Given the expanding world of ERISA litigation, this article has become a mainstay of The Speed Reader. Court cases that were filed, or for which courts issued rulings, since last month’s edition include the following, though this list is not exhaustive:
- Feinberg v. T. Rowe Price Group Inc.: This case was filed on February 14 in the U.S. District Court for the District of Maryland. The plaintiff is a participant in the main defendant’s 401(k) plan, and he seeks class action status on behalf of all similarly-situation participants in that plan. The defendants are the plan sponsor and individuals who serve as plan fiduciaries. The plaintiff mainly alleges that: (1) the defendants placed their own financial interests above those of the plan and its participants by only offering T. Rowe Price’s own in-house investment funds in the plan, which the plaintiff asserts “earned T. Rowe Price and its affiliates windfall profits;” (2) when the defendants decided to select and retain those in-house funds in the plan, they failed to engage in a prudent process in that they failed to consider non-proprietary alternatives and whether those alternatives might better serve plan participants; (3) the defendants failed to loyally and prudently monitor the fees and performance of the plan’s investment options; and (4) as a result of the defendants’ fiduciary breaches and prohibited transactions, plan participants “were deprived of millions of dollars in retirement savings that they would have earned if funds had been selected irrespective of their affiliation.”
- Xie v. Inv. Comm. & Benefits Oversight Comm. of Allergan Inc. Sav. & Inv. Plan: In this case, filed on February 14 in the U.S. District Court for the Central District of California, the plaintiff is a 401(k) plan participant, and the defendants are members of the plan’s Investment Committee (which was responsible for selecting and monitoring the plan’s investments) and the Benefits Oversight Committee (which was responsible for appointing and monitoring members of the Investment Committee). The plaintiff seeks class action status on behalf of all similarly-situation participants in that plan who were invested in the plan sponsor’s stock from March 17, 2015 through November 3, 2016. The plaintiff seeks to recover “many millions of dollars of damage suffered” by such individuals as a result of breaches of fiduciary duties owed to them. As support for that claim, the plaintiff asserts that the defendants knew or should have known that the plan sponsor’s stock price had become artificially inflated because of certain fraud and misrepresentation committed by that company, and, therefore, company stock constituted an imprudent investment option for the plan. However, the defendants allegedly continued to allow the plan to invest in such stock, which caused losses to participants’ plan accounts.
- Myers v. Fiduciary Comm. for Seventy Seven Energy, Inc.: This lawsuit was filed on February 24 in the U.S. District Court for the Western District of Oklahoma. The plaintiff is a 401(k) plan participant, and the defendants are members of the plan’s Administrative Committee, as well as the plan’s trustee. The case concerns the plan’s allegedly imprudent investment in the common stock of Chesapeake Energy Corporation (“Chesapeake”), and the plaintiff seeks class action status on behalf of all participants whose retirement assets were invested in Chesapeake stock from July 1, 2014 to the date of judgment in this case. The plaintiff asserts that: (1) the defendants’ act of investing plan assets in Chesapeake stock (in the plan’s ESOP component) was imprudent because, although ERISA requires ESOPs to invest in employer securities, Chesapeake stock was not an “employer security” under ERISA and thus should never have been held in the plan’s ESOP component; (2) the committee defendants ignored “numerous warning signs” showing that Chesapeake was an imprudent investment for retirement assets, and instead allowed the plan to invest more than 44% of its assets in this one stock (even after the price of Chesapeake stock declined over 70 percent); (3) the committee defendants violated their ERISA duty to diversify the plan’s investments by allowing the plan to contain a high percentage of its assets in Chesapeake stock; and (4) the committee defendants violated their ERISA duty to accurately convey the plan’s terms to participants (by telling participants that the ESOP’s purpose was to invest in the stock of the plan sponsor, rather than accurately telling them that the ESOP was actually heavily invested in Chesapeake stock). That conduct allegedly caused the plan “to lose tens of millions of dollars in assets that should have been used for participants’ retirement.”
- Malone v. Teachers Ins. & Annuity Ass’n of Am.: On March 7, the U.S. District Court for the Southern District of New York issued a ruling in this case. The plaintiffs filed this lawsuit on behalf of two colleges’ retirement plans, mainly alleging that the defendant breached its ERISA fiduciary duty to the plans with respect to its compensation that was specified in its contract with the plans. In its ruling, the court concluded that the defendant is not an ERISA fiduciary for the plans, which means that the court cannot grant the plaintiffs’ requested relief for alleged breaches of fiduciary duty (including monetary relief). Thus, the court granted the defendant’s motion to dismiss the case. As support for its ruling, the court stated that the contract between TIAA and the plans regarding TIAA’s compensation did not involve any discretionary act giving rise to fiduciary obligations by TIAA. Moreover, the court stated that a plan service provider’s periodic collection of compensation is not a discretionary act giving rise to a fiduciary duty under ERISA. In short, “The Court cannot conclude based on the facts pled in the complaint that TIAA was a fiduciary of the Plans with respect to its role as recordkeeper.”
- Pledger v. Reliance Tr. Co.: On March 7, the U.S. District Court for the Northern District of Georgia declined to dismiss most of the claims against this lawsuit’s defendants (a 401(k) plan sponsor and the plan’s trustee). The plaintiffs are participants in the plan sponsor’s 401(k) plan, who allege that the defendants breached their ERISA fiduciary duties and committed prohibited transactions under ERISA via the following conduct: (1) selecting proprietary funds as plan investment options, and retaining those funds despite their poor performance; (2) selecting a subsidiary of the plan sponsor as the plan’s record keeper, paying it excessive administrative expenses, and failing to monitor the amount of those administrative expenses; (3) providing investment options to the plan that contained unreasonable management fees, even though cheaper versions of the same investments were available to the plan; (4) providing an imprudent money market fund as an investment option (without considering a stable value fund option), and then providing an imprudent proprietary stable value fund; (5) failing to properly monitor the plan’s fiduciaries; (6) engaging in prohibited transactions by including proprietary investments in the plan, causing the plan to pay unreasonable compensation to the recordkeeper, and providing the plan with unduly expensive investment options; and (7) engaging in prohibited fiduciary self-dealing through the use of proprietary investment options in the plan and the use of a plan sponsor subsidiary as the plan’s recordkeeper. However, the defendants did prevail on their argument that the plaintiffs’ claim for disgorgement should be dismissed. (That claim sought to recover profits the defendants earned through their conduct at issue.) The court agreed with the defendants on this point because the plaintiffs could not identify specific money or property held by the defendants that should be disgorged.
- Butler v. Holy Cross Hospital: On March 9, the United States District Court for the Northern District of Illinois granted preliminary approval to the litigants’ settlement agreement in this case. The court deemed the agreement reasonable and adequate to notify class members, to give them a chance to object to the agreement before a June hearing occurs regarding the agreement’s final approval. This is one of several pending cases involving a plan’s status as a “church plan” that is exempt from ERISA. (Oral argument in the U.S. Supreme Court regarding the scope of ERISA’s church plan exemption is scheduled in three consolidated cases for March 27.) In this Butler case, the plaintiffs, who are former employees of the defendant, contend that the defendant breached duties under ERISA by incorrectly treating its pension plan as an ERISA-exempt “church plan.” Specifically, the plaintiffs allege that the defendant underfunded the plan by $31 million and improperly attempted to terminate the plan while it was underfunded. The litigants’ settlement agreement provides that the defendant will pay approximately $4 million. Also, after final distribution of the settlement amount, the plan will be terminated.