October 2023 ERISA Litigation Update:

Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. A sample of recent cases is provided below. 

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:

  • In re GE ERISA Litigation (settlement agreement submitted to the U.S. District Court for the District of Massachusetts on October 6, 2023)
  • Trauernicht v. Genworth Financial, Inc. (procedural ruling issued on September 13, 2023 by the U.S. District Court for the Eastern District of Virginia)

Other types of recent ERISA cases are as follows:

Harrison v. Envision Management Holding, Inc. (decision not to review the case issued by the U.S. Supreme Court on October 4, 2023):   I addressed this case in the March 2023 edition of this newsletter. Here is a summary of that article:

  • On February 9, 2023, the U.S. Court of Appeals for the Tenth Circuit (which governs employers in Colorado and several neighboring states) decided this case. It involves a retirement plan participant’s allegation that the defendant plan fiduciaries breached their ERISA duties and thereby caused damage to the plan. In the court’s decision, it faced the defendants’ motion to compel arbitration.
  • The court began its analysis by referencing the following rule: when analyzing an arbitration agreement’s validity, the U.S. Supreme Court’s “effective vindication” rule must be considered. That rule, which rests on public policy grounds, is intended to prevent the prospective waiver of a party’s right to pursue statutory remedies. A provision in an arbitration agreement forbidding the assertion of statutory rights is invalidated by that rule.
  • The court then noted that the defendants’ purported fiduciary breaches allegedly resulted in plan-wide harm, not just harm to the plaintiff’s own account, and thus the plaintiff’s claim is properly made pursuant to section 502(a)(2) of ERISA. Citing the following plan document language, the court concluded that the plan’s arbitration provisions forbid him from asserting statutory rights (i.e., obtaining plan-wide relief for the defendants’ alleged ERISA violations): “with respect to any claim brought under ERISA §502(a)(2)…the Claimant’s remedy, if any, shall be limited to…the alleged losses to the Claimant’s individual Account resulting from the alleged breach of fiduciary duty.”
  • The court ruled that under the effective vindication rule, the arbitration provision at issue acts as a prospective waiver of the plaintiff’s right to pursue statutory remedies under ERISA in that the provision disallows plan-wide relief, which is expressly permitted by section 502(a)(2) of ERISA. 

On October 4, 2023, the U.S. Supreme Court announced that it would not hear this case. That court’s justices did not provide any comments regarding its decision. Thus, the U.S. Court of Appeals for the Tenth Circuit’s pro-participant ruling stands.

Walsh v. Allen (decided on September 28, 2023 by the U.S. District Court for the Western District of Kentucky):  In this case filed by the U.S. Department of Labor (“DOL”), the court began by explaining that the 401(k) plan document language being disputed appears in the adoption agreement. The court humorously noted that the adoption agreement “is modular, not bespoke-like ticking boxes on a sushi menu, except ERISA governs your order.” 

The adoption agreement here provided that before forfeitures could be used to pay for employer contributions, forfeitures had to be used to pay plan expenses. However, the defendant plan sponsor only used forfeitures to pay for employer contributions. Thus, the defendant consistently  deducted plan expenses from participants’ accounts instead of using forfeitures to pay such expenses. 

The court stated that because the plan is governed by ERISA, the court must apply federal common law rules of contract interpretation. In this regard, “general principles of contract law dictate that we interpret the provisions according to their plain meaning in an ordinary and popular sense.” The court also opined that the adoption agreement’s disputed language is unambiguous.

The court then issued a consent order and judgment ordering the defendant to restore $575,000 to plan participants who were harmed by the defendant’s use of forfeitures. The defendant has also agreed to attempt to locate harmed participants who participated in the plan between 2012 and 2015 who are no longer in the plan but who are owed $250 or more as a result of this litigation. In addition, the defendant will pay $57,500 in penalties to the DOL.

Dimou v. Thermo Fisher Scientific, Inc. (complaint filed on September 19, 2023 in the U.S. District Court for the Southern District of California):  In this novel case, the 401(k) plan document language at issue provides that “the Company shall allocate and use all or a portion of the amount of a Participant’s benefit forfeited under the Plan either to pay reasonable expenses of the Plan (to the extent not paid by the Employer) or to reduce its Discretionary Contributions, Special Contributions, Matching Contributions and/or other contributions payable under the Plan, for the Plan Year in which the forfeiture occurs or any prior or future Plan Year, as determined by the Company.” 

The plaintiff states that although such language expressly authorizes the use of forfeited funds to pay plan expenses, “and thereby reduce or eliminate the amounts charged to the participants’ individual accounts to cover such expenses, Defendants [the plan sponsor and the plan committee] have consistently declined to use any of these Plan assets for such purposes over at least the past 6 years. Instead, Defendants have consistently chosen to utilize the forfeited funds in the Plan exclusively for the Company’s own benefit, to the detriment of the Plan and its participants, by using these Plan assets solely to reduce future Company contributions to the Plan.”

The plaintiff contends that such behavior constitutes a breach of the defendants’ fiduciary obligation to discharge their duties to the plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of: (1) providing benefits to participants and their beneficiaries; and (2) defraying reasonable expenses of administering the plan. More specifically, “[i]nstead of acting solely in the interest of Plan participants by utilizing forfeited funds in the Plan to reduce or eliminate the administrative expenses charged to their individual accounts, Defendants chose to use these Plan assets for the exclusive purpose of reducing its own future contributions to the Plan, thereby saving the Company millions of dollars each year at the expense of the Plan.”

The plaintiff seeks a court order requiring the defendants to restore to the plan any losses  resulting from the allegedly prohibited conduct and to pay the plaintiff’s attorneys’ fees and costs.

Rodriguez v. Intuit, Inc. (complaint filed on October 2, 2023 in the U.S. District Court for the Northern District of California):  This lawsuit, filed by the same law firm that filed the Dimou case explained above, contains essentially the same allegations against the defendant plan sponsor and plan committee as in the Dimou case.