April 2019 ERISA Litigation Update:

Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. Cases that were recently filed, decided, settled, or for which courts issued procedural rulings are outlined below. Please note, however, that this list is not exhaustive.

  • Tracey v. Massachusetts Institute of Technology (procedural ruling issued on February 28, 2019 by the U.S. District Court for the District of Massachusetts):  The issue at this stage of the case was whether the plaintiffs (participants in the defendant plan sponsor’s 401(k) plan) have the right to a trial by jury. The plaintiffs allege that the defendants imprudently allowed the plan’s recordkeeper to put hundreds of its proprietary investment funds in the plan and to “collect unreasonable and excessive fees,” and that the defendants failed to monitor certain underperforming investment funds. The court cited numerous cases and, based on those cases, concluded that “The great weight of authority holds that no right to trial by jury applies to actions for breach of fiduciary duty under ERISA.”
  • Troudt v. Oracle Corporation (procedural ruling issued on March 1, 2019 by the U.S. District Court for the District of Colorado):  The plaintiffs in this case, who are participants in the defendant plan sponsor’s 401(k) plan, also named the plan’s committee as a defendant. The plaintiffs first allege that the defendants allowed the plan to pay excessive fees to the plan’s recordkeeper and failed to monitor those expenses. More specifically, they contend that the defendants allowed the recordkeeper to charge fees based on a percentage of the plan’s assets (rather than on a fixed, per-participant amount), and that resulted in unwarranted fee increases as the plan’s assets grew, without a corresponding increase in the services provided. In rejecting that claim, the court noted that the committee met with the plan’s investment advisor and with outside counsel at least quarterly to review the recordkeeper’s fees and other plan-related matters. In this connection, the court stated that the defendants’ decision making process was “exceptionally careful and well-informed.” The plaintiffs next allege that the defendants are liable for failing to put the plan’s recordkeeping services out to a competitive bidding process. Here, the court opined that the plaintiffs have no evidence that the plan could have paid less for recordkeeping services than it did.  Next, with respect to the plaintiffs’ claim that the defendants imprudently selected and retained three investment options in the plan, in that they “consistently and dramatically underperformed their benchmarks,” the court stated that the “prudence of each investment is not assessed in isolation but, rather, as the investment relates to the portfolio as a whole.” Furthermore, the plaintiffs did not offer evidence that they invested in one of those funds. With regard to the other two funds, however, the court opined that there is a genuine issue of fact as to whether the defendants prudently selected and retained those funds. Thus, the case will move forward regarding that matter.   
  • U.S. v. Preschel (indictment filed on March 11, 2019 in the U.S. District Court for the District of New Jersey):  As a result of a DOL investigation, the government is alleging that the defendant, who served as a trustee for the pension plan at issue, embezzled $186,123 from the plan. The government also asserts that the defendant failed to file required annual reports with the DOL because he was attempting to conceal the ongoing embezzlement. He also allegedly failed to inform participants and beneficiaries that insufficient funds were being forwarded to the plan. The embezzlement charges each carry a maximum penalty of five years in prison and a fine of up $250,000. The charges alleging the failure to file an annual report each carry a maximum penalty of 10 years in prison and a fine of up to $100,000.  Of course, the charges and allegations contained in the government’s indictment are merely accusations, and the defendant is presumed innocent until proven guilty.
  • Teets v. Great-West Life & Annuity Insurance Company (decided on Mar. 27, 2019 by the U.S. Court of Appeals for the Tenth Circuit):  Under the defendant’s contract with the plaintiff’s employer, that employer’s 401(k) plan offered to participants the defendant’s investment fund that is the subject of this case. The plaintiff invested in that fund, which guarantees investors that it will never lose their principal or the interest they accrue. Money invested in the fund earns interest at a specific credited interest rate, and the defendant retains as revenue the difference between the total yield on the fund’s investments and that interest rate (i.e. the “margin” or the “spread”). The plaintiff mainly claimed that the defendant violated ERISA’s fiduciary duty provisions by (1) setting the interest rate for its own benefit rather than for the plans’ and participants’ benefit; and (2) setting that rate artificially low and retaining the margin/spread as profit. However, the court stated that the defendant was not a fiduciary, and thus no fiduciary breach occurred, because the defendant does not have “unilateral authority or control” over the interest rate and thus lacked such control over its compensation. Thus, the court dismissed the case.
  • Bell v. ATH Holding Company, LLC (settlement agreement submitted to the U.S. District Court for the Southern District of Indiana on April 5, 2019):  The plaintiffs in this class action lawsuit are participants in the defendant plan sponsor’s 401(k) plan. The defendants also include the plan sponsor’s Board of Directors and the plan’s committee. The plaintiffs claim that the defendants breached their ERISA duties mainly by causing the plan to pay unreasonable investment management and administrative fees and by retaining a money market fund as the plan’s only capital preservation investment option. The parties’ proposed settlement includes monetary and non-monetary terms. With respect to the former, the defendants have agreed to deposit $23,650,000 in an interest-bearing settlement account (to pay for items such as the participants’ recoveries and attorneys’ fees and litigation costs, administrative expenses of the settlement, and the class representatives’ compensation). As for non-monetary terms, the defendants will (1) provide a disclosure to participants who are invested in the money market fund, explaining the historical returns of the fund and the benefits of diversification; (2) engage an independent investment consultant to review the plan’s fund lineup and make recommendations about it; and (3) conduct a request for proposal for recordkeeping services, which will require responding firms to include a fee proposal based on a total fixed fee and on a per-participant basis.