Fiduciary and Investment Issues Archives - Page 8 of 23

Georgetown University Defeats Retirement Plan Fee Litigation and “If a Cat Were a Dog, It Would Bark”

by Chris C. Scheithauer, Erin Steele, J. Christian Nemeth and Joseph K. Urwitz | Jan 29, 2019 | Benefit Controversies, Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

Recently, the US District Court for the District of Columbia dismissed a proposed class action lawsuit brought by former Georgetown employees under the Employee Retirement Income Security Act of 1974 (ERISA) over fees and investments in its two retirement plans. Plaintiffs alleged that Georgetown breached its fiduciary duty of prudence under ERISA by selecting and retaining investment options with excessive administrative fees and expenses charged to the plans, and unnecessarily retained three recordkeepers rather than one.

The court dismissed most of the claims on the grounds that plaintiffs had not plead sufficient facts showing that they had individually suffered an injury. Because they challenged defined contribution plans (as opposed to defined benefit plans), the plaintiffs had to plead facts showing how their individual plan accounts were harmed. In this case, the named plaintiffs had not invested in the challenged funds, or the challenged fund had actually outperformed other funds, or, in the case of the early withdrawal penalty from the annuity fund, the penalty had been properly disclosed and neither plaintiff had attempted to withdrawal funds – thereby suffering no injury. Moreover, in dismissing the allegations that the Plans included annuities that limited participants’ access to their contributed funds, the court rejoined, “[i]f a cat were a dog, it could bark. If a retirement plan were not based on long-term investments in annuities, its assets would be more immediately accessed by plan participants.” As to another fund, the court rejected the claim that the fiduciaries should be liable for the mere alleged underperformance of the fund, noting that “ERISA does not provide a cause of action for ‘underperforming funds.” Nor is a fiduciary required to select the best performing fund. A fiduciary must only discharge their duties with care, skill, prudence and diligence under the circumstances, when they make their decisions.

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Ninth Circuit Clarifies “Actual Knowledge” for ERISA’s Statute of Limitations

by McDermott Will & Emery and Richard J. Pearl | Jan 15, 2019 | Benefit Controversies, Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

Late last year, the Ninth Circuit held that in order to trigger ERISA’s three-year statute of limitations a defendant must demonstrate that a plaintiff has actual knowledge of the nature of an alleged breach. Accordingly, the court held that merely having access to documents describing an alleged breach of fiduciary duty is not sufficient to cause ERISA’s statute of limitations to begin to run. Instead, the court rejected the standard embraced by other courts and ruled that participants should not be charged with knowledge of documents they were provided by did not actually read. The Ninth Circuit’s decision underscores circuit split over what is sufficient to demonstrate the existence of actual knowledge for purposes of triggering ERISA’s three-year statute of limitations.

Access the full article.

Fridays With Benefits Webinar | ERISA Litigation – Are You Bullet-Proofed for the Inevitable?

by Richard J. Pearl, Ted Becker and McDermott Will & Emery | Jan 9, 2019 | Benefit Controversies, Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Health and Welfare Plans, Retirement Plans

What to expect in 2019 and how to prepare now. Join McDermott lawyers Judith Wethall, Ted Becker and Rick Pearl for an interactive discussion regarding ERISA litigation trends.

Join our lively 45-minute discussion while we tackle the following items:

Plaintiffs’ law firm’s solicitations
Health & Welfare Fee Litigation
Defined-Benefit Plan Litigation – Actuarial Equivalence lawsuits and greater concern about discretionary decisions
Stock-Drop Cases – The Jander decision: Relaxing the Dudenhoeffer standard and the potential impact of a stock market decline
401k/403b – Fee/investment update
ESOP transactions – New DOL and plaintiffs’ counsel’s theories

Friday, January 11, 2019
10:00 – 10:45 am PST
11:00 – 11:45 am MST
12:00 – 12:45 pm CST
1:00 – 1:45 pm EST

Register now.

Key Considerations with Alternative Investments for Pension Plans

by Brian Tiemann and Todd Solomon | Nov 15, 2018 | Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

Todd Solomon and Brian Tiemann presented on alternative investments for pension plans during the Association for Financial Professionals (AFP) Conference in Chicago. They discussed various rules benefit plan investors should consider, including the “look-through” rule and the “significant” investment rule. They also addressed common hedge fund structural and operational issues, and problems if a fund holds ERISA plan assets.

View the full presentation.

First Circuit Holds Defendants Have Burden to Negate Loss Causation in ERISA Fiduciary Duty Cases

by McDermott Will & Emery and Chris C. Scheithauer | Nov 8, 2018 | Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

The US Court of Appeals for the First Circuit has solidified a circuit split on who has burden of proving loss causation in ERISA breach of fiduciary duty cases. The First Circuit joined the Fourth, Fifth and Eighth Circuits holding that once a plaintiff demonstrates a fiduciary breach, the defendant has the burden to negate loss causation. Other circuits, including the Sixth, Ninth, Tenth and Eleventh Circuits, have held that a plaintiff bears to burden to establish loss causation. This issue is ripe for Supreme Court review.

Access the full article.

Court of Appeals Affirms “Paternalistic” Breach of Fiduciary Duties

by Elizabeth M. Rowe and J. Christian Nemeth | Sep 13, 2018 | Benefit Controversies, Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

The US Court of Appeals for the Eighth Circuit recently affirmed a Minnesota district court’s dismissal of a claim against Wells Fargo & Company (Wells Fargo) under ERISA. A former employee had alleged Wells Fargo breached fiduciary duties by retaining Wells Fargo’s own investment funds as a 401(k) option, and defaulting to those funds when plan participants failed to elect another option.

