Court Limits Defendants in Fiduciary Breach Lawsuit

In Luense v. Konica Minolta Business Solutions U.S.A., Inc., 2021 WL 2103231 (D. N.J. 2021), a federal trial court dismissed certain allegations of a putative class action lawsuit brought by 401(k) plan participants, because they failed to prove that the defendants were fiduciaries when acting as alleged in the complaint.

The lawsuit claimed that various parties violated their fiduciary duties based on the way that investment funds were selected. The participants sued the plan sponsor, the sponsor’s board of directors, the board’s individual members, the plan’s investment committee and its individual members, and several other individuals with plan-related responsibilities.

Plaintiffs commonly bring fiduciary claims, initially against every plausible party. In Luense, the court easily eliminated the claims against individuals and the board, despite the plan sponsor’s delegation of investment authority to the plan committee. Regarding the threshold issue of fiduciary status, the court noted that all parties appeared to agree that the plan committee was a fiduciary with respect to the allegations and that the plan sponsor had a duty to monitor the committee’s actions.

While not always specifying which individuals or entities were responsible, the participants claimed that the fiduciaries violated their duties of prudence and loyalty by selecting funds that were inappropriate and unnecessarily expensive. In addition, participants claimed that fiduciaries failed to properly review investments to assure that fees were appropriate and reasonable and that they failed to leverage the plan’s size to obtain less expensive investment options. 

Other allegations included fiduciaries failing in their duty to monitor other fiduciaries and the plan’s insurance fund paying excessive compensation to the plan’s recordkeeper, resulting in a prohibited transaction. The named defendants responded by asking the court to dismiss the lawsuit for failure to state a claim. Some of the claims were allowed to proceed since poor performance may provide circumstantial evidence that a breach occurred for the purpose of avoiding dismissal. 

The court dismissed the loyalty claims for lack of facts proving that the fiduciaries acted with improper motives or for their own financial benefit. However, claims against the other alleged fiduciaries, including the members of the Board of Directors and plan investment committee, were dismissed because the participants failed to sufficiently prove that those parties were fiduciaries. 

When a board’s or committee’s fiduciary duties are exercised collectively, individual board or committee members may not be subject to fiduciary breach claims. While an individual or the board may have a fiduciary relationship relative to some matters, effective delegation may insulate them from other fiduciary claims. 

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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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