ERISA stories
During the first quarter, 52 ERISA-related lawsuits were filed and/or updated. Each event represents the involved parties either reaching a settlement or filing an appeal, or a court decision was made.
Many of the actions related to record keepers, including accusations of high fees and violations by retirement plans in their oversight of the firms.
Record-keeping lawsuits
- The University of Southern California agreed to pay $13.1 million to settle an ERISA lawsuit for allegedly charging high fees and its failure to consolidate record-keeping services in its two retirement plans. USC agreed to conduct record-keeping RFPs, which requires total fixed fees to be listed, not as a percentage of plan assets; record keepers are not allowed to cross-sell products and services that are not included in the plans.
- Mass General Brigham Inc.’s motion to dismiss an ERISA lawsuit alleging excessive record-keeping fees and imprudent investment lineup at its $12.4 billion 401(k) plan was rejected. Mass General is the parent organization of five Massachusetts hospitals including Massachusetts General Hospital and is the oldest and largest teaching affiliate of Harvard Medical School.
- Former employee Samina K. Yasmin dropped a case against General Mills without explanation. She sued 401(k) plan fiduciaries for their alleged failure to prudently monitor Alight Solutions as record keeper and leverage its $4.8 billion plan size to bargain for reduced record-keeping fees.
- A judge dismissed a case filed by a former 401(k) employee against Kroger Co. where fiduciaries were sued for allegedly charging excessive record-keeping fees for its $8.4 billion retirement plan. U.S. District Court Judge Timothy S. Black dismissed the case because “the plaintiff failed to provide any context to back up her argument.”
- Yale-New Haven Hospital Inc’s request to dismiss ERISA violations of charging high record-keeping fees in its 403(b) plan was rejected. However, Judge Michael P. Shea dismissed allegations of maintaining poor-performing investments and acting on self-interests.
- A lawsuit against Eli Lilly and Co. for its alleged failure to conduct competitive biddings for its record-keeping services was dismissed. The plaintiff tried to compare the Eli Lilly plan to 13 other plans of varying asset sizes and participant sizes that charged less record-keeping fees. The case was rejected based on “plaintiffs’ inconsistency (in arguments or findings), as allegations are wholly conclusory, and plaintiff failed to identify comparable services received relative to Lilly plan.”
- The U.S. Supreme Court declined to hear Cintas’ petition to dismiss a lawsuit against its fiduciaries for allegedly offering imprudent investment options and charging excessive record-keeping fees in its $3.2 billion plan. Cintas claimed that arbitration provisions were included in employee contracts to arbitrate any disputes, which should cover claims under ERISA. The 6th U.S. Circuit Court of Appeals judges rejected the use of arbitration because a specific arbitration agreement (or consent to arbitration) is missing in Cintas’ 401(k) plan, and thus only plaintiffs’ consent was established through employee contracts, but not the plan’s. Cintas called for “national uniformity because many employers have employees based on jurisdictions throughout the country.”
Other lawsuits
- Energy West Mining closed its coal mine in 2015 but was accused of allegedly owing $115 million withdrawal liability due to an actuary’s calculations. The U.S. Supreme Court declined to review United Mine Workers of America 1974 Pension Plan’s $115 million dispute because “the actuary failed to base his assumptions on union plan’s actual characteristics…the discount rate must be similar but need not be identical.”
- The ERISA lawsuit against Capital One Financial Corp. for offering poor-performing BlackRock LifePath Index target-date series in its $7.9 billion 401(k) plan was twice dismissed “with prejudice,” which meant that they cannot be refiled in the same court. U.S. District Court Judge in Alexandria Michael S. Nachmanoff used similar rationale to dismiss the ERISA allegations against $7.85 billion Booz Allen Hamilton Inc. and $48 billion Microsoft 401(k) plans. There were 11 ERISA lawsuits against the BlackRock target-date series, and plaintiffs were all represented by Miller Shah LLP as legal counsel.
- LinkedIn agreed to pay $6.75 million to settle an ERISA lawsuit for allegedly charging excessive fees and offering poor-performing investment lineup. Fidelity is not a defendant, but plaintiffs claimed that a passively managed rather than an actively managed target-date series should have been offered instead.
- Judge Cristina D. Silva rejected Caesars Holdings Inc. and Russell Investments Trust Co.’s requests to dismiss all ERISA violations. The defendants were accused of allegedly self-dealing and converting comparable prior plan options into Russell’s own poor-performing products, which caused asset loss over a five-year period. The judge wrote Russell breached both duty of loyalty and duty of prudence.
- Lebanon, N.H.-based Dartmouth-Hitchcock Clinic’s request to dismiss ERISA violations of allegedly charging high fees and failing to adequately review poor investment options in its $1.1 billion plan was rejected.
- ConocoPhillips was sued by participants in the $6.9 billion 401(k) plan for allegedly offering concentrated Phillips 66 single-stock funds as investment options after the spin-off took place in April 2012. Each participant and ConocoPhillips shareholders received one share of Philips 66 for every two shares of ConocoPhillips, and new shares were transferred to new Phillips 66 stock funds. The plaintiffs alleged that the defendants breached duty of prudence, should have realized Phillips 66’s volatile stock record before Dec. 31, 2016, and failed to divest and diversify accordingly.
- Allianz was sued for allegedly self-dealing and promoting proprietary products from Allianz as well as Pacific Investment Management Co. as investment options in its $1.9 billion plan.
- An ERISA lawsuit against Deloitte LLP’s two DC plans for allegedly charging excessive fees was dismissed as judge John G. Koeltl wrote that “none of the plaintiffs invested in them, as participants, beneficiaries, or fiduciaries.”
- The case against Nestle USA Inc. for allegedly breaching duty of loyalty and prudence under ERISA in its $7 billion 401(k) plan was dismissed “with prejudice”. The plaintiff claimed that “allegedly excessive fees were paid to record keepers, including but not limited to Voya Financial”.