In holding that the former employee failed to state a claim, the court in Meiners v. Wells Fargo & Co. reasoned that the plaintiff failed to plead facts showing the Wells Fargo investment funds were an imprudent choice. Specifically, the court found that the plaintiff’s allegations that an allegedly comparable fund performed better was not sufficient, especially given the other fund’s differing investment strategy. The court’s prior decision in Braden v. Wal-Mart Stores, Inc. established that plaintiffs could show that “a prudent fiduciary in like circumstances” would have selected a different fund by providing a basis for comparison–in other words, a benchmark. However, the Eighth Circuit declined the plaintiff’s invitation to extend the rationale of Braden by allowing a plaintiff to demonstrate imprudence with a benchmark that only possesses some similarities to the fund at issue.

The Eighth Circuit’s decision is in line with other courts’ rejection of ERISA claims based on the plaintiffs’ subjective views of which funds are the best overall investment. A US district court judge for the Northern District of Illinois recently labeled such breach of fiduciary duty claims “paternalistic” while dismissing a class action against Northwestern University.

Brown University Only Partially Successful in 403(b) Lawsuit

by J. Christian Nemeth, Joseph K. Urwitz and Mary K. Samsa | Jul 24, 2018 | Benefit Controversies, Fiduciary and Investment Issues, Retirement Plans

A federal judge in Rhode Island recently permitted several claims against Brown University to proceed in a lawsuit alleging that the university and its fiduciaries breached their fiduciary duties under the Employee Retirement Income Security Act of 1974, as amended (ERISA), by mismanaging Brown’s defined contribution plans. This decision follows the recent decision in a similar class action lawsuit against Northwestern University (see blog post here) in which a federal judge granted Northwestern a complete victory in its motion to dismiss.

Unlike in that decision, the court in Short v. Brown University allowed plaintiffs to proceed with claims relating to record-keeping services, including engaging more than one record-keeper, incurring excessive administrative fees and failing to conduct a competitive record-keeping bidding process. Of note, the court indicated that whether particular record-keeping fees are excessive involves questions of fact that cannot be resolved on a motion to dismiss. If other courts were to adopt that line of reasoning, a plaintiff who alleged that any level of fees was excessive could survive a motion to dismiss. The court also permitted plaintiffs to advance claims that Brown chose more expensive funds with poor historical performance, including the CREF Stock Account and the TIAA Real Estate Account.

The court dismissed the plaintiffs’ claims that Brown acted imprudently by offering investment options with multiple layers of fees and using revenue sharing and asset-based fees. Like other courts that have ruled on class action lawsuits against fiduciaries of university defined contribution retirement plans, the Brown court also dismissed the plaintiffs’ claim that Brown acted imprudently by including too many investment choices in its lineup.

SEC Director Makes Groundbreaking Speech about Blockchain Token Sales

by Anthony A. Bongiorno, McDermott Will & Emery, Alexandra Scheibe and David L. Taub | Jul 3, 2018 | Executive Compensation, Fiduciary and Investment Issues

The Director of the SEC’s Division of Corporation Finance William Hinman gave a speech in which he discussed whether a digital asset originally offered as a security can become something other than a security over time. The speech provided some of the most important considerations to date for analysis of blockchain token transactions under US securities law.

Access the full article.

ESOP Fiduciary Responsibility for Value Determination

by McDermott Will & Emery | Jun 21, 2018 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Retirement Plans

Emily Rickard presented “ESOP Fiduciary Responsibility for Value Determination” at the National Center for Employee Ownership National Conference addressing the fiduciary duties involved in the selection of an ESOP appraiser and the review of a valuation report.

View the full presentation.

Northwestern University Defeats 403(b) Lawsuit

by J. Christian Nemeth and Joseph K. Urwitz | Jun 12, 2018 | Benefit Controversies, Fiduciary and Investment Issues, Retirement Plans

A federal judge in the Northern District of Illinois recently dismissed a lawsuit against Northwestern University alleging that the University and its fiduciaries mismanaged its retirement and voluntary savings plans. This is the latest decision in a series of class action lawsuits against prominent universities in which plaintiffs allege fiduciary violations of the Employee Retirement Income Security Act of 1974, as amended (ERISA) for retirement plans governed by Internal Revenue Code Section 403(b). Northwestern is the second university to obtain a complete victory on a motion to dismiss in a 403(b) university case; the first university to do so was the University of Pennsylvania in Sweda v. University of Pennsylvania.

In Divane v. Northwestern University et al., No. 16 C 8157 (N.D. Ill. May 25, 2018), plaintiffs alleged that Northwestern University and its fiduciaries breached fiduciary duties, engaged in prohibited transactions under ERISA and failed to monitor other fiduciaries. Specifically, fiduciaries allegedly mandated the inclusion of particular stock accounts in the plans, imposing excessive record-keeping fees, improperly allowed payment for record-keeping expenses through revenue sharing, and included too many investment options. The Court rejected all of plaintiffs’ fiduciary duty claims.

The Court also rejected plaintiffs’ claims that defendants engaged in prohibited transactions. Namely, the Court held that there was no transfer of plan assets that would substantiate a prohibited transaction claim under ERISA Section 1106(a)(1)(D) and similarly rejected plaintiffs’ Section 1106(a)(1)(C) argument that fiduciaries engaged in transactions that resulted in “furnishing of goods, services, or facilities between the plan and a party in interest” as a “circular “argument.

The Court denied plaintiffs’ motion for leave to amend, amounting in a complete victory for Northwestern.

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