A federal judge handed CareerBuilder a partial victory in the company's fight against a class-action lawsuit over its 401(k) plan, dismissing the complaint but giving the plaintiff a chance to amend it.
A former CareerBuilder employee sued the company in September in U.S. District Court for the Northern District of Illinois, alleging that the company had breached its fiduciary duty to participants by putting overly expensive, underperforming mutual funds on the plan menu. In addition, revenue sharing paid through those mutual funds benefited the plan record keepers, and participants paid more than they should have for administrative services, according to the complaint.
The plan, which had more than $180 million in assets among about 2,600 participants in 2017, charged record-keeping fees that ranged from $222 per participant in 2014 to $136 in 2016, according to court records. A reasonable annual fee is closer to $40, the plaintiffs argued.
However, the plaintiffs did not convince the judge that there was evidence that the plan sponsor acted imprudently in choosing investments and service providers. The complaint pointed to alleged shortcomings of the plan but not necessarily with the process the plan fiduciaries undertook in building and maintaining the plan, the order noted.
That standard “is processed-based, not outcome-based. Thus, a plan’s mere underperformance is not actionable so long as the fund administrators acted prudently,” the judge wrote.
The plaintiff will likely file an amended complaint, the deadline for which is July 28.
Law firms Capozzi Adler and Gutnicki represent the plaintiff and the proposed class. An attorney involved with the case did not immediately respond to a request for comment.
2020 continues to be a busy period for litigation under the Employee Retirement Income Security Act.
Last week, two new 401(k) class-action cases were filed – one against payroll and benefits outsourcing firm Paychex and another against pharmaceutical company Astellas and Aon Hewitt Investment Consulting.
The Paychex plan represented $1.1 billion among about 15,000 participants as of 2018, according to the complaint in that case. The plaintiffs allege that the plan sponsor failed to disclose the expenses and risk associated with the investment options, that the plan's administrative costs were high and that the plan included investment options with high fees and poor performance.
Plaintiffs in the Paychex lawsuit are represented by the law firms Creighton Johnsen & Giroux and Shepherd Finkelman Miller & Shah.
The recent lawsuit against Astellas and Aon Hewitt Investment Consulting was filed by the law firm Schlichter Bogard & Denton, which has paved the way in ERISA plan litigation for the better part of two decades.
In that case, the plaintiffs allege that plan participants were made to pay too much for the plan’s investments.
“Aon Hewitt acted in its own interest by causing the plan to invest in Aon Hewitt’s proprietary collective investment trusts, which benefitted Aon Hewitt at the expense of plan participants’ retirement savings,” the complaint read. “The Astellas defendants also failed to use the plan’s bargaining power to negotiate reasonable fees, which caused unreasonable expenses to be charged to the plan and participants for investment management services.”
Schlichter also represents plaintiffs in a class-action case filed in May against Aon and plan sponsor Schneider Electric. That case also involves allegations regarding Aon’s CITs.
Plaintiffs in the Paychex lawsuit are represented by the law firms Creighton Johnsen & Giroux and Shepherd Finkelman Miller & Shah.
Paychex and Aon each declined to comment, citing policies regarding ongoing or pending litigation.
In a separate case brought years ago by Schlichter, a $12.4 million settlement with Northrop Grumman was recently held up. That settlement, which was agreed to in principle earlier this year, faced objections by several members of the class, a judge wrote in an order last Tuesday denying the proposed settlement.
Plaintiffs in the lawsuit alleged breaches of fiduciary duty for the use of plan assets by Northrop Grumman as payment for plan services; unreasonable record-keeping fees; use of active management for one investment option, rather than a passive one; failure to monitor plan fiduciaries; and prohibited transactions by a third-party service provider.
Several people objected to the proposed settlement on the grounds that it granted “overly broad” release of liability to Northrop Grumman, going beyond the scope of allegations raised in the lawsuit.
“The issues have been satisfactorily addressed, and we expect to present the revisions to the court in the coming days,” senior partner Jerome Schlichter wrote in an email.
Attorney’s fees in the case are estimated to be more than $4.1 million, according to court records. Schlichter Bogard & Denton had settled a separate case against Northrop Grumman in 2016 for $16.75 million.
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