During the second quarter, 47 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. There were also 11 non-ERISA-related legal stories, and 82 regulatory and legislation stories.
Yale, BlackRock prevail in respective ERISA suits to highlight Q2
- Yale University’s ERISA allegations of allegedly failing to monitor the investment lineup and bundle selling CREF stock account with TIAA traditional annuities were rejected by federal jurors. Separately, jurors sided with the defendants that the plaintiffs failed to prove Yale’s breach of duties in its fiduciary process as well as the connections between high record-keeping fees and financial damages in 403(b) plans.
- Plaintiffs in ERISA lawsuits against Capital One Financial Corp. and Booz Allen Hamilton Inc. filed voluntary dismissals with the 4th U.S. Circuit Court of Appeals and agreed to bear their own legal fees. Both corporations were sued for retaining the allegedly low-performing BlackRock LifePath Index target-date fund series in their $7.9 billion 401(k) plan and $7.85 billion 401(k) plan, respectively. Law firm Miller Shah led 11 ERISA lawsuits against BlackRock retirement funds as lead counsel, though BlackRock isn’t a defendant.
- A U.S. District Judge dismissed an amended ERISA complaint against Microsoft Corp. “with prejudice” on April 25, and the lawsuit cannot be refiled in his court. Former participants sued its fiduciary for allegedly breaching the duty of loyalty by offering low-performing BlackRock LifePath Index target-date series in its $48 billion 401(k) plan. The judge wrote that the plaintiffs failed to correct the flaws in the original lawsuit and a short time frame of alleged poor performance picked by the plaintiffs wasn’t sufficient to support their claims.
- McCaffree Financial Corp., a sponsor of the $7.9 billion ADP TotalSource Retirement Savings Plan, withdrew the ERISA lawsuit against ADP Inc on June 8 without comment. McCaffree alleged that ADP charged high record-keeping fees and maintained expensive but poor-performing investments in its lineup. Though McCaffree isn’t a fiduciary and lacks constitutional standing to sue ADP, the judge added that the amended complaint merely recited the statutory language and isn’t sufficient to support plaintiffs’ duty-of-loyalty breach claims.
- Eversource Energy Service Co. will pay $15 million to settle ERISA allegations of charging high fees and maintaining poor-performing investments in its $4.4 billion 401(k) plan.
- Verizon Communications settled a 7-year-old ERISA lawsuit on June 5. The lawsuit centered on a Global Opportunity Fund that was added to its $31.1 billion 401(k) lineup in 2007. After the original complaint was filed in 2016, the judge subsequently dismissed the fee-disclosure allegations as well as performance and fee allegations related to the target-date series. Though the defendants questioned the plaintiffs’ calculations and fund comparisons, the judge refused to dismiss the low-performance allegations against the Global Opportunity Fund.
- Omnicom Group agreed to pay $2.45 million to settle an ERISA lawsuit against its fiduciary for alleging charging high fees and keeping underperforming actively managed target-date series in its investment lineup.
- Baker Hughes Holdings LLC was sued by one of its former 401(k) plan participants for charging excessive float record-keeping compensation. Baker Hughes agreed that plan participants’ investment returns/interest earned in the record keeper’s clearing account belong to the record keeper, the suit said. The plaintiff argued that it is a form of indirect compensation, and the lawsuit stated that the defendants fail to track, monitor, or negotiate or even substantively recognize millions of dollars received as float compensation.
- A judge dismissed a lawsuit by two former 401(k) participants of Centene Corp. for breach of duty and charging excessive record-keeping fees. The judge rejected the case as the plaintiffs failed to provide sufficient facts to prove their excessive-investment-fees theory by comparing Centene’s investment fees to industry medians and averages.
- An ERISA lawsuit against Georgetown University for allegedly offering and retaining too many poor-performing investment options as well as too many record keepers has been dismissed, and amended complaint didn’t add enough to allow the case to proceed.
- An ERISA lawsuit against Kellogg Co. and its fiduciaries for allegedly paying unreasonable record-keeping fees and excessive managed account fees was dismissed.
- A 403(b) plan participant sued the University of Vermont Medical Center, and the complaint claimed that the defendants “failed to exercise appropriate judgment and excessive administrative fees and expenses were charged.”
- Cedars-Sinai Medical Center was sued by a 403(b) plan participant for overpaying administrative services, offering expensive mutual fund options and retaining poor-performing investments. The plaintiffs claimed that a different but better-performing stable value option should be chosen other than a proprietary Voya product.
- Voya Financial Inc. was sued by 401(k) plan participants for allegedly mismanaging various Voya funds including a stable value fund, target-date series and a real estate fund. Other ERISA allegations included maintaining poor-performing options in the investment lineup and the fiduciary’s failure to use the plan’s asset size to negotiate better fees. Though defendants argued that simply keeping Voya funds in its investment lineup doesn’t violate ERISA, allegations regarding self-dealing of a Voya small-cap growth fund could be allowed to proceed.
- The Kraft Heinz Co. agreed to pay $450 million to settle a class-action lawsuit led by Swedish pension fund AP7. The plaintiffs argued that Kraft Heinz made misleading statements about the benefits of the merger in 2015. The plaintiffs claimed that the declining share prices and impairment of intangible assets because of the merger due to heavy cost-cutting measures outweigh increased profits.
