January ERISA Litigation Update


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 the last update I provided, which was in the November 2016 edition.

Department of Labor Cases:

  • Perez v. Smith:  On December 2, 2016, the DOL filed this case in the U.S. District Court for the Western District of Pennsylvania. The DOL alleges that the defendant, who was the plan sponsor’s owner and its 401(k) plan’s trustee, withheld approximately $78,000 from employees’ wages for their plan deferrals from 2011 until the company ceased operations in April 2014. However, he allegedly failed to transfer “a significant amount” of those contributions to the plan and to pay interest on the unremitted contributions. The lawsuit seeks to have the defendant restore all losses caused to the plan by his fiduciary breaches and to bar him from again serving as a fiduciary to any ERISA plan.
  • Perez v. Caro:  On December 8, 2016, a judge for the U.S. District Court for the Northern District of Illinois approved the parties’ settlement agreement in this case. The case involved an ophthalmologist who liquidated $263,951 from the plan sponsor’s defined benefit plan investment accounts and transferred the funds to accounts held in his own name, accounts held in the name of a former medical practice, and various other accounts. The transferred funds were used to pay for the medical practice’s operating expenses, and they were not used to provide benefits to the plan’s participants or beneficiaries. This individual recently paid the required amount to the plan’s participants and beneficiaries in connection with the related criminal case against him. Thus, this court’s December 8, 2016 approval just means that this individual is permanently enjoined from violating ERISA and from serving as a fiduciary or service provider to any ERISA-covered plan.
  • Perez v. Authorized Factory Service, Inc.:  On December 9, 2016, the DOL filed this lawsuit in the U.S. District Court for the Western District of Pennsylvania. The DOL alleges that the defendant plan sponsor violated ERISA by not taking fiduciary responsibility for the operation and administration of its 401(k) plan and its assets, and failing to appoint anyone to assume that responsibility, when the plan sponsor ceased business operations and terminated the plan’s participants in 2002. (The main effect is that participants have not been able to obtain a distribution of their plan accounts.) The DOL seeks removal of the defendant as the plan fiduciary, as well as the appointment of an independent fiduciary to administer the plan and to effectuate its termination and the distribution of its assets to participants.
  • Perez v. Porter:  The DOL filed this lawsuit on December 21, 2016 in the U.S. District Court for the District of Maryland, alleging that a money purchase plan’s trustees breached their ERISA fiduciary duties to the plan by failing to take action to recover two plan loans that are owed to the plan. The DOL contends that the loans violated ERISA in that one was allegedly made to the plan sponsor and the other was made to a company that one of the trustees owned. The DOL asserts that principal and interest owed to the plan regarding these loans equals approximately $756,030.00. The DOL is asking the court to: (1) order the defendants to restore all losses to the plan; (2) permanently enjoin the defendants from serving any ERISA plan in any capacity; and (3) appoint an independent fiduciary at the defendants’ expense.
  • Perez v. Central Security Communications Inc.:  The DOL filed this lawsuit against a Colorado alarm monitoring company in the U.S. District Court of Colorado on January 6, 2017. The DOL seeks to have the defendants (a plan sponsor and its plan fiduciaries) restore more than $82,000, plus lost income, allegedly owed to the plan sponsor’s retirement and health plans, as well as to have the court appoint an independent fiduciary to administer the plans. As support for that position, the DOL alleges that the defendants violated ERISA by failing to remit employees’ retirement contributions and health insurance premiums to the plans and by failing to collect delinquent outstanding loan repayments owed to the retirement plan.

Cases in Which the Department of Labor is Not a Litigant:

