Given the continuing wave of ERISA litigation, 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.
- Tibble v. Edison (decided on August 16, 2017 by the U.S. District Court for the Central District of California): This case became famous (at least to ERISA geeks like me) when the U.S. Supreme Court ruled as follows in 2015: ERISA plan fiduciaries have an ongoing duty to monitor investment options available in a retirement plan and to remove imprudent ones within a reasonable time; furthermore, this is separate from the duty to exercise prudence when selecting investments to add to a plan. The U.S. Supreme Court sent the case back to the lower courts to decide whether the defendants had complied with that rule. (The plaintiffs in this case are participants under the main defendant’s 401(k) plan, who alleged that a fiduciary breach occurred because several retail-class mutual funds were held imprudently in the main defendant’s plan even though lower-priced institutional-class funds were available.) In the latest proceedings, the district court ruled that the defendants “are liable for breaching their fiduciary obligations and are liable beginning on August 16, 2001—or for three funds the later date institutional share classes become available—for the actual loss in excessive fees paid and for the lost [sic] of investment opportunity of this breach.” In other words, the defendants are liable for breaching their duty to monitor the plan’s investments from August 16, 2001 forward.
- Dolins v. Continental Casualty Company (procedural ruling issued on August 18, 2017 by the U.S. District Court for the Northern District of Illinois): The plaintiff in this proposed class action case was a participant in the defendant plan sponsor’s 401(k) plan. The defendants also include a subsidiary of the plan sponsor (the “Subsidiary”) and the plan’s trustee. One of the plan’s investment options was a fixed income fund (“the Fund”) which, until the end of 2011, contained as a core investment a group annuity contract (“the GAC”) offered by the Subsidiary. In 1990, the plan and the Subsidiary added a “Minimum Interest Guarantee Rider” to the GAC, which guaranteed that the annual interest rate credited to the Fund under the GAC would never fall below 4%. The rider remained in place until the end of 2011, when the GAC was discontinued pursuant to an agreement between the trustee and the Subsidiary. Before the GAC’s cancellation, the GAC earned returns at or above the 4% minimum, but after the cancellation the plan experienced several years of declining earnings on assets invested in the Fund. Thus, the plaintiff alleges that if the GAC had not been cancelled, the plan’s post-2011 earnings “almost certainly would have been higher, because most of the Plan’s funds had been invested in the [GAC] with its guaranteed minimum 4% return.” The plaintiff alleges that by acting to cancel the GAC, the plan sponsor, Subsidiary, and trustee did not act for the exclusive benefit of the plaintiff and the plan’s other participants. Rather, those entities allegedly cancelled the GAC because the GAC’s 4% guaranteed minimum return made the GAC financially unfavorable to the Subsidiary (and thus unfavorable to the plan sponsor). In its ruling, the court held that the GAC’s guaranteed minimum interest rate was a plan asset, and given that the plaintiff alleged that such asset was transferred to a party in interest (the plan sponsor and the Subsidiary), the plaintiff has properly pleaded the occurrence of a prohibited transaction. The court also ruled that the defendant directed trustee had discretion to reject instructions regarding the GAC that were contrary to ERISA, and thus the trustee was properly named as a fiduciary in this lawsuit. Therefore, this case will move forward.
- Sacerdote v. New York University (procedural ruling issued on August 25, 2017 by the U.S. District Court for the Southern District of New York): The plaintiffs in this class action case are participants in the defendant’s 403(b) plans. The plaintiffs mainly allege that the defendant failed to use its significant bargaining power when it included expensive or imprudent investment options and when it allowed plan service providers to mandate inclusion of their own investment products and recordkeeping services. The plaintiffs also contend that the defendant failed to remove poorly performing funds from the plans. The court stated that to support the alleged breach of ERISA’s fiduciary duty of loyalty, the plaintiffs must put forth facts supporting an inference that the defendant acted for the purpose of providing benefits to the defendant or to someone else. In this regard, “no factual allegations support purposeful action by NYU to benefit another (let alone itself)” even though its conduct arguably had the effect of benefitting third parties. With respect to the plaintiffs’ allegations of breach of ERISA’s fiduciary duty of prudence, the court stated that the plaintiffs have not alleged that the defendant, via contracts with the plans’ service providers, precluded the plans’ fiduciaries from fulfilling their duty of prudence to monitor and review the plans’ investments. With respect to the plaintiffs’ claim that by allegedly paying excessive recordkeeping expenses the defendant committed prohibited transactions, the court stated that ERISA’s proscription on the transfer of “property” does not include revenue sharing payments from plan investments to recordkeepers. Thus, the prohibited transactions claim fails. However, the case will move forward regarding the defendant’s alleged imprudence of failing to seek bids from other record keepers, failing to ensure that participants were not being overcharged for recordkeeping services, and including certain allegedly high-cost but poorly-performing investment options in the plans.
- In re Wheaton Franciscan ERISA Litigation (settlement agreement filed on September 1, 2017 in the U.S. District Court for the Northern District of Illinois): This case is one of numerous cases filed in approximately the last twelve months involving the issue of whether the defendant retirement plan sponsor denied ERISA protections to a plan’s participants and beneficiaries by incorrectly claiming that the plan qualifies as an ERISA-exempt “church plan.” In this case, the plaintiffs alleged that the defendant improperly relied on that ERISA exemption and thus denied participants certain ERISA protections, including significantly underfunding the plan and decreasing accrued benefits via several plan amendments that violated ERISA’s anti-cutback provisions. Under the settlement agreement, the defendant guarantees the payment of the first $29,500,000 of benefits that are distributable from the defined benefit plan at issue to settlement class members, in the event that plan assets become insufficient to pay those benefits. In addition, participants will receive an annual notice regarding the plan’s funded status and their plan benefits, which will contain certain other information (e.g., a statement of the plan’s liabilities and assets). Also, the plaintiffs’ attorneys will seek no more than $2,250,000 for their fees and litigation-related expenses. The court now must decide whether it will approve this settlement agreement.
- Goetz v. Voya Financial, Inc. (complaint filed on September 8, 2017 in the U.S. District Court for the District of Delaware): The plaintiff in this proposed class action lawsuit is a participant in a 401(k) plan sponsored by her employer, which has approximately nineteen participants and $3 million in assets. The plaintiff, who proposes to represent the interests of similarly-situated participants in thousands of other plans, seeks to have the court order “the return of the undisclosed excessive and unreasonable asset-based fees charged by Voya for recordkeeping and administrative services, and to prevent Voya from charging those excessive fees in the future.” (Her plan contracted with Voya to provide recordkeeping and other plan services.) The plaintiff also asserts that the defendant concealed its fees by “adding Voya’s asset based fees to the operating costs of the various mutual fund options” in certain participant fee disclosures required by ERISA. Notably, one of the plaintiff’s representatives is the same Denver personal injury law firm that filed a similar case earlier this year.