The dismissal of a lawsuit against Voya Financial Inc. for its relationship with 401(k) robo-adviser Financial Engines could be a harbinger of success for other major retirement-plan record keepers locked in similar legal battles.
Judge Lorna G. Schofield dismissed claims of fiduciary breach under the Employee Retirement Income Security Act of 1974 because the plaintiff failed to prove Voya served as a fiduciary with respect to its fees.
Lisa Patrico, the plaintiff and a participant in the Nestle 401(k) Savings Plan,
alleged Voya charged excessive fees for participant-level investment advisory services offered by Voya through Financial Engines.
Ms. Patrico claimed Voya kept a "substantial portion" of the fee for the advice service, even though Financial Engines, as the subcontractor, is the entity that actually provided it.
Fidelity Investments, Xerox HR Solutions and Aon Hewitt are
currently involved in similar 401(k) self-dealing lawsuits centering on their relationship with Financial Engines. (
Blackstone Group
announced an acquisition of Aon's record-keeping business earlier this year. Xerox spun off its record-keeping business, now part of Conduent, in January.)
Those record keepers' legal prospects appear rosier in light of Ms. Schofield's decision, said John Utz, an employee benefits and executive compensation attorney at Utz & Lattan.
"The court here has said that an entity can be a fiduciary for some purposes and not others, and with respect to this fee issue, Voya was not a fiduciary," Mr. Utz said. "It was not a fiduciary because it wasn't acting as a fiduciary in negotiating fees, and — this was important — once the arrangement was in place, there was not anything Voya could do to control its compensation."
Voya, for example, couldn't control the number of participants using the personalized advice services offered in the Nestle 401(k) plan.
"I think those facts are probably true with respect to the other lawsuits as well," Mr. Utz said. "I would imagine if those cases were in front of this judge, plaintiffs would lose."
WINNING STREAK
Financial services companies have been on a winning streak of late with respect to 401(k) self-dealing claims.
Within the past month, Putnam Investments and Wells Fargo & Co.
defeated fiduciary-breach claims for using several proprietary investment funds in their respective company 401(k) plans. Fidelity also
beat back a claim regarding its management of a stable value fund.
Mr. Utz did point out one factual difference in the Voya case that could potentially have a bearing on the legal outcome in the similar outstanding lawsuits. Whereas Voya positions itself as the entity providing the investment advice, then hires Financial Engines to provide that advice, others such as Fidelity appear to say Financial Engines is the entity providing that participant advice, Mr. Utz said, referencing the respective legal complaints against the firms.
The Voya lawsuit, Patrico v. Voya Financial, Inc. et al, was originally filed in September 2016 in the U.S. District Court for the Southern District of New York.
Ms. Schofield, who filed the dismissal June 20, gave plaintiffs 21 days to file an amended complaint. If plaintiffs decline, the case will be closed.
