ERISA stories
During the third quarter of 2023, 58 ERISA-related lawsuits were filed and/or updated. Each event represents the involved parties either reaching a settlement or filing an appeal, or a court decision was made. The parties involved in the ERISA lawsuits in the third quarter included two financial firm, two healthcare firms, one university, five tech firms and other prominent organizations such as American Airlines Inc., FedEx, General Electric and Deloitte LLP. There were 17 ERISA lawsuits involving excessive record-keeping fees.
Financial firms
- Allianz Asset Management of America agreed to pay $7.5 million to settle ERISA allegations of self-dealing and offering unsuitable proprietary investments in its $1.9 billion 401(k) plan. Allianz also agreed to hire an independent investment consultant to evaluate the suitability of fee structures and fund choices in its investment lineup.
- PNC Financial agreed to pay $6.1 million to settle ERISA allegations at BBVA Compass’ 401(k) plan of offering either high-cost investments or a money market fund when capital preservation funds with high return are available. PNC completed its acquisition of BBVA in June 2022.
Healthcare firms
- Wake Forest University Baptist Medical Center agreed to pay $3.8 million to settle ERISA allegations of charging high record-keeping fees and offering expensive mutual funds while lower-cost options are available.
- Biogen Inc. agreed to pay $9.75 million to settle ERISA claims of charging excessive fees and retaining improper options in its $2 billion 401(k) investment lineup. In addition to monetary penalties, Biogen agreed to conduct quarterly meetings with two more members potentially added to the retirement committee, evaluate investment suitability, and hold annual fiduciary training.
Universities
- Howard University was sued for allegedly using an outdated mortality table from the 1960s and 1970s along with improper interest rate assumptions, which led to an incorrect “annuity conversion factor” and reduced pension payments calculated for its plan participants.
Tech and telecom firms
- Verizon Communications Inc. agreed to pay $30 million to settle a 7-year-old lawsuit for its fiduciary failure to remove an allegedly poor-performing global opportunistic hedge fund in its $31.1 billion 401(k) plan.
- An ERISA lawsuit against Cisco Systems Inc. for offering poor-performing BlackRock target-date series in its $15.5 billion investment lineup was dismissed. The judge claimed that metrics and opinions used to describe the target-date funds’ underperformance are insufficient to prove Cisco’s imprudent acts.
- A judge rejected breach of fiduciary and ERISA claims against Nokia of America Corp., including excessive expense ratios for 17 investments, but ruled in favor of plaintiffs and allowed high record-keeping allegations to move forward.
- A federal appeals court revived a lawsuit against AT&T over allegedly breaching duty of prudence. AT&T was investigated to see if its contract with BrokerageLink was a prohibited transaction and was questioned for its alleged failure to properly monitor the compensation paid for investment adviser Edelman Financial Engines and record keeper Fidelity. The district judge wrote that AT&T had no obligation to disclose and report compensation to the Department of Labor., which was rejected by appeals court claiming that compensation needs to be disclosed and a portion needs to be reported.
- A judge rejected a request by NVIDIA Corp. to dismiss a lawsuit by 401(k) participants that the company offered an expensive investment lineup instead of lower-cost institutional shares of mutual funds or CITs and using revenue sharing to pay for record-keeping fees in its $2.64 billion 401(k) plan. The ruling reverses a different federal judge’s decision in September 2021 to dismiss the allegations.
Other organizations
- The judge rejected an arbitration provision to treat the collective planwide ERISA complaint against Tenneco Inc. as separate individual complaints. Tenneco Inc. was sued by two 401(k) plan participants for charging excessive fees and its failure to maintain a prudent investment lineup during the plan merger process in 2021, and Tenneco Inc. intended to exercise a class-action waiver.
- Steel Dynamics Inc. was sued for allegedly offering the poor-performing PIMCO RealPath Blend Series target-date funds in its investment lineup. The lawsuit claimed the PIMCO funds’ performance lagged many years before being included in the plan in 2020 when they were benchmarked against other target-date funds from Morningstar and S&P Global.
- Estee Lauder Inc. will pay $975,000 to settle an ERISA lawsuit for allegedly charging excessive record-keeping and investment fees.
- FedEx was sued for allegedly using outdated mortality data and incorrect actuarial assumptions to reduce liability payouts to plan participants when converting single life annuity to alternative pension payment.
- General Electric agreed to settle a 6-year-old lawsuit for allegedly offering five poor-performing proprietary investments in its $30.4 billion investment lineup. The products were provided by GE Asset Management, which was later sold to State Street Corp.
- American Airlines Inc. asked to dismiss an ERISA lawsuit after it was sued for allegedly offering up to 25 ESG funds as investment options in its $11.1 billion 401(k) plan. American Airlines Inc. asked to dismiss the lawsuit citing that the investment committee didn’t choose to include such funds in its core investment lineup, and plaintiffs won’t be able to invest in any (only available in self-directed brokerage accounts). American Airlines Inc. further rejected any politically charged allegations against them, including the usage of woke investment strategies to insert or further so-called leftist political agendas.
- An ERISA lawsuit against DENSO International America Inc. for charging excessive record-keeping fees and offering poor-performing stable value funds was dismissed.
- ERISA claims against Deloitte LLP for charging excessive record-keeping fees were rejected for a second time because plaintiffs failed to consider that bigger plans receive different services than smaller plans and low costs owing to economies of scale are not guaranteed.