  • In Re Disney ERISA Litigation:  The defendants in this case were members of the Investment and Administrative Committee of Walt Disney Company’s retirement plans, and the plaintiffs were certain plan participants representing a proposed class of plaintiffs. The plaintiffs alleged that the defendants’ inclusion of a certain mutual fund in one of the company’s retirement plans was imprudent, given the fund’s investment performance. On November 14, 2016, the U.S. District Court for the Central District of California granted the defendants’ motion to dismiss the case. As support for that ruling, the court stated that the mutual fund at issue “appears to have been for the purpose of providing an investment option that offered higher growth potential with commensurate higher risk.” Consequently, “[w]ithin that context, the [plaintiffs’] Complaint has alleged no facts that plausibly allege that the Plan breached its duty to prudently monitor and review the Plan’s inclusion” of that fund as an investment option.
  • Harmon v. FMC Corp:  This case, filed in the U.S. District Court for the Eastern District of Pennsylvania on November 18, 2016, involves the same mutual fund that was at issue in the Disney case outlined above. The plaintiffs in this case allege that the fund was not sufficiently diversified and that the fund became an imprudent plan investment option when its largest investment (a pharmaceutical company) declined significantly in value.
  • Ortiz v. American Airlines, Inc.:  The plaintiffs in this case, who are participants in the defendant’s 401(k) plan, contend that the defendants (the plan sponsor and its plan committee) breached their fiduciary duties under ERISA by including a poorly-performing credit union fund as a plan investment option. That fund was allegedly the plan’s only “income producing, low-risk, liquid fund.” On November 18, 2016, the U.S. District Court for the Northern District of Texas opined that “the income the Plan participants have lost by reason of the absence of a stable value fund option would appear to have been between $55 million and $88 million.”  Therefore, the court refused to approve the litigants’ proposed $8.8 million settlement. It is now up to the plaintiffs to “resolve the concerns of the court” if they wish to finalize a settlement agreement.
  • Meiners v. Wells Fargo & Company:  In this lawsuit, filed on November 28, 2016 in the U.S. District Court for the District of Minnesota, the plaintiffs are a class of participants in the defendant’s 401(k) plan, and the defendants are the plan sponsor and the plan’s committees. The plaintiffs assert that the defendants “engaged in a practice of self-dealing and imprudent investing of Plan assets by funneling billions of dollars of those assets into Wells Fargo’s own proprietary [target date] funds” and that those funds “cost on average over 2.5 times more than comparable target date funds while, at the same time, substantially and consistently underperforming those comparable funds.” The plaintiffs mainly seek to have the court hold the defendants liable for restoring all losses allegedly incurred by the plan as a result of their purported breaches of fiduciary duty.
  • Creamer v. Starwood Hotels & Resorts Worldwide Inc.:  This class action lawsuit was filed in the U.S. District Court for the Central District of California on December 16, 2016. The participants, who are participants in the defendant’s 401(k) plan, contend that the defendant: (1) failed to ensure that fees charged to plan participants were reasonable; (2) caused participants who invested in index funds to pay seven times more than a reasonable fee; (3) failed to provide adequate disclosure regarding its practice of revenue sharing; and (4) failed to include a stable value fund instead of a money market fund in the plan’s investment lineup. The plaintiffs mainly seek to have the court order the defendant to “make good to the Plan all losses resulting from its breaches of fiduciary duties” and to “disgorge any profits that it has made through its breaches of fiduciary duties.” The plaintiffs also seek to be reimbursed for their reasonable attorneys’ fees and other litigation costs.
  • Johnson v. Delta Air Lines Inc.:  This class action lawsuit was filed on December 20, 2016 in the U.S. District Court for the District of Delaware. The plaintiffs are participants in one of the defendant plan sponsor’s 401(k) plans, and the defendants are the plan sponsor and the plan’s committee. The plaintiffs chiefly allege that the defendants: (1) had the ability to demand and obtain lower-cost investment options for the plan but failed to do so; (2) allowed the plan to be charged fees for administrative services (e.g., recordkeeping) that were “far in excess” of what the plan should have paid; and (3) failed to monitor the plan’s investment options by allowing several poorly-performing investment options to remain in the plan “year after year.” The plaintiffs seek several remedies, including having the defendants found liable to compensate the plaintiffs for all losses resulting from each breach of fiduciary duty, reforming the plan to include only prudent investments, and requiring the defendants to obtain bids for recordkeeping services so that the plan only pays reasonable recordkeeping expenses.
  • Morin v. Essentia Health:  In this case, filed on December 29, 2016 in the U.S. District Court for the District of Minnesota, the plaintiffs are participants in the defendant plan sponsor’s two defined contribution plans (one of which is a 403(b) plan). The plaintiffs allege that the plan sponsor, its plan committee, and its Senior Vice President of Human Resources breached their fiduciary duties under ERISA by causing the plans “to pay excessive fees and failing to monitor and control the Plans’ escalating costs, resulting in millions of dollars of losses to the Plans.” As one example, the plaintiffs assert that for several years, instead of having a separate recordkeeper for each plan, the defendants could have secured lower recordkeeping costs if the defendants had engaged one recordkeeper for both plans. That assertion is based on the plaintiff’s statement that the plans “have had the ability to operate in the market as a 20,000-participant plan with $1 billion in assets.” Among other requests for relief, the plaintiffs are asking the court to find the defendants liable “to make good to the Plans all losses that the Plans incurred as a result of the conduct described above and to restore the Plans to the position they would have been in but for the breaches of fiduciary duty.”

Also, on December 3, 2016, the U.S. Supreme Court agreed to hear arguments in the cases of Dignity Health v. Rollins, Advocate Health Care Network v. Stapleton, and Saint Peter’s Healthcare System v. Kaplan. The cases all deal with the issue of whether ERISA’s church-plan exemption applies as long as a retirement plan is maintained by a church-affiliated organization, or whether that exemption applies only if, in addition, a church initially established the plan. If the plaintiffs prevail on their argument that the plans at issue do not fit within that ERISA exemption, the effects on the defendants will likely be staggering (e.g., having to file Forms 5500 for many prior years, and having to make significant contributions to satisfy ERISA’s funding requirements).