California Judge Refuses to Pause Franklin Templeton ERISA suit

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Franklin Templeton’s motion to stay was denied by a California federal judge, U.S. District Judge Claudia Wilken. The Defendant filed the motion requesting a stay pending the outcome of an appeal to the Ninth Circuit, but the judge denied the motion stating that she did not rely on the case before the appellate court when she granted class certification.

Plaintiffs in the case allege that Franklin Resources Inc. stacked its employees’ 401(k) plan with company products rather than offering better-performing funds. The judge’s decision to certify the class of workers making the allegations was based on the Ninth Circuit’s 1999 ruling in Bowles v. Reade – not on another federal judge’s opinion in an ERISA suit against USC as the Defendant, Franklin Templeton, claimed.

The Defendant argued that the Ninth Circuit’s ruling on the appeal of the decision in Munro v. University of California would affect class certification in the case currently being considered before Judge Wilken. Wilken was not convinced. Wilken responded that it was possible the cited ruling could affect the case, but that Franklin Resources Inc. did not show that is was certain or even likely that it would. It was also noted that if it did affect the case it would simply affect class action status, not whether the case could be brought at all. The Defendant would have to face the claims of the lead Plaintiff, Marlon H. Cryer, (and other individuals) either way.

The judge also noted that the company would not face any significant penalty of harm if a stay were not issued as the Munro ruling would have a minimal effect on the case, but that workers could experience great harm if forced to wait to pursue their claims. A stay of this nature could last for over 2 years. Additionally, the judge pointed out that this type of ongoing injury to the plaintiffs would be difficult to quantify at the end of the case.

The original lawsuit against Franklin Templeton was filed in July 2016, including allegations that the firm breached its fiduciary duties under ERISA. Allegations were made that the Defendant had its 401(k) plan invest hundreds of millions of dollars into mutual funds with high fees managed by itself and its subsidiaries. Workers were granted class certification in July 2017. Judge Wilken consolidated the case with a similar proposed class action filed against the company by Nelly Fernandez in April. Fernandez sought class certification in May claiming that the company also engaged in prohibited transactions. Additional individual defendants were named.

If you have questions about ERISA or what constitutes a breach of fiduciary duty, please get in touch with one of the experienced California employment law attorneys at Blumenthal Nordrehaug Bhowmik De Blouw LLP.

Transamerica not a Fiduciary in Fee Case According to Court

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In recent news, the 9th U.S. Circuit Court of Appeals remanded the ERISA suit against Transamerica Life Insurance Company (TLIC) back to a district court with instructions to dismiss it. In the case, 401(k) participants allege that TLIC and affiliates violated the Employee Retirement Income Security Act when charging fees and in the administration of specified investment accounts.

According to the complaint, TLIC was in violation of ERISA because they charged fees on separate accounts on top of fees charged by managers of underlying investments, processing “Investment Management Charge” on separate accounts, receiving revenue sharing payments from underlying investment account managers, failing to invest in the lowest prices share class of mutual funds, and failing to pass savings in fees along to plan participants.

The group of plaintiffs previously filed a separate lawsuit listing John Hancock as the defendant and including similar allegations. In the case against John Hancock, the 3rd U.S. Circuit Court of Appeals found that the company was not acting as a fiduciary regarding the allegations creating the foundation of the case. The 9th Circuit agreed with the 3rd Circuit in that finding the service provider to be a fiduciary would create absurd situations. Service providers negotiate fees. If they were simultaneously responsible as fiduciaries, they would need to promise that their fees were not any higher than the fees of any competitor. This would blow their ability to negotiate at arm’s length with an employer out of the water. It would also leave any employer who agreed to a fee structure the option to later sue to have it lowered simply by invoking the fiduciary obligation of the administrator. Therefore, the court finds that the service provider owes no fiduciary duty in regard to the negotiation of fee compensation because the trustees had the option to reject the provider’s product and select a different provider. The choice was in their hands. The other allegations failed to stick for the same reason. TLIC did not have the fiduciary duty in regard to the other matters either. 

If you need assistance considering ERISA violations or if you feel your employer has breached their fiduciary duty, please get in touch with one of the experienced California employment law attorneys at Blumenthal Nordrehaug Bhowmik De Blouw LLP.

ERISA Lawsuit Targeting Oracle Corp. Achieves Class Action Status

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Allegations that Oracle Corp. did not do enough to monitor their retirement plan’s investment fiduciaries led to ERISA suit v. Oracle. Evolving since 2016, the ERISA lawsuit was recently granted class action status – potentially benefitting thousands.

Allegations included in the suit:

Fiduciaries acting on behalf of Oracle Corp. (Defendant) failed in their duties by investing in funds/investments that did not maintain the best interests of plan participants/investors. ERISA (the Employee Retirement Income Security Act) requires that fiduciaries maintain/manage investments in the best interests of investors. Plaintiffs were participants in the company’s 2016 benefit plan. They allege that the company failed to make prudent investment decisions and incurred tens of millions of dollars of excessive fees – effectively breaching their fiduciary duties.

