CA Federal Court Refuses to Dismiss ERISA Safe Harbor 401(k) Claims Against Calbiotech

A California federal judge has denied Calbiotech’s bid to dismiss a former employee’s ERISA suit involving a claim that it failed to match contributions to employees’ 401(k) plans. The judge also kept the former employee’s retaliatory discharge claim alive but tossed his claims related to a separate employer-sponsored pension plan. The case is Raya v. Barka et al., case number 3:19-cv-02295, U.S. District Court for the Southern District of California.

Robert Raya filed suit against Calbiotech in December 2019, alleging that his former employer had violated its fiduciary duty under ERISA. Raya claimed that he submitted multiple written requests to the company from 2009 to 2016 requesting copies of the 401(k) plan summary and documents, but the company failed to provide them. As a result, Raya alleges that he did not discover hundreds of missed or reduced contributions to his 401(k) plan, as the company repeatedly failed to make mandatory contributions.

Calbiotech terminated Raya in November 2016, but he made another request for plan documents in December 2016. At that time, the company provided him with a fraudulent summary plan document describing employer contributions as discretionary rather than mandatory. Raya did not discover the document was fraudulent until January 2019, when Calbiotech provided him with the complete administrative record with documents related to all versions of the plan.

In its motion for summary judgment, Calbiotech argued that its intention to operate the 401(k) as a safe harbor plan exempted it from making mandatory matching contributions to Raya’s 401(k) plan. The company further claimed that it could not give adequate notice of its intent to operate as a safe harbor plan because the plan documents changed mid-year.

The federal judge rejected Calbiotech’s arguments, stating that the Internal Revenue Service (IRS) provided guidance on midyear changes to safe harbor plans. The judge ruled that the company’s failure to give proper advance notice about safe harbor status didn’t excuse its alleged mismanagement. As a result, the issue presents a genuine issue of material fact for resolution by a factfinder, not a judge. Likewise, although the statute of limitations has passed on Raya’s retaliation claim, it was not appropriate for summary judgment as potential evidence indicated that the company provided fraudulent plan documents to conceal the reason for Raya’s discharge.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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