A federal District Court judge in San Francisco has refused a request by Franklin Resources and its Franklin Templeton 401(k) Retirement Plan to dismiss claims of ERISA violations by a former plan participant.
U.S. District Judge Claudia Wilken denied the petition Tuesday relating to allegations that the 401(k) plan breached its ERISA duties by offering primarily Franklin Templeton funds instead of comparable funds at lower costs.
The former employee and plan participant, Marlon Cryer, sued the $1.1 billion 401(k) plan, the parent company and plan executives in late July. Mr. Cryer argued that “better-performing and lower-cost funds were available” and that the 401(k) plan should have offered a stable value fund instead of a money market fund.
“Defendants were motivated to cause the plan to invest in Franklin funds to benefit Franklin Templeton's investment management business,” said Mr. Cryer's original complaint, which sought class-action status.
The defendants had asked Ms. Wilken for both summary judgment and dismissal of the complaint. According to the judge's ruling, the summary judgment request focused on Mr. Cryer's having signed a covenant promising not to sue after he was terminated from the company in February 2016. Mr. Cryer took a distribution of all his 401(k) funds in May 2016, the ruling said.
“Because plaintiff cannot release the breach of fiduciary duty claims made on behalf of the plan, such claims are not covered by the covenant not to sue,” Ms. Wilken wrote in denying the request for summary judgment.
As for the motion to dismiss, Ms. Wilken wrote that the defendants “may well be able to prove” that Mr. Cryer's claims about costs and performance were incorrect, “but the court may not resolve such factual questions at the motion-to-dismiss stage.”
The Franklin Templeton plan is one of several DC plans that were sued in 2015 and 2016 alleging they offered too many of their parent companies' investment products, and arguing that the plans could have offered less-expensive and/or better-performing options among other fund providers.