California Judge Refuses to Pause Franklin Templeton ERISA suit

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.

Class Action Lawsuit Over Lowe’s Weak Fund for 401(k)

Employees of Lowe’s hardware store who participate in the 401(k) plan claim that the company chose a weak fund that lost plan members money. Benjamin Ritz, plaintiff, alleges that he had all his retirement funds invested with Lowe’s. He further claims that he was financially injured due to Lowe’s choice to move over $1 billion from eight other investment funds into one other fund: Hewitt Growth Fund. Lowe’s made this move on the advice of Aon Hewitt Investment Consulting Fund. Ritz also claims that if Lowe’s had not moved the funds, plan participants would have made $100 million more.

Ritz further claims that this situation represents a violation of the Employee Retirement Income Security Act (ERISA). Ritz seeks damages for himself and other plan participants who were similarly affected by Lowe’s funds transfer. Ritz would like to force the companies to pay for the participants’ losses, force Hewitt to disgorge profits related to the transfer of funds and stop Lowe’s from further investments in the Hewitt Growth Fund in the future.

According the ERISA class action lawsuit, Lowe’s moved the plan funds on the advice of Aon Hewitt Investment Consulting, the owner of the Hewitt Growth Fund. Plaintiffs claim that this behavior was self-serving. They were encouraging the transfer to support the fund, which was exhibiting poor performance. The plaintiff claims that Hewitt put its own interests ahead of the interests of plan participants, which is in violation of ERISA. The plaintiff also alleges that Lowe’s should have been more vigilant – considering quality and reliability of the information received from the advisor, particularly considering Hewitt’s conflict of interest.

The company’s plan reportedly has approximately $5.2 billion in assets, 250,000 participants and has been taking investment advice on their 401(k) plans since 2009.

If you have questions about mismanagement of your plan’s funds or if you suspect your employer of ERISA violations, please get in touch with one of the experienced California employment law attorneys at Blumenthal Nordrehaug Bhowmik De Blouw LLP.

$16.8M Overtime Deal on Kellogg Case is a Go

A federal judge threw preliminary support behind a $16.8 million deal to settle overtime claims against Kellogg Co. The suit alleges that the company misclassified its workers and failed to properly compensate workers for overtime they earned. If the settlement goes through it ends claims that Kellogg violated the Fair Labor Standards Act (FLSA).

According to plaintiff, Patricia Thomas, Kellogg deprived their territory managers and their retail store representatives of premium pay when workers were completing hours in excess of 40 per week. In early 2014, the class was certified. Following class certification, Kellogg attempted to squash the suit repeatedly by arguing that the employees failed to show that class members were similarly situated. In their bed for the judge’s approval, the class brought two things to the judge’s attention: without proving that Kellogg willfully violated the FLSA, 20% of the plaintiffs would recover nothing, and if the company proved that the fluctuating workweek applies, but the class prevailed on all other issues, the plaintiffs’ recovery dropped to about 30% of the total damages claimed.

In March 2014, the third amended complaint was filed claiming that the territory managers and retail store reps often worked over 60 hours in one workweek but did not receive the time-and-a-half premium overtime rate that the workers were allegedly due.

Plaintiffs allege that their job duties were to police the store locations contracted with Kellogg to ensure their products were properly displayed, that Kellogg received access to the correct amount of square footage on shelves, to build and stock Kellogg displays at customer store locations, and to monitor the freshness of the Kellogg products. Specifically, the amended complaint stated that the rep’s primary job duty was not sales. Motions for summary judgement were rejected in late 2016. The core issues of the case include: whether or not plaintiffs engaged in sales and were sales the primary duty. The settlement comes after years of litigation.

If you need assistance determining overtime payment or if you aren’t being paid overtime you are due, 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

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

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

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.

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

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.