ERISA Litigation January 2018 Update:


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.

  • U.S. v. $81,963.74 in U.S. Currency (filed on December 4, 2017 in the U.S. District Court for the District of Colorado):  This case originated when, in November of 2016, Great-West Financial (“GWF”) contacted the FBI’s Denver Division regarding allegedly fraudulent 401(k) plan account transfers. According to the lawsuit, which was filed by the U.S. Attorney’s office in Colorado, GWF discovered that unauthorized individuals had fraudulently accessed funds held in certain retirement accounts for which GWF was the recordkeeper. Those individuals then effectuated funds transfers from the retirement accounts to certain bank accounts without the plan participants’ knowledge. The U.S. Attorney’s office in Colorado seeks a court order seizing up to $342,335 in assets from the five individual defendants.
  • Johnson v. Fujitsu Technology and Business of America, Inc. (settlement agreement submitted to the U.S. District Court for the Northern District of California on December 6, 2017):  The plaintiffs in this class action lawsuit, filed in 2016, are participants in the defendant plan sponsor’s 401(k) plan. The other defendants include members of the plan’s administrative committee and the plan’s investment committee. In short, the plaintiffs alleged that the defendants “breached their fiduciary duties of loyalty and prudence by designing and administering one of the most expensive large 401(k) plans in the country.” Specifically, the defendants allegedly: (1) failed to utilize the least expensive available share class for many of the plan’s mutual funds; (2) caused the plan to pay recordkeeping and administrative expenses “far in excess” of what a prudent fiduciary would have paid for those services; and (3) failed to manage the plan’s investments “in a cost-conscious manner” by selecting and retaining investments “without regard for the cost of those investments and without considering the availability of far cheaper options that would have provided comparable or superior investment management services.” Under the settlement agreement, the defendants will pay $14,000,000.00 into an escrow account, which will be used to pay allegedly-affected participants and to pay attorneys’ fees and expenses.
  • Terraza v. Safeway Inc. (procedural ruling issued on December 11, 2017 by the U.S. District Court for the Northern District of California):  In this case’s latest development, the court ruled on Aon Hewitt Investment Consulting, Inc.’s (“Aon’s”) motion to dismiss the case against it. The plaintiff, who is a participant in the defendant plan sponsor’s 401(k) plan, alleges that Aon, when acting as the plan’s investment advisor, failed “to offer meaningful advice regarding available investment alternatives or investment strategies,” and “recommended that the other Defendants do little or nothing to improve the investments offered by the Plan and the expenses paid by the Plan and its participants.” In this stage of the case, the court first rejected Aon’s argument that its agreement with the plan sponsor establishes Aon’s “robust process” in providing consulting and investment performance evaluation. The court concluded that the agreement does not prove that Aon acted prudently, and even if the agreement was followed, that does not necessarily satisfy ERISA’s duty of prudence. Second, in rejecting Aon’s contention that its quarterly investment reports to the plan sponsor demonstrate that Aon acted prudently, the court stated that the reports do not establish the prudence of using certain benchmarks to measure performance of certain plan investment funds. Rather, that is a disputed question of fact that must be resolved by further proceedings. Thus, at least for now, Aon will remain as a defendant in this case.
  • Johnson v. Delta Air Lines, Inc. (case decided on December 12, 2017 by the U.S. District Court for the Northern District of Georgia):  The plaintiffs in this case, who are participants in the main defendant’s 401(k) plan, made common ERISA litigation assertions that the defendants breached the fiduciary duties they owed to participants and beneficiaries of the plan at issue with respect to certain plan investment fund options and with respect to allegedly-excessive recordkeeping fees. However, in taking a position that is not typical in ERISA cases, the defendants contended that the plaintiffs failed to demonstrate that they suffered a “concrete and particularized” injury in this matter. As support for that position, the defendants noted that the plaintiffs’ complaint does not allege that they invested in the fund options at issue or that they paid the recordkeeping fees at issue. (In attorneys’ terms, the defendants’ position is that the plaintiffs do not have “standing” to bring this lawsuit.) The court agreed with the defendants, opining that  because the plaintiffs have not alleged that they were invested in the funds at issue or paid the allegedly-excessive recordkeeping fees, they do not have standing in this case. Thus, the court granted the defendants’ motion to dismiss the case.
  • Medina v. Catholic Health Initiatives (decided by the U.S. Court of Appeals for the Tenth Circuit on December 19, 2017):  As discussed in the June 2017 edition of The Speed Reader, on June 5, 2017 the U.S. Supreme Court ruled in Advocate Health Care Network v. Stapleton that a church need not have originally established its retirement plan for its plan to qualify under ERISA’s exemption for a “church plan.” (Under that exemption, a “church plan” is “a plan established and maintained…for its employees . . . by a church…[including] a plan maintained by an organization . . . the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church…if such organization is controlled by or associated with a church or a convention or association of churches.”) However, the U.S. Supreme Court left certain questions open for the lower courts to decide. In the latest proceeding in the Medina case, a federal appeals court addressed those open questions. The Medina court held that the defendant is an organization “associated with a church,” based on the defendant’s “close integration with the Roman Catholic Church” (e.g., the Vatican must approve any change in the defendant’s purpose, as well as the defendant’s dissolution). The court also held that the plan’s committee, which administers the plan at issue, is a principal-purpose “organization” within the meaning of ERISA that “maintains” the plan at issue. In addition, the court opined that the committee is associated with a church because of its close relationship with the plan sponsor and with the Catholic Church. Finally, the court ruled that the “church plan” exemption does not violate the First Amendment’s Establishment Clause because: (1) the exemption has a secular purpose (i.e. Congress wanted to avoid unnecessary entanglement with religion with respect to ERISA); (2) the exemption does not have the principal or primary effect of advancing religion; and (3) the exemption does not entangle the government in the affairs of religious institutions. Therefore, the defendant’s plan is exempt from ERISA as a “church plan,” which means that the plan is not subject to ERISA’s minimum funding requirements. (The plaintiffs argued that the plan was subject to ERISA and such funding requirements and that the plan was underfunded.)