Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. Court cases that were filed (or for which courts issued rulings) recently include the following, although please note that this list is not exhaustive:
- Hugler v. Weinhagen (decided on April 11, 2017 by the U.S. District Court for the District of Minnesota): This case was filed by the DOL against a 401(k) plan sponsor and its sole owner/president. The DOL alleged that for approximately five years, the defendants withheld $35,363.86 from employees’ pay for voluntary contributions to the 401(k) plan. However, the defendants allegedly retained most of that money in the plan sponsor’s corporate bank account and used it for general operating expenses. The parties have agreed to settle this matter regarding that alleged ERISA violation. Pursuant to the settlement agreement, the defendants have already repaid $41,754.00 to the plan (which constitutes the employees’ contributions at issue and lost opportunity costs), and the defendants had about three weeks from April 11 to file all the plan’s delinquent Forms 5500.
- Barchock v. CVS Health Corporation (decided on April 18, 2017 by the U.S. District Court for the District of Rhode Island): The plaintiffs in this lawsuit, who are participants in the main defendant’s qualified plan, asserted that the defendants (the plan sponsor, the plan’s committee, and the manager of the stable value fund at issue) breached their ERISA fiduciary duties by “imprudently investing too much of the Plan’s Stable Value Fund assets in ultra-short-term cash management funds that provided extremely low investment returns.” The plaintiffs also argued that, when compared to other stable value fund investment averages, the stable value fund at issue was “categorically imprudent.” In approving the defendants’ motion to dismiss the case, the court noted that the fund was structured to meet, and actually did meet, its stated investment objectives (i.e. preserve capital and generate a rate of return higher than money market funds). The court also noted that the plaintiffs have not asserted that the fund manager received unreasonable or excessive fees or materially deviated from disclosures in the plan documents. The court concluded its opinion by stating that “the test of prudence…is one of conduct, and not a test of the result of the performance of the investment” and thus the plaintiffs’ use of “20/20 hindsight” does not result in a judgment in their favor here.
- Bowers v. BB&T Corporation (procedural ruling issued April 18, 2017 by the U.S. District Court for the Middle District of North Carolina): Among other claims, the plaintiffs in this case (participants in a 401(k) plan sponsored by one of the defendants) alleged that the plan’s external investment advisor breached its ERISA fiduciary duties by allowing the plan to invest in the defendant plan sponsor’s proprietary funds. The plaintiffs stated that such funds charged excessive fees and underperformed comparable, non-proprietary funds. In its April 18 ruling, however, the court dismissed the claims against such advisor. The court concluded that the plaintiffs merely alleged that the advisor provided general investment advice to the plan sponsor, and the plaintiffs did not set forth any facts indicating that the advisor breached its fiduciary duty to the plan. However, the case will continue with respect to the other defendants.
- In re Disney ERISA Litigation (ruling issued on April 21, 2017 by the U.S. District Court for the Central District of California): In the latest ruling in this case, the court addressed the defendants’ motion to dismiss the plaintiffs’ second amended complaint. (The plaintiffs are participants in the Walt Disney Company’s retirement plans, and the defendants are the plan sponsor and the plans’ committee.) In the plaintiffs’ second amended complaint, they alleged that the defendants breached their duties under ERISA by offering a specific investment fund as an investment option. The fund at issue invested as much as just over 25% of its assets in a single pharmaceutical company that eventually experienced significant business losses, which in turn caused the plan’s investment fund at issue to decrease significantly in value. In its April 21 ruling, the court focused on representations the defendants made to plan participants about the fund, and whether the fund acted in a way so inconsistent with that description that a reasonably prudent investor would have discontinued offering the fund as a plan investment option. In this connection, the court opined that the defendants and the fund “acted entirely consistently with disclosures made to Plan participants.” Moreover, the plaintiffs failed to allege any special circumstances supporting even an inference that the defendants had any reason not to rely on the stock market’s valuation of the pharmaceutical company at issue until its collapse, or to remove the investment fund from the plans before then. The court thus granted the defendants’ motion to dismiss the case.