According to the ERISA suit, Oracle paid a number of fees for record-keeping to Fidelity, Plan trustee, on a revenue sharing model that was calculated on Plan assets instead of the number of participants. Without a fixed fee per participant, the expenses were inflated and resulted in unreasonable fee amounts. With drastic increases in the fund assets, Fidelity’s revenue skyrocketed as well without any increase in the services they were providing.

In addition to failing to adequately monitor fiduciaries, plaintiffs allege that Oracle also kept poorly-performing funds that caused plan participants to suffer significant losses: Artisan, PIMCO and TCM.

Oracle argued that Fidelity was compensated with reasonable fees for the services provided and moved to have the suit dismissed. This motion to dismiss was denied in March 2017. In June 2017, plaintiffs moved for class certification and the judge approved class certification in January 2018.

The judge did specify that class certification reserved was to be reserved for claims related to excessive fees. The Judge found the original class definition to be too broad. The judge created two other classes for plan participants that invested in the “under-performing” funds (Artisan and TCM), but did not create a third for the allegedly under-performing PIMCO fund because there was not class representative available.

If you have questions or concerns about ERISA suit class certification or fiduciary duty violations, please get in touch with one of the experienced California employment law attorneys at Blumenthal Nordrehaug Bhowmik De Blouw LLP.

$140M ERISA Class Case Filed Against Home Depot: Over 200,000 Retirement Plan Beneficiaries Represented

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In an ERISA suit filed in April 2018, plaintiffs Jaime H. Pizarro and Craig Smith allege that The Home Depot places employees in poorly performing funds and also causes plan participants to overpay for Robo Investment Advice. The class complaint was filed on behalf of the plaintiffs and close to 200,000 current and former plan participants in the U.S. District Court of the Northern District of Georgia. The complaint was filed against The Home Depot, the 401(k) plan’s investment and administrative committees, and investment advisors from two different companies, Alight Financial Advisors, LLC and Financial Engines Advisors, LLC. The complaint alleged that the Home Depot committed two major violations:

1.     Violated their basic fiduciary duties under ERISA

2.     Abused their employees’ trust through mismanagement of participants’ 401(k) retirement plan

Allegations state that the Home Depot chose a number of funds for the employee 4019(k) that performed poorly and allowed investment advisers to charge their plan participants exorbitant fees. It is also alleged that the company completely disregarded a kickback scheme that was occurring between a plan investment adviser and the plan’s bookkeeper. Estimated losses for employees affected are significant. One respected financial information and technology organization concluded that the average plan participant earned $100,000 less in retirement savings than employees in top-rated retirement plans similar in size. This $100,000 loss is the equivalent of about 18 additional years on the job for each Home Depot plan participant. The plaintiffs seek $140 million in damages.

Home Depot has over $6 billion in assets and is one of the largest 401(k) plans in the country. Counsel for the plaintiffs argue that ERISA fiduciary standards are clear and that while Home Depot should be held to the highest standard, they fall below the lowest standard in this particular case. According to information presented in the complaint, Home Depot’s plan investment options appear to consistently underperform their own benchmarks and those of comparable investment opportunities. Plaintiffs claim this is largely due to the company’s practice to select investment options without due diligence and fail to appropriately monitor performance.

If you need information about ERISA fiduciary standards or if you seek class action status for violations in the workplace, please get in touch with one of the experienced employment law attorneys at Blumenthal Nordrehaug Bhowmik De Blouw LLP.

ERISA Litigation Finds Another Collegiate Target in Georgetown University

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The allegations are familiar, but this time they are being aimed at Georgetown University. The latest example of defined contribution litigation to target a well-known U.S. university, the Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit was filed in the U.S. District Court for the District of Columbia. The suit names Georgetown University and several university officials tasked with overseeing defined contribution (DC) retirement plans as defendants.

The charges filed match almost verbatim previous suits filed with similar allegations made against other large universities’ 403(b) retirement plans. Plaintiffs allege that the university and officials in charge of oversight did not leverage the university’s plans’ substantial bargaining power to benefit plan participants and beneficiaries, failed to appropriately monitor and evaluate plan expenses and allowed the plans to pay exorbitant fees for both administrative and investment services.

The complaint includes claims that the defendants breached their fiduciary duty by failing to select one single, suitable service provider providing administrative and recordkeeping services for the retirement plans in exchange for reasonable compensation for the service provided. Instead, the defendants apparently retained three different service providers consistently – all with separate fees: TIAA, Vanguard and Fidelity. Each supplied the plans with a separate menu of investment options including mutual fund share classes charging higher fees than other alternatives with the same strategies and/or less expensive share classes of the exact same investment fund. According to plaintiffs, the situation caused plan participants to pay asset-based fees for admin services that increased with the value of the accounts even though no additional services were provided.

