In an unusual decision, a federal judge last month refused to strike a plaintiff class’ demand for a jury trial in an ERISA 401(k) class action.
In Garthwait v. Eversource Energy Co., a class of former and current participants in the Eversource 401(k) Plan (the Plan) filed an action against Eversource Energy Company and Plan fiduciaries seeking to recover plan losses caused by alleged breaches of fiduciary duty and requesting other equitable or remedial relief.
Earlier this year we reported on the “Employee and Retiree Access to Justice Act,” which sought to render arbitration and class action waiver provisions, and discretionary authority for plan administrators, in ERISA plans unenforceable. On September 29, 2022, the U.S. House of Representatives passed the Mental Health Matters Act (the Act) — which encompasses the Employee and Retiree Access to Justice Act.
A string of ERISA lawsuits has emerged in recent weeks against companies who offer BlackRock Target-Date Funds (“TDFs”) as 401k investment options to their employees. The lawsuits allege the companies, in their capacities as plan sponsors, breached their fiduciary duty by choosing the low fee investment options offered by BlackRock Inc., despite their funds’ underperformance. This new litigation sparks concern amongst 401k plan sponsors who may now have to worry about lawsuits involving investment fees from all sides-for choosing the high fee options and for choosing the low fee options.
The lawsuits focus on the LifePath Index Funds of BlackRock, a suite of 10 target-date funds. TDFs have increased in popularity over the past couple of years because they offer participants a lower fee but managed investment option based on target retirement years. Although BlackRock isn’t a party to the litigation, these lawsuits shine a spotlight on the performance of these funds.
Continue reading “ERISA Litigation Roundup: Damned if You Do, Damned if You Don’t”
ESG & ERISA: Plan sponsors and investment professionals have been waiting for final rules on the permissible use of environmental, social, and governance (“ESG”) considerations under ERISA when selecting plan investments and exercising shareholder rights with respect to plan assets. Based on the updated regulatory agenda, the DOL is planning to issue final ESG rules in December 2022.
Fiduciary Rule: Plan advisors and investment professionals have also been awaiting guidance on the DOL’s fiduciary rule re-write. The Trump era “fiduciary rule” is currently in effect and is a combination of a new and expansive definition of fiduciary advice and an exemption – PTE 2020-02 – from the prohibitions of ERISA and the Internal Revenue Code for certain conflicts of interest arising from nondiscretionary fiduciary recommendations. However, last year, the Biden administration announced that it is revisiting the definition of fiduciary investment advice and the requirements of various prohibited transaction exemptions. Based on the Agenda, we can expect a new proposed fiduciary rule in December 2022.
The Employee and Retiree Access to Justice Act is — yes — another employee benefits bill recently introduced in both the House and Senate (see our other blog post on SECURE 2.0, already passed by the House and which now has a draft bill under review in the Senate Health, Education, Labor and Pensions Committee). In addition to seeking to eliminate individual arbitration as a method for resolving benefit denial and breach of fiduciary duty disputes under ERISA, the Employee and Retiree Access to Justice Act also seeks to invalidate discretionary clauses in ERISA-governed benefit plans. The prohibition of such clauses would eliminate deferential judicial review of benefit claim denials in court.
Continue reading “ERISA Litigation Roundup: The End of Firestone?”
On April 27, 2022, the Sixth Circuit decided Hawkins v. Cintas Corporation, No. 21-3156, holding that claims for breach of fiduciary duty under § 502(a)(2) of the Employment Retirement Income Security Act of 1974 (ERISA), belong to the plan, and plaintiffs asserting such claims for alleged harm to their individual retirement accounts in defined contribution plans may not be compelled to arbitrate those claims absent the plan’s consent.
Hawkins is a putative class action that participants in an ERISA-governed defined-contribution retirement plan filed on behalf of the plan against Cintas Corporation, their former employer and the plan’s sponsor, under ERISA § 502(a)(2). The plaintiffs alleged that Cintas had breached fiduciary duties it owed to them under ERISA in connection with its administration of the plan, causing losses to the plan.
The U.S. Court of Appeals for the Ninth Circuit partially reversed the dismissal of two proposed class actions alleging mismanagement of separate 401(k) plans in violation of ERISA. In Davis v. Salesforce.com, Inc., 2022 WL 105557 (9th Cir. Apr. 8, 2022), participants in 401(k) plan claimed that Salesforce.com, its board of directors, investment committee and executives breached their fiduciary duties by imprudently selecting and retaining relatively high-cost investments and failing to investigate less expensive alternatives, despite the availability of lower-cost options with identical or substantially similar underlying assets. The district court dismissed the plaintiffs’ complaint in its entirety, noting that it lacked adequate factual support. Specifically, the district court held that the allegations regarding alternative share classes, without more, were insufficient to state a claim; the complaint improperly attempted to compare passive funds with actively managed funds; and there is no obligation to offer alternatives such as collective investment trusts (CITs), and, in any event, CITs are not meaningful comparators to mutual funds.
Last week, the Supreme Court issued its anticipated ruling in the ERISA fiduciary-breach class action Hughes v. Northwestern. In its unanimous decision, the Court vacated the Seventh Circuit’s dismissal of the case and sent the case back to the lower court for further review. The narrow decision may boost plaintiffs in similar ERISA cases involving challenges to retirement plan fees and investment options, but it also offers hope to defendants.
On December 21, 2021, the Department of Labor (DOL) issued additional guidance on the use of private equity investments in certain retirement plans, warning that most plan fiduciaries will not have enough experience to adequately evaluate such investments.
The DOL’s guidance relates to a June 3, 2020 “information letter” (which is a non-binding statement) issued by the Employee Benefits Security Administration of the DOL . In that information letter, the DOL addressed private equity investments in “designated investment alternatives” (or DIAs) offered to participants in individual account plans, like 401(k) plans, considered whether ERISA prohibits offering certain private equity investments to participants in individual account plans.
On January 20, 2022, the United States District Court for the Southern District of Florida enforced a mandatory arbitration and class action-waiver provision (Arbitration Provision) in an ERISA-governed defined contribution plan, precluding a putative class of former and current plan participants from pursuing breach-of-fiduciary duty claims against plan fiduciaries in federal court. The plaintiffs in Holmes v. Baptist Health South Florida, Inc., 2022 WL 180638, argued that the plan’s Arbitration Provision was unenforceable as it both violated the “effective vindication” doctrine and was unenforceable because the participants did not knowingly agree to it. The court rejected both arguments.
Holmes adds to the flurry of recent decisions on the enforceability of mandatory arbitration and class action-waiver provisions in defined-contribution plans, which have yielded inconsistent results and are still working their way through courts of appeals. However, plan sponsors following this line of cases can glean several takeaways from the Holmes decision:
