two District Courts have reached conflicting decisions on the same day when ruling on substantially similar allegations that plan fiduciaries violated ERISA by paying too much for recordkeeping services, with one court dismissing the claims and the other court allowing the claims to move forward into the (often expensive) discovery phase of litigation. The cases…
A recent Sixth Circuit decision emphasizes the importance of maintaining correct benefit plan delegations to avoid tussles over the correct standard of review for benefit claims. In this case, the Sixth Circuit concluded that no deference was owed to a claim decision made by a company’s benefits department because the plan document neither named the benefits department as the entity with discretionary authority to decide claims nor permitted the benefits committee to delegate its discretionary authority to the benefits department. The case is Laake v. Benefits Committee, Western & Southern Financial Group Co. Flexible Benefits Plan et al., 68 F.4th 984 (6th Cir. 2023).