2023 Retirement Plan Litigation Highlights 

Employers across the country sponsor more than 625,000 401(k) plans. These plans provide millions of Americans with access to build equity and wealth in preparation for retirement. Due to a lack of oversight and poor practices, the first lawsuits targeted 401(k) plans about 15 years ago. Since then, lawsuits have continued in the retirement plan space and have recently reached historic levels. According to a recent article from Brach | Eichler LLC, from 2019 to mid-2022, over 200 class action lawsuits were filed against 401(k) plans, fiduciaries, and plan sponsors. Companies spent over $150 million to settle those lawsuits.

To provide plan fiduciaries with an update regarding some of the most recent litigation in the industry, we wanted to share some of the lawsuits that we have been monitoring over the last few months.

Wehner v. Genentech, Inc.

The plaintiff in Wehner v. Genentech, Inc. alleged that plan fiduciaries breached their duties by imposing recordkeeping, administrative and investment management fees that were too high. In addition, the plaintiff stated that investment funds were included in the menu that allegedly underperformed and had high fees. After multiple rounds of motions to dismiss, the only claim that remained was the violation of duty for excessive recordkeeping and administrative fees and the failure of fiduciaries to monitor these fees. The claims regarding the investment performance and high investment fees were thrown out.

This suit has been settled by the included parties, with a $250,000 cash settlement. 

Kohari et al v. Metlife Group, Inc. 

A group of participants in this suit alleged that fiduciaries selected proprietary funds for the Plan’s investment menu that promoted their employers’ products and at the end of the day earned the employer additional profits.  As noted in the suit, this went against fiduciary duties of selecting and monitoring investments in the best interests of plan participants.  The proprietary investments were said to be more expensive and of lower quality than other competitive options in the marketplace. 

This suit currently has a proposed settlement of $4,500,000. 

Anderson v. Advance Publications, Inc. 

In this suit that was filed in August 2022, the plaintiff alleged the target date funds (BlackRock) used in the retirement plan were performing significantly worse than many of the mutual fund alternatives offered by target date fund providers. It also mentioned that fiduciaries looked to be chasing low fees charged by BlackRock TDF’s instead of considering their generated returns. In fact, there have been around a dozen or so other suits filed across the country with similar allegations against BlackRock’s Target Date Series.

These suits have not fared well in courts, with almost all of them being dismissed. In the case of Anderson v. Advance Publications, Inc., the participants/plaintiff dropped the suit.

McManus V. Clorox Company 

The participant/plaintiff who has filed this suit alleges that the plan sponsor has:

1- Breached fiduciary duties under ERISA;
2- Violated ERISA’s benefit of private interests’ provision; and
3- Engaged in self-dealing transactions.

The suit indicates that the plan sponsor has acted wrongfully by using plan forfeitures of terminated participants to offset company contributions, rather than offsetting plan expenses.  The suit acknowledges that the plan document gives the sponsor discretion regarding how plan forfeitures are used but the plaintiff states that such forfeitures have consistently been used to reduce the company contributions. 

The claim states that plan sponsors are not acting solely in the interest of plan participants since they are consistently utilizing the forfeited funds to reduce their own future contributions to the plan. 

This suit is currently under litigation. 

Outlook

Historically, most of the lawsuits were targeting high recordkeeping/administrative fees and poor investment performance. Over the past several years we have seen lawsuits evolve and now they seem to be targeting a wide range of areas. Managed accounts, target date funds, proprietary fund usage, and forfeiture usage have all been named in recent lawsuits.

We expect the lawsuits to continue at a high pace over the next several years. This reinforces the need of a sound prudent process as plan fiduciaries and the assistance of an investment advisor to mitigate fiduciary risks involved with sponsoring a retirement plan.

Your organization’s retirement plan is complex, full of ever-changing details, regulations, and oversight.  We have built our reputation on understanding those complexities and helping plan sponsors build strong retirement plans.  Reach out to our friendly team – we are experts at taking retirement plans’ most complex elements and simplifying them.  We will tell you what you need to know, why, and what you should do.

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