- Astellas US LLC and Aon agreed to pay $9.5 million to settle ERISA claims of fiduciaries’ alleged failure to offer low-cost mutual funds and conduct an RFP. Astellas and Aon did not admit wrongdoing or liability.
- Norges Bank Investment Management, which invested 1.1 billion kroner in Silicon Valley Bank bonds, is seeking to be the lead plaintiff in the class-action lawsuit against SVB; U.S. court determines which plaintiff takes the lead.
- The U.S. Chamber of Commerce, the Texas Association of Business and the Longview Chamber of Commerce challenged the SEC’s stock buyback rule on May 12 at the 5th U.S. Circuit Court of Appeals, arguing the new rule disincentivizes corporate buybacks and hurts capital market efficiency. Chairman Gary Gensler said the new rule intends to increase transparency and protect investors by requiring companies to disclose daily stock buyback information, officers and directors’ securities positions, transactions, and trading restrictions.
- Wells Fargo agreed to pay $1 billion to settle a class-action lawsuit with Employees’ Retirement System of Rhode Island, Public Employees’ Retirement System of Mississippi and Handelsbanken Fonder AB and other investors. Wells Fargo was sued for allegedly making false and misleading statements, trading at inflated prices and illegally opening unauthorized customer accounts.
- Chatham Asset Management and founder Anthony Melchiorre agreed to pay $19.4 million to settle a charge with the SEC for inflating trading prices of American Media Inc. bonds without admitting or denying the regulator’s findings. One Chatham-advised client sold certain thinly traded American Media Inc. at the prices Chatham and Mr. Melchiorre proposed to a different Chatham client. Due to the illiquid nature of the securities, SEC’s investigation found the firm’s AMI bond trading could result in inflated pricing, and trading prices used to calculate the net asset values of Chatham and Mr. Melchiorre’s holdings could lead to higher fees charged to the clients.
- PIMCO agreed to pay $9 million to settle charges with the SEC regarding its use of interest rate swaps as distribution income as well as its failure to waive $27 million in advisory fees in PIMCO All Asset All Authority Fund. PIMCO used paired interest rate swaps for PIMCO Global StocksPLUS & Income Fund to manage duration risks based on funds’ views on duration and yield curve from September 2014 to August 2016. The swaps in the PGP fund’s portfolio had become a material source of distributable income (at least 24% of the total distribution paid), which enabled PIMCO to keep the fund’s dividend rate separate, information which PIMCO did not disclose, an SEC order said.
Legislation & regulation
- The SEC voted in April to reopen the comment period on a proposal that would expand the definition of “exchange” under Rule 3b-16. The reopening release aims to address the issue and unambiguity of whether trading systems for crypto asset securities, including DeFi systems, should register as national exchanges under the broader definition of exchange or if they should be required to comply with other federal securities laws to existing exchanges or alternative trading systems in the future.
- Under the rules of European Markets Infrastructure Regulation, pension funds are required to use cash for collateral to settle derivatives clearing by June 18, but His majesty’s Treasury is exempting U.K. funds for two more years.
- After rounds of negotiations between the White House and Congress, the Senate passed Fiscal Responsibility Act of 2023 in early June before the debt ceiling deadline, with a 63-36 vote to avoid default, and the bill is expected to cut the federal deficit by $1.5 trillion over the next decade.
- Rep. Tom Emmer and Warren Davidson introduced the SEC Stabilization Act in June to add an additional commissioner and an executive director for oversight, and to remove Chairman Gary Gensler.
- Mark T. Uyeda and Summer K. Mersinger were renominated as SEC commissioner and CFTC commissioner by President Joe Biden in June.
- Rep. Chip Roy, along with other House Republicans, reintroduced No ESG at TSP Act in May to block the $766 billion Federal Retirement Thrift Investment Board from investing in ESG funds. Other similar bills were introduced to restrict ESG criteria applied to investment decision-making process at both the state and federal level.
- The Taxpayers and Savers Protection Act of 2023 was reintroduced to block Federal Retirement Thrift Investment Board from investing in companies listed on the exchanges of countries including China, Iran, North Korea and Russia.
- A provisional agreement has been reached at the European Parliament to update MiFID II, add transparency to the EU’s trading rules, and establish centralized data feeds to consolidate trading data across various platforms, exchanges and investment banks at the EU level.
- Sen. Bill Cassidy, Rep. Virginia Foxx and other lawmakers in late June argued the SEC’s swing pricing proposal, which requires funds receiving up-to-date flow information at 4 p.m. ET (hard close rule), could disadvantage investors who don’t trade directly with a fund’s transfer agents or have trades placed through record keepers.
- The Department of Labor has approved a qualified professional asset manager exemption to finalize UBS Group and Credit Suisse Group’s merger, and an additional $6 billion U.S. retirement plan assets will be merged into UBS. Though both entities had been convicted of financial wrongdoing over the past decade, the exemption was granted to serve the interests of plan participants and beneficiaries of two firms.