Given the continuing wave of ERISA litigation updates, this article has become a mainstay of The Speed Reader. Cases that were filed or for which courts issued rulings recently are outlined below, although please note that this list is not exhaustive.
- Hay v. Gucci America, Inc. (complaint filed on September 15, 2017 in the U.S. District Court for the District of New Jersey): The plaintiff in this case was a participant in the defendant plan sponsor’s 401(k) plan, which has approximately $95 million in assets. The other defendants include the plan’s benefits committee. The plaintiff alleges that the defendants failed to use the plan’s “significant bargaining power and the ability to demand low-cost administrative and investment management services…” More specifically, the defendants allegedly breached their fiduciary duties under ERISA by: (1) failing to fully disclose to participants the expenses and risks of the plan’s investment options; (2) allowing unreasonable expenses to be charged to participants for the plan’s administration; and (3) selecting and retaining “opaque, high-cost, and poor-performing investments instead of other available and more prudent alternative investments.” Based on those assertions, the plaintiff mainly seeks a court order requiring the defendants to restore related losses to the plan and to pay the plaintiff’s attorneys’ fees and litigation costs.
- Dowling v. Pension Plan for Salaried Employees of Union Pacific Corporation and Affiliates (decided on September 15, 2017 by the U.S. Court of Appeals for the Third Circuit): This case involved certain provisions in a defined benefit plan that the plaintiff (a former participant in the defendant’s plan) argued were ambiguous with respect to his pension benefit. Unfortunately for the plaintiff, when he retired, the plan administrator interpreted the plan to provide him with a lower monthly pension payment than he expected. The plaintiff challenged the administrator’s decision as contradicting the plan’s plain language, but the District Court ruled that the plan was ambiguous in this regard and that the administrator’s interpretation was reasonable. On appeal, the court noted the following facts: (1) the plan document was comprised of 277 pages, but none of its language explicitly addressed the participant’s situation; (2) the plaintiff was on long-term disability from 1997 until 2012, when such benefits ended (because he reached age 65) and he began to receive pension payments; (3) instead of calculating his pension based on his last ten years of actual work, which ended in 1997, the plan administrator calculated his benefit as if the plaintiff had worked and been paid his final base salary for his credited years of service, up until his retirement in 2012, even though Dowling had not worked during that period; (4) if that calculation had been based on the plaintiff’s ten years of income prior to 1997, then the defendant would owe the plaintiff a much higher monthly payment because during that earlier period the plaintiff received significant bonuses in addition to his base salary; and (5) compensation and period of service are two key factors in determining the amount of a participant’s pension under the plan. The court then stated that although the plan provides that one’s compensation during an unpaid absence is deemed to be his or her compensation prior to the absence, the plan is ambiguous because it does not address the issue of whether the term “absence” applies to time away from work due to disability. However, given that the plan grants the plan administrator the authority to determine all questions of eligibility, to make factual determinations, to interpret the plan, and to resolve ambiguities in its terms, the court ruled that the court can only question the plan administrator’s interpretation of ambiguous plan language if such interpretation is arbitrary and capricious. Here, the defendant’s interpretation did not rise to that level. Furthermore, even though the defendant arguably had a conflict of interest when it interpreted the plan against the plaintiff, the evidence here did not suggest that the conflict actually infected the decision making process. Thus, the appeals court upheld the District Court’s opinion in favor of the defendant.
- Sandoval v. Novitex Enterprise Solutions, Inc. (complaint filed on September 20, 2017 in the U.S. District Court for the District of Connecticut): The plaintiff here, who is a participant in the defendant plan sponsor’s 401(k) plan, has also named the plan’s benefits committee members as defendants (which, as faithful readers of my newsletter know, is typical in these cases). As is also typical in these cases, the plaintiff points to the plan’s large size (approximately $157 million in assets and over ten thousand participants) to support his contention that the defendants have “significant bargaining power and the ability to demand low-cost administrative and investment management services” for the plan. In particular, the plaintiff alleges that the defendants breached their ERISA fiduciary duties by: (1) failing to fully disclose to participants the expenses and risks of the plan’s investment options; (2) allowing unreasonable expenses to be charged to participants for plan administration; and (3) selecting and retaining high-cost, poor-performing investment options rather than other more prudent investments that were available. Therefore, the plaintiff mainly seeks to have the court order the defendants to restore the resulting alleged losses to the plan and to pay the plaintiff’s attorneys’ fees and litigation costs.
- Sweda v. The University of Pennsylvania (decided on September 21, 2017 by the U.S. District Court for the Eastern District of Pennsylvania): In this proposed class action case, the plaintiffs sued the plan sponsor, in whose approximately $4 billion 403(b) retirement plan the plaintiffs participate, as well as the plan sponsor’s Vice President of Human Resources. The plaintiffs alleged that the defendants committed three main failures. First, the defendants allegedly improperly locked in plan investment options by allowing one service provider to mandate the inclusion of its funds in the plan. However, the court stated that such fact does not create a plausible inference of breach of fiduciary duty because “locking in rates and plans is a common practice used across the business and personal world.” Second, the plaintiffs claimed that the defendants allowed the plan’s administrative costs to be unreasonably high, as a result of not seeking competitive bids to decrease those costs. Here, the court ruled that the plan’s recordkeeping fees were not unnecessarily high, and even if there were cheaper options available for recordkeeping fees, ERISA requires fiduciaries to consider factors other than cost. Third, the defendants allegedly retained a high-cost, confusing, and underperforming investment portfolio for the plan. Regarding this claim, the court stated that the portfolio included funds with extremely low fees, which the plaintiffs did not dispute, and that nearly half of the plan’s investment funds consisted of institutional shares. Moreover, offering 78 different investment choices “is not an unreasonably high number,” and the plaintiffs offered no support for its contention that such number led to “decision paralysis for participants.” Also, the plaintiffs’ assertion that only 45 investment options performed below benchmarks is not sufficient to state a claim for breach of fiduciary duty. Therefore, the court granted the defendants’ motion to dismiss the case.
- Haskins v. General Electric Company (complaint filed on September 26, 2017 in the U.S. District Court for the Southern District of California): The plaintiffs in this proposed class action lawsuit are participants in General Electric Company’s (“GE”) approximately $28.5 billion 401(k) plan. In their complaint, the plaintiffs (who also named the plan’s trustees as defendants) state that “GE prioritized profit over its fiduciary duty and saddled the Plan’s participants with substandard [i.e. poor-performing, high-cost] proprietary mutual funds” and encouraged participants to invest their plan accounts in those funds. Further, the plaintiffs contend that “GE earned hundreds of millions of dollars from [GE’s investment management company] and its management of the Plan, while the Plan’s participants to whom GE owed a fiduciary duty suffered losses in the hundreds of millions of dollars.” The plaintiffs cite several benchmarks to support their position that the funds at issue underperformed against their peers. As remedies, the plaintiffs chiefly seek to have the defendants restore to the plan $700 million in losses allegedly resulting from their breaches of fiduciary duty and pay to the plaintiffs their attorneys’ fees and costs.