Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. Cases that were filed or for which courts issued rulings recently are outlined below, although please note that this list is not exhaustive.
- Acosta v. Lewis (judgment entered on January 8, 2018 by the U.S. District Court for the Northern District of Illinois): Pursuant to a DOL investigation, the court has entered a judgment requiring Mr. Lewis (the former president of Acme Orthotics and Prosthetic Laboratories Inc.) to restore $128,535.75 in losses owed to the company’s 401(k) plan. As a plan fiduciary, he failed to remit $58,531.72 in employees’ contributions and loan repayments, including lost opportunity costs, to the plan. In addition, Mr. Lewis liquidated $70,004.03 in plan assets, including lost opportunity costs, and used the funds for non-plan purposes. The court’s judgment also permanently enjoins him from acting as a fiduciary or service provider to any ERISA plan.
- Sacerdote v. New York University School of Medicine (amended complaint filed on January 10, 2018 in the U.S. District Court for the Southern District of New York): The plaintiffs in this case, who are participants in the defendant plan sponsor’s 403(b) retirement plans, have added as defendants the plan’s committee and the plan’s external investment advisory firm. The plaintiffs mainly allege that instead of using the plans’ bargaining power to reduce expenses, and instead of exercising independent judgment to determine what investments to include in the plans, the defendants “squandered that leverage by allowing the Plans’ conflicted third party service providers…to dictate the Plans’ investment lineup, to link their recordkeeping services to the placement of investment products in the Plans and not a single one from any other investment managers, and to collect unlimited asset-based compensation from their own proprietary products.” With respect to the investment advisor, the plaintiffs contend that: (1) such advisor’s use of Morningstar averages as fee benchmarks is inappropriate for large plans such as the plans in this case, and such use “masked the excessive fees in the Plans’ funds and reveals a flawed benchmarking process;” and (2) “despite their long histories of dramatic underperformance and exorbitant fees,” the advisor failed to recommend removing certain investment options from the plans’ lineup. As remedies, the plaintiffs seek a court order requiring the defendants to restore to the plans all losses resulting from each breach of fiduciary duty.
- Disselkamp v. Norton Healthcare, Inc. (complaint filed on January 22, 2018 in the U.S. District Court for the Western District of Kentucky): The plaintiffs in this putative class action case are participants in the defendant plan sponsor’s defined contribution retirement plan. The other defendants are the Board of Directors and the plan’s investment committee. The plaintiffs allege that the defendants failed to monitor share classes of the plan’s mutual fund investments and to substitute less expensive share classes of mutual funds for more expensive ones. The plaintiffs contend that participants were thus forced to pay higher fees than they should have (to the tune of approximately two million dollars), and the plan lost $500,000 in investment returns it would have earned if those amounts had remained invested in the plan. Consequently, they seek a decision ordering the defendants to “make good to the Plan all losses resulting from each breach of fiduciary duty and to restore to the Plan any profits made through Defendants’ misuse of Plan assets,” as well as to pay the plaintiffs’ attorneys’ fees and other litigation costs.
- Patterson v. The Capital Group Companies, Inc. (procedural ruling issued on January 23, 2018 by the U.S. District Court for the Central District of California): The plaintiff here is a participant in the defendant plan sponsor’s 401(k) plan. The plaintiff also named as defendants the plan sponsor’s Board of Directors and the plan’s committee. She alleges that more than 90% of the plan’s investment options were “unduly expensive Capital Group-affiliated investment options.” The court held that with respect to her fiduciary breach claims, the plaintiff failed to “allege facts that plausibly suggest the fees were unjustified.” As support for that conclusion, the court stated that the fees alleged here “are not so obviously excessive as to meet the plausibility test standing alone,” and fiduciaries must consider factors other than price when choosing a plan’s investment options. As for the plaintiff’s prohibited transaction claims, the court held that she has not alleged any facts suggesting that the defendants treated the plan less favorably than other investors. Thus, the court granted the defendants’ motion to dismiss those fiduciary breach claims and prohibited transaction claims. However, the court’s ruling also states that the plaintiff can file an amended complaint no later than February 20, 2018.
- Lechner v. Mutual of Omaha Insurance Company (complaint filed on January 25, 2018 in the U.S. District Court for the District of Nebraska): In this putative class action lawsuit, a participant in the defendant plan sponsor’s 401(k) plan has also sued the plan’s committee members. The plaintiff makes assertions that have become common in ERISA litigation when a plan sponsor that offers proprietary investment funds has been sued regarding its own 401(k) plan. Namely, the plaintiff asserts that the defendants breached their ERISA fiduciary duties by selecting numerous investment funds for the plan based on the fact that those funds paid fees to the plan sponsor, and not based solely on the plan’s participants’ best interests. Consequently, the plaintiff contends, participants who invested in those funds paid “excessive and unnecessary fees that diminished the assets in the participants’ retirement accounts…” The plaintiff also alleges that the plan’s recordkeeping fees exceeded the amount that should have been charged. She seeks to have the court order the defendants to restore to the plan losses suffered as a result of the defendants’ alleged conduct, and to pay her reasonable attorneys’ fees and litigation costs.
- Troudt v. Oracle Corporation (procedural ruling issued on January 30, 2018 by the U.S. District Court for the District of Colorado): The plaintiff in this case, a participant in the defendant plan sponsor’s 401(k) plan, has also named the plan’s committee as a defendant. She first alleges that the defendants allowed the plan’s recordkeeper/trustee to collect excessive and unreasonable recordkeeping and administrative fees from the plan. Second, she alleges that the defendants caused the plan to make certain imprudent investments. In the latest proceedings, the court ruled on the plaintiff’s motion to certify this case as a class action lawsuit. The court stated that with respect to the excessive fees claim: (1) the plan has approximately 70,000 participants; (2) there exist “common questions of law or fact,” the resolution of which will affect all (or at least a significant number) of the proposed class members; (3) the proposed class representative’s claims are typical of (and actually identical to) the claims of the proposed class; and (4) the class representative has sufficient interests in common with the class that she will adequately assert and protect the interests of the class. Thus, the court granted the plaintiff’s motion for certification of one class concerning the excessive fees claim. In addition, the court stated that with respect to the imprudent investments claim, the third and fourth parts of that four-part test are not satisfied because not all participants invested in the same plan funds. However, for this claim, the court allowed the certification of two “subclasses” that are based on participants who invested in one or both of two specific funds at issue.
- USA v. Hairabet (decided on January 31, 2018 by the U.S. District Court for the District of Rhode Island): This criminal case involving retirement plan asset theft was investigated by the DOL, IRS investigators, and the U.S. Secret Service, and it was prosecuted by the U.S. Attorney’s Office for Rhode Island. With respect to one charge, the defendant was found guilty of embezzling $120,313 in employees’ elective deferrals that were to be deposited into a 401(k) plan. He has been sentenced to 37 months in federal prison. In addition, the court ordered him to serve 3 years of supervised release upon completion of his term of incarceration, and to pay restitution to the victims in this case (i.e. 401(k) plan participants whose money he embezzled). However, the total amount to be paid has not yet been determined.