Duane Morris ERISA Class Action Review – 2024

Supreme Court held that defined benefit plan plaintiffs have standing only when alleging an injury to the entire plan, while defined contribution plan plaintiffs have standing when individual interests in the plan are allegedly harmed. As defined benefit plans become less and less common, courts are more frequently confronted with claims brought by participants in defined contribution plans. That said, courts have applied the Supreme Court ’ s instructions to defined contribution plans in radically different ways, with some requiring class representatives to have invested in the specific funds challenged, while others do not. Examples of both applications were apparent in rulings over the past year. The court described the inconsistency in decisions on the standing of defined contribution plan participants in Ruilova, et al. v. Yale-New Haven Hospital, Inc., Case No. 22-CV-00111 (D. Conn. July 28, 2023). The plaintiffs challenged the prudence of the defendants’ offering of funds in which the plaintiffs did not invest themselves. The defendants cited two cases - Patterson v. Morgan Stanley , 2019 U.S. Dist. LEXIS 174832 (S.D.N.Y. Oct. 7, 2019), and In Re Omnicom ERISA Litigation , 2021 U.S. Dist. LEXIS 144054 (S.D.N.Y. Aug. 2, 2021) - in which the courts found the plaintiffs did not have standing to challenge funds in which they did not invest. Rejecting that approach, the court in Ruilova held that a plaintiff need only “allege an injury to the Plan as a whole” to challenge funds in a defined contribution plan. Id. at *35. The court explained that, in its view, in this class action, these named plaintiffs raised claims of injuries caused by the defendants’ same course of conduct for the sake of the entire class and therefore adopted the latter approach. Notably, the court did not explicate how the plaintiffs brought a claim on behalf of the plan, but rather focused on finding standing due to the presence of common questions arising from the same cause. In Jones, et al. v. DishNetwork Corp ., 2023 U.S. Dist. LEXIS 52890 (D. Colo. Jan. 31, 2023), the court denied the defendant ’ s motion to dismiss under Rule 12(b)(1). The plaintiffs alleged that the defendants breached their fiduciary duties of prudence and loyalty through mismanagement of their defined contribution retirement plan “by allowing the Plan to be charged excessive recordkeeping and administrative fees and by offering inappropriate investment options to participants.” Id. at *2, 8. The court found that the plaintiffs had standing in alleging excessive recordkeeping fees because the plaintiffs were subject to such fees during the class period and therefore suffered an injury that was traceable to the defendants’ alleged imprudence and the plaintiffs were therefore permitted to represent others, even if their injuries extended beyond those of the named plaintiffs. Furthermore, the court found that because the named plaintiffs held investments in some of the allegedly underperforming funds during the relevant time, they had standing to allege a breach of fiduciary duties based on the maintenance of those funds. However, the court reasoned that the plaintiffs did not have standing to challenge one standalone fund in which they did not invest because the defendants’ retention of that fund did not impact any other fund in the plan. Like the court in Jones , in Miller, et al. v. Packaging Corp. Of America, Inc. , 2023 U.S. Dist. LEXIS 55337 (W.D. Mich. March 30, 2023), the court determined that the named plaintiff had standing to bring a class action against the defendants. The plaintiff claimed that the defendants breached their fiduciary duty of prudence through excessive fees, including recordkeeping fees, managed account services annual fees, and excessive investment management fees. The retirement plan in Miller was a defined contribution plan. The court found that the plaintiff ’ s allegation that he overpaid as a result of the defendants’ imprudence was sufficient to establish Article III standing in his excessive recordkeeping fee claim because it was an allegation of “concrete financial injury.” Id. at *13. As for the offering of imprudent investment options claim, the court found that the plaintiff had standing because he alleged an injury equal to “the difference between the value of his investment with the allegedly excessive investment expenses and the value of his investment with the lower expenses that a more prudent investment option would have charged.” Id. at* 23-24. The court further ruled that the plaintiff had standing to pursue the claim involving funds in which he did not directly invest because “investment in one of the challenged funds is sufficient to confer standing to sue on behalf of plan members who invested in the remaining challenged funds.” Id. at *24. However, the court granted the defendants’ motion to dismiss the claim on managed account service fees because the plaintiff did not allege he paid any such fees and therefore did not allege an injury in connection with that claim.

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