ERISA Class Action Watch

This is shaping up to be a bad month for cash balance plans. A class action has been filed against Colgate-Palmolive in the southern district of Ohio alleging that its cash balance plan failed to perform the “whipsaw” calculation required to compute proper lump-sum payments. The complaint states that the proposed class numbers “at least” in the hundreds.

• Abelman v. Colgate-Palmolive

It hasn’t been long since IBM was cleared of allegations that its cash balance plan was age discriminatory, but its cash balance plan is already in court again. This time a purported class action has been filed in the Southern District of New York that alleges that the plan failed to credit benefits that were paid late with interest.

• Adams v. IBM complaint

has been transferred to the Northern District of Indiana. No real substantive developments yet.

An action has been filed in the District of Connecticut against Deloitte & Touche that alleges that defendants failed to credit plaintiffs with pre-participation service when computing their pension benefits. This allegedly cost the purported class (said to number in the thousands) the benefit of between 12 and 18 months of service. The complaint is somewhat interesting because it preemptively argues that de novo review applies.

• Frishberg et al v. Deloitte complaint

Schlicter Bogard Denton has filed an amended complaint in their suit against ABB. This new complaint is much simplified, but also much less damning. The core allegation is now that ABB had a fiduciary duty to invest in collective trusts instead of publicly traded mutual funds because the trusts would have been cheaper. The new complaint also argues that ABB should not have offered actively managed mutual funds because passive funds have better returns. Frankly, it is hard to see how Schlichter can prevail with these arguments. If these notions were accepted by the courts, the fiduciaries of virtually every large 401(k) plan in the country would be breaching their duties by offering actively managed mutual funds as investment options.

•  Kennedy v ABB amended complaint

Retirement plan fees are a very hot topic among employers. More than a dozen class action lawsuits involving 401(k) fees have been filed in the last twelve months. These suits allege that 401(k) plan sponsors violated their fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”) by allowing their plans to offer investment options that charged excessive fees.

Prior suits have primarily targeted the 401(k) plans of Fortune 100 corporations, but plaintiffs’ lawyers now appear to have a new target: the 403(b) plans commonly offered by non-profit groups. 

A prominent class-action firm named Keller Rohrback has filed a purported class action suit against the National Education Association (“NEA”), Nationwide Life Insurance, and Security Benefit. The complaint alleges that NEA, the nation’s largest organization of educators, accepted payments from Nationwide and Security Benefit in return for giving them exclusive endorsements as 403(b) providers.

According to plaintiffs, annuities offered by Nationwide and Security Benefit charged “grossly excessive” fees. NEA’s alleged failure to control these expenses violated its duty of prudence under ERISA. In addition, the suit alleges that these Nationwide and Security Benefit violated their fiduciary duties by benefiting from improper revenue sharing arrangements with the mutual funds they selected for the 403(b) plan.

These allegations are similar to those made in the prior suits targeting Fortune 100 401(k) plans. The success of those suits has been mixed so far: district courts have refused to dismiss cases against Kraft, Exelon, and other major corporations, but a district court in Wisconsin recently dismissed a case against Deere.

The complaint is also very similar to Montoya v. ING, another suit regarding 403(b) plan endorsements which Keller Rohrback is also involved in. Montoya, however, was an offshoot of Spitzer’s investigations against ING and the New York State United Teachers. The new suit against NEA appears to indicate that Keller Rohrback thinks there may be broader possibilities for 403(b) fee actions.

The outcome of the suit against NEA, Nationwide, and Security Benefit cannot be predicted, but the suit appears to face a number of obstacles — not the least of which is showing that the NEA Valuebuilder Program at issue is truly an ERISA plan. Still, it seems likely that other suits will follow. Non-profit organizations that sponsor or endorse a 403(b) plan should view this suit as reminder to review the fees charged by their plans and investment options.

• Daniels-Hall et al v. NEA complaint

The Northern District of Georgia recently dismissed a class action against Coca-Cola Enterprises (the largest Coca-Cola bottler) over an allegedly fraudulent ”channel stuffing” scheme. Judge Thrash found that plaintiffs had failed to plead fraud with particularity as required by Rule 9(b).

• In re Coca Cola Enterprise ERISA opinion

FedEx has filed an answer in the recent class action suit alleging that it wrongfully classified drivers as independent contractors.

• Whiteside v. FedEx Answer

Judge Darrah has granted plaintiffs’ motion for class certification in the 401(k) fee suit against Exelon in the Northern District of Illinois. The class includes future, current, and former participants. Judge Darrah found (consistent with the recent Guidant decision) the latter category to have standing even if they have taken a full distribution.

• Exelon Class Certification Opinion (PDF)

Judge Posner has issued an opinion in the Guidant company stock drop case. The substantive holding of the opinion is that plaintiffs do not surrender standing to sue a defined contribution plan merely by liquidating their accounts. But Posner also includes so not-too-subtle commentary about the economically irrational attitude of many stock drop class actions.