ERISA Class Action Review – 2025

cash at the end of workers’ shifts. Id. at *4. While employees tended to support this policy, it had one unintended effect, as an employee aiming to contribute a large percentage of their income to a 401(k) account was not able to do so using pre-tax earnings. Id. One employee, bartender Dan Frankenstein, objected to this policy, claiming that his inability to contribute these pre-tax earnings to his retirement account prevented him from meeting his retirement goals. Id. at *8. This policy, he argued, constituted a breach of fiduciary duties. The plaintiff also claimed that defendant’s refusal to permit employees to defer credit card tips amounted to discrimination against tipped-employee participants, and that its decision to prevent such deferrals was arbitrary and capricious. Id. at *10. Although the plaintiff’s claims survived a motion to dismiss, he failed to secure class certification. The court opined that the fatal flaw in the plaintiff’s case was that he appeared to be the only employee in the country who objected to receiving tips in cash. Although the court provided the plaintiff with a full year to locate other aggrieved employees, he was unable to do so. Id. at *28. At the same time, the defendant offered numerous witnesses who testified that many employees and the unions that represented them supported the tips-in-cash policy. Id. at *18. According to the court, the existence of an “intraclass conflict” was fatal to the plaintiff’s motion for class certification. Id. at *22. Considering that Frankenstein appeared to present what the court described as a “class of one,” he could not establish numerosity. Id. at *32. Further, due to his inability to identify other workers who shared his grievances, the court concluded that he could not establish commonality or typicality. Id. at *28. Finally, considering that Frankenstein’s views differed from those shared by other members of the putative class, the court ruled that he could not adequately represent the interests of the class. Id. at *25. While defeating a motion for class certification will remain difficult, the cases discussed above demonstrate the importance of considering all possible defenses to a putative ERISA class action. Where the facts depart from a “standard” breach of fiduciary duties claim, it may be possible to show that class certification under Rule 23 is not appropriate. 2. Rulings On Motions To Dismiss ERISA Class Action Claims For Failure To State A Claim In 2024, federal courts frequently addressed motions to dismiss ERISA class action complaints for failure to state a viable claim under Rule 12(b)(6). Although these rulings do not directly address class certification, they are central to both sides’ litigation strategy and, as a practical matter, can be outcome-determinative. A loss for the defendant at this stage will open the door to extensive and costly discovery. Capitalizing on that prospect, the plaintiffs’ bar often may seek to settle the matter quickly for less than the defendants’ costs to defend the class action. As noted above, claims concerning breaches of the fiduciary duties of prudence and loyalty represent the largest category of ERISA class actions. These claims generally allege one or more theories, such as that defendants chose poor investments, that they retained underperforming actively managed funds, that they charged excessive recordkeeping fees, or that they inappropriately invested in retail shares when cheaper institutional shares were available. Plaintiffs who raise such claims face a conundrum. One the one hand, courts have consistently held that, to survive a Rule 12(b)(6) motion, it is not enough to merely point out that a plan has underperformed relative to the market or to rely on unadorned cost comparisons. Rather, because breach of the duty of prudence claims focus on the existence of a deficient process and not just the end result, the plaintiffs must point to some defect in the process by which the defendants selected or managed investments or plan service providers. On the other hand, without the benefit of discovery, plaintiffs rarely have access to information about that decision- making process. As a result, at the motion to dismiss stage, plaintiffs frequently attempt to convince courts to infer poor decision- making by presenting comparisons between defendants’ plans and plans operated by competitors. The key question thus becomes whether a proper “apples-to-apples” comparison has been made. Courts have struggled to develop and apply a clear pleading standard for such cases and, consequently, their rulings are sometimes difficult to reconcile. While there was widespread hope across both sides of the ERISA bar that the U.S. Supreme Court would offer a measure of clarity in Hughes, et al. v. Northwestern University, 142 S. Ct. 737

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