18th Annual Workplace Class Action Report - 2022 Edition

Annual Workplace Class Action Litigation Report: 2022 Edition 353 disclosure requirements of § 204(h) was timely and remained viable. For these reasons, the Sixth Circuit reversed the District Court’s order dismissing Counts I and II, but affirmed in part the dismissal of Count III. Rozo, et al. v. Principal Life Insurance Co., 2021 U.S. Dist. LEXIS 74409 (S.D. Iowa April 8, 2021). Plaintiffs filed a class action alleging that Defendant violated its fiduciary duty to participants under § 404(a)(1)(A) of the ERISA by profiting excessively from its management of its Principal Fixed Income Option (“PFIO”), a retirement product it offered with 401(k) plans that Plaintiffs had purchased. Plaintiffs contended that Defendant retained higher “deducts” from its investments, and failed to deliver the maximum rate of return that resulted in a lower rate to the PFIO’s participants, and that this benefitted Defendant and its investors against Plaintiffs’ interests. Plaintiffs asserted that this constituted a breach of fiduciary duty through a conflict of interest. Defendant argued that, standing alone, the alleged conflict of interest was not enough to demonstrate a breach of the fiduciary duty of loyalty. The Court ruled in favor of Defendant. It found that all of its “deducts” to be reasonable, suitable for their purposes, and falling within its duty of loyalty as a fiduciary. To determine a breach of fiduciary duty under the ERISA, the Court considered whether Defendant, having established its status as a fiduciary, had breached its duties and caused a loss to its beneficiaries. Noting the ERISA’s lack of an “express definition of ‘the interest of the participants,’” the Court expanded its focus beyond Plaintiffs’ claims of loss resulting from not receiving the maximum rate of return from Defendant’s plans, and found that Plaintiffs had interests beyond the retirement plan’s rate of return, including Defendant’s maintenance of reasonable administrative expenses that used some excess returns to cover, as well as providing guaranteed benefits at a fixed rate of return with no risk to the beneficiaries. Id. at *49. The Court further found that, in order to breach fiduciary duty of loyalty, Defendant’s financial interests must be determined to be adverse to the plan’s participants, which Plaintiff could not establish to be the case here, and that “the mere existence of a conflict of interest between a fiduciary and a participant” did not constitute a breach but was only a part of the relevant factors that could be used to establish a breach. Id. at *54. The Court determined that there was a significant overlap between Plaintiffs’ and Defendant’s interests, and that Defendant’s interests were not adverse to the beneficiaries. The Court also rejected Plaintiffs’ claims of self-dealing by Defendant in violation of § 406(b)(1) of the ERISA to benefit itself that resulted in a loss of maximum returns to plan participants. It opined that Defendant’s rate was reasonable when taking into account its anticipated costs and risks in delivering the PFIO’s guaranteed rate of return while covering “reasonable expense of the plan.” Id. at *72. Santiago, et al. v. University Of Miami, 2021 U.S. Dist. LEXIS 39912 (S.D. Fla. March 1, 2021). Plaintiffs, a group of participants in Defendant’s defined-contribution retirement plan, (“the Plan”) filed a class action alleging that Defendant breached its fiduciary duties of loyalty and prudence to the Plan and its participants in violation of the ERISA. Defendant filed a motion to dismiss, which the Court granted in part and denied in part. Plaintiffs alleged two claims, including: (i) that Defendant allowed the Plan to incur unreasonable and excessive administrative fees by failing to engage in a prudent process to evaluate and monitor administrative expenses; and (ii) that Defendant failed to prudently select and monitor investment options, and that its failure permitted expensive and underperforming investment vehicles to incur excessive fees and losses incurred by the Plan participants. Id . at *4-5. As to the administrative fees claim, the Court determined that Plaintiffs met their pleading burden of alleging that a prudent fiduciary would have implemented a competitive bidding process and a failure to do so resulted in the Plan incurring excessive and unreasonable fees. The Court therefore denied Defendant’s motion as to the administrative fees claim. As to the selection and motioning of investment options claim, the Court found that Plaintiffs lacked standing to bring the portion of their claim with respect to two of the funds in which none of the named Plaintiffs invested in with Defendant. The Court noted that to survive the motion to dismiss, Plaintiffs must show some injury to at least one of them resulting from the Plan’s offering of the funds at issue, which Plaintiffs failed to do. The Court opined that beyond the bare assertion that Plan participants were harmed by the offering of underperforming investments, Plaintiffs’ complaint failed to explain how the offering of two funds in which they did not invest caused any of them a concrete injury. As to the claim that Defendant offered too many investment options, the Court held that Plaintiffs failed to allege any facts to suggest the Plan or its participants had been harmed by the variety of offerings, or that participants were actually confused by the options. For these reasons, the Court granted Defendant’s motion to dismiss the selection and monitoring claims.