Compliance

ERISA Suit Against John Hopkins Partially Tossed

The plaintiffs’ allegations regarding what they allege to be an excessive amount of investment options was summarily tossed by the court, which cites a number of important recent cases as precedence; however, claims regarding excessive recordkeeping fees and providers will proceed. 

By John Manganaro editors@strategic-i.com | October 04, 2017

The U.S. District Court for the District of Maryland has granted in part and denied in part defendants’ motion to dismiss an Employee Retirement Income Security Act (ERISA) lawsuit targeting the 403(b) plan of John Hopkins University.

In their initial complaint and subsequent argumentation, plaintiffs allege that fiduciaries of the Johns Hopkins University 403(b) plan violated Sections 404 and 406 ERISA. The case is one of a number filed in district courts across the country by the same counsel who bring virtually identical claims against other big-ticket universities to the ones in this particular action.

The complaint states that Johns Hopkins has “not prudently managed its pension plan, known as a 403(b) plan, in violation of ERISA.” Plaintiffs further allege, like their counterparts, that Johns Hopkins has not managed the plan for the exclusive purpose of providing benefits to participants and their beneficiaries.

Weighing the arguments presented by both sides, the District Court reached something of a split decision. As laid out in the text, the court “is aware of four recently issued decisions, including from one sister court within the 4th Circuit, which decided motions to dismiss addressing the same issues related to the respective universities’ pension plans.”

Regarding plaintiffs’ breach of fiduciary duty claims (Counts I, III, V), the court “is persuaded by the reasons set forth in Henderson, Sacerdote and Sweda that plaintiffs fail to state a claim to the extent that plaintiffs allege that offering plan participants too many investment options is imprudent … The court is further persuaded by the reasons set forth in Sacerdote and Sweda that plaintiffs fail to state a claim to the extent that plaintiffs allege that including higher-cost share classes in the plan, instead of available lower-cost share classes of the same funds, is imprudent.”

However, the court declines to toss out all of the plaintiffs’ allegations: “Henderson, Sacerdote and Clark all concluded that allegations that a university offering actively managed funds was imprudent supports a breach of fiduciary duty claim under ERISA, and the court agrees, concluding that the unreasonable management fees and performance losses count states a claim. The court is also persuaded by the reasons set forth in Henderson, Sacerdote and Clark that allegations that a prudent fiduciary would have chosen fewer recordkeepers and run a competitive bidding process for the recordkeeping services supports a breach of fiduciary duty claim.”

Important to note, at this stage, the court says it “cannot make a determination that any of plaintiffs’ other claims fail as a matter of law.” Discovery related to those claims will shed light on whether the court can decide the claims as a matter of law or whether a factfinder must resolve any genuine disputes of material fact.

“Regarding Plaintiffs’ prohibited transactions claims (Counts II, IV, VI), the court is persuaded by the reasons set forth in Henderson and Clark that 29 U.S.C. Section 1002(21)(B) (2012) prohibits plaintiffs from bringing prohibited transaction claims as to the mutual funds included in the plan … The court is also persuaded by the reasons set forth in Henderson and Sacerdote that allegations that revenue sharing from a mutual fund is a prohibited transaction under 29 U.S.C. Section 1106(a)(1)(D) (2012) fail to state a claim.”

The court concludes that plaintiffs’ remaining prohibited transactions allegations sufficiently state a claim. Like plaintiffs’ surviving breach of fiduciary duty claims, the court cannot determine that the remaining prohibited transactions claims fail as a matter of law at this stage of the case.

The full text of the decision is available here