The three providers resulted in three investing segments for each of the plans. TIAA offered a guaranteed interest annuity. Vanguard offered close to ninety mutual funds. Fidelity offered nearly two hundred mutual funds. Plaintiffs claim that the volume of choices indicates that the defendants were not adequately fulfilling their fiduciary duties for retirement investors by monitoring and evaluating the historical performance and expense of each of the funds in order to compare past performance the options to each other or a peer group of funds to maximize success. Many of the options should have been excluded based on their past performance, etc.

If you have questions about ERISA or if you have knowledge of a fiduciary breach, please get in touch with one of the experienced California employment law attorneys at Blumenthal Nordrehaug Bhowmik De Blouw LLP.

NY Federal Judge Certified 20,000-Plus Member Class in NYU ERISA Plan Suit

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U.S. District Judge Katherine B. Forrest certified a 20,000-plus member class including investors from two New York University retirement plans, finding that workers can sue together due to the fact that their Employee Retirement Income Security Act suit does present common questions. The questions presented by the NYU ERISA plan suit can be broken down to just two:

1. Did the school pay too much to maintain their investments?

2. Did the school offer poor investment options?

When seeking qualification for certification, U.S. District Judge Katherine B. Forrest depended on the U.S. Supreme Court certification bar established in the 2011 decision in Walmart v. Dukes because the questions being asked and claims being filed were similar. Plaintiffs in the case claim that the university breached their fiduciary duty through plan mismanagement. If this is, in fact, the case, the breach would be to all plaintiffs.

This ERISA suit is just one of any federal suits filed by workers at universities/colleges. Allegations of mismanagement of employee retirement plans are more and more common. Other universities facing similar allegations include: Massachusetts Institute of Technology, Yale University, etc.

Allegations of violations include:

Failing to remove underperforming funds.

Paying unreasonably high prices to third parties to service the plan.

Allowing third parties to require the plan to offer their in-house funds.

In order to gain class certification, a group is required to show that it has many individuals united by a common theory that are victims of a crime (allegedly) and are represented by named plaintiffs who qualify. Judge Forrest stated that the workers in this case fulfill all requirements for certification. The class will number at least 19,000 at all times during the period represented and maxes out at 24,000 in 2014. This easily meets the qualification for “many.” All seek to resolve claims hinging on how the court answers a series of common questions and all have a shared experience as investors in the same plans (commonality).

NYU attempted to argue that the plaintiffs were poor representatives for the class, but Judge Forrest rejected the argument.

If you have questions about ERISA or if you feel your retirement funds are being mismanaged, please get in touch with one of the experienced California employment law attorneys at Blumenthal Nordrehaug Bhowmik De Blouw LLP.

ERISA Suit Results in $12M Deal for Allianz Retirement Fund Plan Participants

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Facing allegations of imprudent management of workers’ retirement funds, Allianz Asset Management agreed to pay $12 million to settle. According to allegations against the company, they kept everything in the Allianz family of funds excluding all other possibilities from consideration.

U.S. District Judge Staton found the amount offered to plan participants reasonable and granted preliminary approval to the approved deal. The deal was struck at a little over 25% of Allianz’ potential liability in the case. Current and former plan participants allege that the actions of the company were not in the best interest of investors and that the company treated the retirement plan as a way to promote the company’s family of mutual fund businesses while maximizing its own profits. The settlement comes only after close to two years of litigation and a conditional certification of class.

The Defendants did file a motion to dismiss, as well as a motion for summary judgment. While there are other cases that contain similar facts and allegations that ended in favor of the defendants, in this particular case, the court found that factors specific to the case warranted granting preliminary approval. The proposed settlement would be to cover all participants and beneficiaries of the plan since October 7, 2009.

In October 2015, a group of plan participants led by Aleksandr Urakhchin filed a complaint accusing the company of breaching its fiduciary duty to its own investors when they did not consider all available options. Or in other words, by excluding non-Allianz mutual funds, Allianz violated ERISA.

According to the complaint, because the company held onto the funds, plan participants ended up spending millions in excessive fees annually. For instance, in 2013, fees being charged for proprietary funds were about 75% higher than averages for the same time period. This resulted in over $2.5 million in unnecessary, exorbitant fees in 2013 alone. Investors claimed that not only did the company not consider non-Allianz options that may have performed better, but that the Allianz branded-funds chosen often had little or no track record and that frequently underperformed. Even after this became obvious, employees claim the company moved forward with their policy to pour employee retirement funds into Allianz owned investments.

As a part of the agreed upon settlement deal, Allianze will retain an unaffiliated investment consultant to conduct an annual evaluation of the lineup and review the policy statement for at least three years.

If you need to discuss problematic handling of your retirement funds, or other ERISA violations, please get in touch with one of the experienced California employment law attorneys at Blumenthal Nordrehaug Bhowmik De Blouw LLP.