Client Alert: 401(k) Plans – ERISA Fiduciary Duty Litigation Update
- Monitor the fees associated with and performance of investment options offered under your 401(k) plan.
- Retain investment advisors to keep your 401(k) plan’s investment committee informed of competitive investment alternatives available on the market.
- Consult with legal counsel about particular circumstances and any changes to your 401(k) plan’s investment menu or investment committee.
Year-to-date ERISA Fiduciary Duty Litigation
From January through July of this year, over 40 ERISA fiduciary duty class action lawsuits have been filed alleging the mismanagement of defined contribution retirement plans, including 401(k) plans. These lawsuits have frequently alleged fiduciary duty breaches of loyalty and prudence based on both the selection and outcome of certain defined contribution plan investment options. Recent lawsuits against MetLife Group, Inc. (“MetLife”) and Capital One Financial Corporation (“Capital One”) are illustrative of the investment choices that plaintiffs’ lawyers are scrutinizing when searching 401(k) plan Form 5500s and bringing fiduciary duty class action lawsuits to recover tens, and sometimes even hundreds, of millions of dollars in plan losses.
MetLife Litigation – Loyalty in Selecting Index Funds
On August 1, the Southern District of New York denied MetLife’s motion to dismiss a class action lawsuit alleging that MetLife violated its fiduciary duty of loyalty by offering its proprietary index funds under its 401(k) plan. Under the duty of loyalty, courts have held that a plan fiduciary must act with “an eye single” to the interest of plan participants and may only receive benefits from the plan’s investment option choices if those benefits are incidental to such choices. Plaintiffs alleged that MetLife chose to offer its proprietary index funds as investment options under its plan with the primary intent of earning additional tax deductions and revenue from the high fees associated with such funds, and the Southern District of New York found plaintiffs' allegation to be a valid claim necessitating discovery.
Capital One Litigation – Prudently Choosing Target Date Funds
On August 1, Capital One was also sued in the Eastern District of Virginia for an alleged breach of its fiduciary duty of prudence in selecting and retaining BlackRock target date funds (“TDFs”) as investment options under its 401(k) plan. The plaintiffs alleged that Capital One chose and retained the BlackRock TDFs due to the low operating expenses of the TDFs but failed to consider BlackRock’s “significantly worse” performance in generating returns over the six-year statutory lookback period compared to other TDF providers. Plaintiffs also alleged that Capital One breached its fiduciary duty of prudence by selecting the poorly performing BlackRock TDFs as its 401(k) plan’s qualified default investment alternative, which resulted in 35% of all plan assets being invested in the underperforming BlackRock TDFs.
Metlife & Capital One – Duty to Monitor Investment Committee
In both cases, plaintiffs also alleged that each company breached its fiduciary duty to monitor the performance of its 401(k) plan investment committee and its members by failing to: (1) monitor the performance of the committee’s appointees, (2) monitor such appointees’ fiduciary process, and (3) remove underperforming appointees.
We Can Help You
We have been on the forefront of dealing with issues relating to ERISA fiduciary duties for our clients. Please contact us if you would like to discuss ERISA fiduciary duty matters relating to your 401(k) plan’s investment menu or investment committee or if we can otherwise be of assistance in any way.