May 2023 ERISA Litigation Update:

The most common type of ERISA case for approximately the past seventeen years involves retirement plan participants’ allegations that plan fiduciaries caused participants to pay excessive recordkeeping and investment fees and included one or more poorly-performing investment options in the plan. Recent cases in this category include the following:

Huang v. TriNet HR III, Inc. (dismissed on April 26, 2023 by the U.S. District Court for the Middle District of Florida):  The court noted:

  • The plan committee was comprised of between five and seven TriNet employees with expertise in different subject areas, including finance, HR, and law. 
  • The committee was advised by two independent investment advisors with significant expertise. Before each meeting, the advisors distributed detailed information regarding the plan’s investments and potential alternatives. The advisors’ investment reviews contained a scorecard that evaluated the plan’s funds relative to their benchmarks and peer groups across numerous criteria, and identified any funds for the committee to “watch” or “discuss” based on those factors.  Also, the scorecards consistently indicated that the plan’s investments had below-average fees relative to peers.
  • The committee and its advisors undertook RFPs for recordkeeping services roughly every three years, thoroughly evaluated the various firms’ responses, and conducted interim benchmarking.

Jacobs v. Verizon Communications, Inc. (procedural ruling issued on April 20, 2023 by the U.S. District Court for the Southern District of New York):  The court denied the defendants’ motion to dismiss the case, which at this stage involves the question of whether the defendants breached their ERISA fiduciary duty of prudence with respect to one of the plan’s investment options. The court based its decision on the fact that the defendants have not provided an explanation as to why they kept the fund at issue in the plan or provided evidence that, during the relevant period, they discussed or considered what to do about the fund’s poor performance.

The court acknowledged, however, that:

  • The defendants maintained detailed written policies and procedures for monitoring and managing the plan’s investments, they performed daily, weekly, monthly, and quarterly reviews of those funds, and they analyzed relevant reports regarding those funds.
  • The defendants typically met quarterly to review the plan’s investment options. Before each meeting, detailed materials relating to the investment options’ performance were circulated to attendees for review. Those materials included updates on the market generally, the investment options’ asset allocations, and employee participation rates.
  • The meetings involved “robust discussion” of investment performance, “with a special focus on underperforming funds.”
  • The defendants monitored the fees associated with each plan investment option.
  • The defendants hired several experienced consultants to analyze the investment options’ fees and performance.

Jones v. DISH Network Corporation (dismissed on March 27, 2023 by the U.S. District Court for the  District of Colorado):  In affirming the magistrate judge’s January 31, 2023 decision in favor of the defendants, the court stated:

  • The plaintiffs have not identified similar plans that have obtained the same recordkeeping services for less money. Instead, the plaintiffs compare the average fee paid by the plan over a five-year span to the fees paid by the comparator plans for just one selected year. This is not an  “apples-to-apples” comparison and thus does not allow the court to infer that the plan’s recordkeeping fees were excessive.
  • With respect to allegedly underperforming investment options, “the prudence test . . . is one of conduct, and not a test of the result of performance of the investment.” As a result, “[i]t is not sufficient [for a plaintiff] to simply allege that an investment did poorly…” Also, the plaintiffs failed to make any allegations regarding the defendants’ process for monitoring the funds at issue.

Other types of recent ERISA cases are as follows:

Su v. Johnson (decided on May 10, 2023 by the U.S. Court of Appeals for the Seventh Circuit):  The defendants are plan fiduciaries of an ERISA-covered retirement plan, and the plaintiff is the Secretary of the U.S. Department of Labor (“DOL”). The DOL alleged that the defendants breached their fiduciary duties under ERISA, by (1) using hundreds of thousands of dollars of plan assets for one defendant’s personal benefit but accounting for those transactions as plan expenses or losses instead of as plan distributions; and (2) one defendant’s receipt of distributions without the plan administrator’s consent, in violation of the plan document.

The trial court granted summary judgment in favor of the DOL and entered a permanent injunction against the defendants that removed them as plan fiduciaries. In affirming that decision, the appeal’s court also noted “given the gravity and frequency of defendants’ breaches of their fiduciary duties, they are fortunate that the relief against them [i.e., the injunction] has thus far been relatively modest.”

Pue v. New Jersey Transit Corporation (decided on April 13, 2023 by the U.S. Court of Appeals for the Third Circuit):  The plaintiff alleged that he was a party to an agreement with the defendant  that entitled him to payments for a disability pension, and the defendant committed breach of contract by failing to make the required payments.

The court stated that although the plaintiff tried to a make a claim for the collection of benefits under ERISA, the defendant cannot not be sued under ERISA. Specifically, ERISA exempts from its coverage any “governmental plan.” The court explained that ERISA defines that term, in relevant part, as a plan established or maintained by “any State or political subdivision thereof, or by any agency or instrumentality of the foregoing.” Further, the court stated that an entity constitutes a “political subdivision” if it was (1) created directly by the state, constituting departments or administrative arms of the government; or (2) administered by individuals who are responsible to public officials or to the general electorate.

Applying that statutory language to the defendant, the court concluded that the defendant is a “political subdivision.” That is because the defendant is “allocated within the Department of Transportation,” and is “constituted as an instrumentality of the State exercising public and essential governmental functions.” In addition, the defendant is “governed by a board composed of members including the Commissioner of Transportation, the State Treasurer, a member of the Executive Branch selected by the Governor, and additional public members appointed by the Governor.”