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.

Class Certified in Deutsche Bank ERISA Suit

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Class certification was granted by a New York federal judge in the ERISA suit against Deutsche Bank. Class members are participants of a Deutsche Bank Americas Holding Corp. 401(k) plan and are accusing the bank of mismanaging the plan in violation of ERISA or the Employee Retirement Income Security Act.

Class certification was granted by U.S. District Judge Lorna G. Schofield enabling the case to go forward as a class action representing participants and beneficiaries of the Deutsche Bank Matched Savings Plan after December 21, 2009, the individual accounts of which suffered losses. Lead plaintiffs and class members share an interest in remedying mismanagement and claims originate from the same events, i.e. participation in the plan. It was also noted that there are questions of law or fact that are common to the class. Together the judge ruled this warranted class certification.

Questions Seeking Class-wide Resolution:

·       Whether or not each defendant was a fiduciary

·       Whether or not the company’s process for assembling the plan menu and investment options was tainted by conflict of interest/imprudence

·       Whether or not the company’s process for monitoring the plan menu and investment options was tainted by conflict of interest/imprudence

·       Whether the company behaved imprudently when failing to control recordkeeping expenses

The resolution of these questions should generate common answers that would drive the investigation of defendant liability.

The company argued that the plaintiffs did not have an adequate understanding of the case – depending on their lawyers heavily for specifics, but the court found this argument unpersuasive considering that the claims involve technical financial decisions that would be difficult for plaintiffs to answer questions about on their own.

Plan participants were offered 22 core investment options. 10 of the options were mutual funds affiliated with DBAHC – proprietary funds that charged investment management and administrative fees that are actually paid out to DBAHC subsidiaries. (*Information regarding core investment options current as of December 2009).

Plaintiffs also alleged that the bank favored high-cost proprietary funds that were to their own benefit – at the expense of plan participants. According to Judge Schofield, the plan has about 22,000 participants and 10,000 former participants that were affected by the design and management of the plans.

Plaintiffs allege the bank served as fiduciaries of the plan and that they breached their duties of care and loyalty when selecting and monitoring plan investments biased for the bank and against plan participants. They also allege that DBAHC engaged in self-dealing transactions, which are prohibited.

If you have questions regarding class certification or ERISA, please get in touch with an experienced California employment law attorney at Blumenthal, Nordrehaug & Bhowmik.