Given the expanding world of ERISA litigation, this article has become a mainstay of The Speed Reader. Here is a summary of some (but not all) court cases filed or decided since last month’s edition:
- Perez v. Szajkovics: On January 17, the DOL filed this lawsuit in the U.S. District Court for the Northern District of Illinois. The main defendant is the CFO of an entity that sponsored an ERISA health plan and an ERISA dental plan. He was also a fiduciary of those plans. The DOL alleges that during 2014, $60,254.00 was properly withheld from employees’ pay as salary reduction contributions to the plans, but the plan sponsor retained those contributions in its general assets. The DOL asks the court to remove the main defendant from any position that he now has as a fiduciary to the plans, to order him to restore to the plans all losses (including interest), and to pay the DOL’s litigation costs in this matter.
- Cryer v. Franklin Templeton Resources, Inc.: On January 17, the U.S. District Court for the Northern District of California ruled on the defendant’s motion to dismiss this lawsuit, brought by a former participant in the defendant’s 401(k) plan. The plaintiff alleges: (1) the defendant’s mutual funds offered in its own plan charge fees that are unreasonable (i.e. “significantly higher than fees available from other available and comparable mutual funds”); (2) such funds “had and continue to have poor performance histories compared to prudent alternatives Defendants could have chosen for inclusion in the Plan;” (3) the plan imprudently offers its participants a money market fund instead of a stable value fund; and (4) that the total investment and administrative fees charged by the plan are excessive. The court ruled that, with respect to the defendant’s motion to dismiss the case, the defendant cannot currently satisfy its burden of showing that there is no material factual dispute. Thus, this litigation will continue.
- Severson vs. The Charles Schwab Corp.: This potential class action lawsuit was filed on January 19 in the U.S. District Court for the Northern District of California. The plaintiff (a participant in the defendant’s 401(k) plan) chiefly alleges that the defendants (including the plan sponsor and the plan’s administrative committee) imprudently and disloyally exercised their discretionary fiduciary authority over the plan by including the defendants’ own expensive and poorly-performing investment products as investment options and by selling their own services to the plan. Consequently, the plaintiff alleges that the “Defendants thereby reaped significant fees and profits at the expense of the Plan and its participants…” The plaintiff contends that defendants must “restore to the Plan all property they hold as a result of the Schwab Fiduciary Defendants’ fiduciary breaches, co-fiduciary breaches and/or prohibited transactions that in good conscience belongs to the Plan, must disgorge to the Plan the proceeds of such property to the extent it has been disposed of, and must disgorge any profits they received as a result of holding such property.”
- Beach v. JPMorgan Chase Bank: The plaintiff (a participant in the main defendant’s 401(k) plan) filed this class action lawsuit on January 25 in the U.S. District Court for the Southern District of New York. The numerous defendants include the plan sponsor and various plan committees, who are alleged to have breached their duties of loyalty and prudence to the plan and its participants by “failing to utilize an established systematic review of the investment options in its portfolio to evaluate them for both performance and cost, regardless of affiliation to JPMorgan Chase.” The plaintiff contends that such conduct “led thousands of Plan participants to pay higher than necessary fees for both proprietary investment options and certain other options for years,” causing “millions of dollars” in damages. The plaintiff seeks to have the defendants held liable for restoring losses to the plan that resulted from their fiduciary breaches, including any profits they made through improper use of plan assets. Thus, we can add this to the growing list of cases in which the complaint involves a defendant’s inclusion of proprietary mutual funds in its own 401(k) plan.
- Scott v. Aon Hewitt Financial Advisors LLC: This case was filed on January 27 in the U.S District Court for the Northern District of Illinois. The plaintiff, who seeks class action status, is a participant in the Caterpillar 401(k) Retirement Plan (the “Plan”), and the main defendant is the Plan’s record-keeper. The plaintiff states that “At Defendant Hewitt’s urging [she] purchased retirement investment advisory services for an additional fee. Each quarter [she] and other Plan participants paid a considerable service fee from their retirement accounts for this advice.” Under that arrangement, the plaintiff and other participants received advice from Financial Engines Advisors, LLC. However, the plaintiff asserts that “the fee for those services was significantly higher than it should have been because the agreement between Defendants and Financial Engines required Financial Engines to “kick back” to Defendant Hewitt a significant percentage of the fees charged by Financial Engines, even though Hewitt and its sister company co-Defendants did not perform any investment advisory or other material services in exchange for the payment they received.” The plaintiff seeks to have the court order the defendants to restore Plan losses resulting from their alleged breaches of fiduciary duty, as well as to disgorge any profits they made via those breaches. The plaintiff also seeks reimbursement for her attorneys’ fees and other litigation costs.
- Haley v. Teachers Investment and Annuity Association: This is a different type of class action lawsuit than the typical ERISA cases that have been filed in the past several years, such as several of the cases highlighted above. In this case, filed on February 3 in the U.S. District Court for the Southern District of New York, the plaintiff is a participant in Washington University’s 403(b) plan. The defendant provides an array of financial services to the plan, including services that are the focus of this case: participant loan services. In this connection, the plaintiff has taken four loans from the plan, two of which she has repaid in full and two for which she is still making repayments. The plaintiff’s complaint explains that the most common approach for participant loans is to have participants take loans from their plan account and then repay the loan to their plan account, with interest that is also credited to their plan account. However, the plaintiff alleges that the defendant performs participant loan services in the following manner: the defendant “requires a participant to borrow from Defendant’s general account rather than from the participant’s own account. In order to obtain the proceeds to make such a loan, Defendant requires each participant to transfer 110% of the amount of the loan from the participant’s plan account…to Defendant’s “Traditional Annuity,” as collateral securing repayment of the loan.” More importantly, the plaintiff goes on to assert that the “Traditional Annuity is a general account product, which means that all of the assets are held in Defendant’s general account and are owned by Defendant. Therefore, Defendant also owns all the assets transferred to its general account to “collateralize” the participant loan. Because the participant loan is made from Defendant’s general account, the participant is obligated to repay the loan to Defendant’s general account, and the general account earns all of the interest paid on the loan…” The plaintiff also contends that the defendant is an ERISA fiduciary by virtue of its role as the loan program’s administrator. Based on the foregoing, the plaintiff contends that the defendant breached its ERISA duties by engaging in prohibited self-dealing transactions (i.e. retaining a portion of participants’ loan interest payments), and that the defendant should be ordered to: (1) repay to the plaintiff and other class members their losses resulting from the prohibited transactions; and (2) pay for the plaintiff’s attorneys’ fees and other litigation costs.