- Creamer v. Starwood Hotels & Resorts Worldwide, Inc. (procedural ruling issued on May 1, 2017 by the U.S. District Court for the Central District of California): In the latest aspect of this case, the court addressed the defendant 401(k) plan sponsor’s motion to dismiss the case entirely. The plaintiffs, who are participants in the defendant’s plan, contend that the defendant breached its fiduciary duties under ERISA via various acts, such as failing to ensure reasonable recordkeeping and administrative fees and failing to exclude a specific investment fund that allegedly charged excessive fees. In its motion to dismiss the case, the defendant argued that the statute of limitations bars the plaintiffs’ claim for all of their of their theories of liability, arguing that the plaintiffs had actual knowledge of all alleged breaches based on disclosures provided to the plaintiffs. The court noted that the limitations period for an ERISA breach of fiduciary duty claim is: (1) six years after the date of the last action which constituted a part of the breach or violation, or in the case of an omission the latest date on which the fiduciary could have cured the breach or violation; or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach. Applying that rule here, the court first concluded that because the plaintiffs received (outside the three-year limitations period) documents disclosing fees charged by the investment fund at issue, their claim with respect to allegedly excessive fees concerning this fund is time-barred. Second, the court concluded that the claims concerning recordkeeping and administrative fees are not time-barred because the plaintiffs did not have actual knowledge of the fees outside the limitations period. (The fees were apparently referenced, but not specified, in the disclosures upon which the defendants relied to support its motion to dismiss the case.)
- Nicholson v. Franciscan Missionaries of Our Lady Health System (preliminary settlement agreement reached on May 5, 2017 in the U.S. District Court for the Middle District of Louisiana): This case is one of several pending cases involving ERISA’s exemption for “church plans.” (Three consolidated cases involving that exemption were argued before the U.S. Supreme Court on March 27, 2017.) Here, the plaintiff brought a class action lawsuit to challenge the defendants’ classification of three pension plans as “church plans” that were exempt from ERISA (e.g., minimum funding requirements). The issue was whether the plans were “church plans” for ERISA purposes, meaning that they were “established” by a church or convention or association of churches and are “maintained” by a church or an entity whose principal function it is to administer retirement benefits. After nearly a year of litigation, which is actually quite short in the ERISA litigation arena, the parties have reached a settlement agreement. The agreement requires the defendants (the plan sponsor and the plans’ investment committee) to contribute $125 million to the plans over the next five years, plus $450.00 to each of the 2000+ participants of the plans who accepted a lump-sum buyout of their pension in 2016. However, the court still has to consider whether to grant final approval of the settlement agreement.
- Henderson v. Emory University (procedural ruling issued on May 10, 2017 by the U.S. District Court for the Northern District of Georgia): The plaintiffs in this case are participants in the defendant plan sponsor’s 403(b) retirement plans, and the other defendants are the plans’ investment committee and the Board of Trustees. In denying the defendants’ motion to dismiss the case, the court’s May 10 opinion made several rulings, including the following: (1) the plaintiffs have properly stated a claim that choosing retail-class shares over available institutional-class shares is imprudent; (2) the plaintiffs’ allegations that the defendants acted imprudently by offering too many investment options (i.e. 111) does not state a claim for relief, because “[h]aving too many options does not hurt the Plans’ participants, but instead provides them opportunities to choose the investments that they prefer;” (3) the plaintiffs have sufficiently alleged that the defendants’ process for choosing and analyzing certain funds was flawed (e.g., failing to properly analyze plan investment options, and allowing the plans to be forced into using certain funds provided by the recordkeepers); and (4) the plaintiffs have properly alleged that the defendants acted imprudently by retaining underperforming funds. Based on those rulings, this case will continue to be litigated regarding several of the plaintiffs theories of relief.
- Richards-Donald v. Teachers Insurance & Annuity Association of America (settlement agreement filed on May 10, 2017 in the U.S. District Court for the Southern District of New York): The plaintiffs in this case are participants in the defendant plan sponsor’s retirement plans. The defendants also include the plans’ investment committee and certain executives who are in charge of Human Resources. The plaintiffs mainly allege that the defendants breached their ERISA fiduciary duties and committed prohibited transactions by including certain proprietary investment funds in the plans and by selecting itself to serve as the plans’ recordkeeper. After beginning the discovery process, the parties’ participation in mediation resulted in their agreement to settle the case. Under the settlement agreement, the defendants will pay $5 million to the plaintiffs and will take certain non-monetary “therapeutic measures” (e.g., add at least ten non-proprietary investment options to the plan; retain an independent consultant to evaluate the main defendant’s recordkeeping fees). As in many settlement agreements, the defendants here continue to assert that they are faultless and have strong defenses to all of the plaintiffs’ claims. Nonetheless, the defendants have decided to settle the case “solely to avoid the cost, disruption, and uncertainty of litigation.” The court still must approve the settlement agreement, however.