$300 Million Plan Faces ERISA Fiduciary Breach Lawsuit

The plan being challenged in the latest fiduciary breach lawsuit held less than $300 million as of the start of last year, making it one of the smallest to become the target of an ERISA complaint.

Plaintiffs have filed a new Employee Retirement Income Security Act (ERISA) lawsuit in the U.S. District Court for the Eastern District of Pennsylvania, naming as defendants the CDI Corp. and its board of directors, among others.

The claims in the lawsuit echo those detailed in the numerous ERISA challenges raised in recent years, but this litigation is distinguished by the relatively small size of the plan in question. Court documents show that, as of December 31, 2018, the plan had roughly $263 million in assets entrusted to the care of its fiduciaries. Those using retirement industry parlance would label this as either a “medium” or “large” plan, depending on their frame of reference, but either way it is much smaller than the $1 billion-plus retirement plans that historically have tended to be the focus of ERISA litigation.

Beyond this fact, the lawsuit closely resembles many others in its focus on excessive fees and share class issues. The plaintiffs claim that, during the proposed class period of July 7, 2014, to the present, the fiduciary defendants failed to objectively and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost and performance. The complaint further alleges that the plan inappropriately maintained certain funds in the investment lineup presented to participants, despite the availability of identical or similar investment options with lower costs and/or better performance histories. Additionally, the plaintiffs claim the defendants failed to select the lowest-cost share class for many of the funds within the plan.

The text of the complaint seeks to prove that the named defendants were fiduciaries of the plan because they were so named; because they exercised authority or control respecting management or disposition of the plan’s assets; because they exercised discretionary authority or discretionary control respecting management of the plan; and because they had discretionary authority or discretionary responsibility in the administration of the plan.

“During the class period, defendants did not act in the best interests of the plan’s participants,” the complaint states. “Investment options chosen for a plan should not favor the fund provider over the plan’s participants. Yet, here, to the detriment of the plan and their participants and beneficiaries, the plan’s fiduciaries included and retained in the plan many investment options that were more expensive than necessary and otherwise were not justified on the basis of their economic value to the plan. Based on reasonable inferences from the facts set forth in this complaint, during the class period, defendants failed to have a proper system of review in place to ensure that participants in the plan were being charged appropriate and reasonable fees for each of the investment options.”

The complaint goes on to allege that the defendants failed to leverage the size of the plan to negotiate the lowest expense ratio available for certain investment options maintained and/or added to the plan during the class period. The plaintiffs state that, throughout the class period, the plan’s investment options have been “dominated by high cost, actively managed funds, despite the fact that these funds charged grossly excessive fees compared with comparable or superior alternatives, and despite ample evidence available to a reasonable fiduciary that these funds had become imprudent due to their high costs.”

The plaintiffs conclude these alleged fiduciary failures have resulted in millions of dollars of losses to the plan and its participants, and they call for both monetary and injunctive relief.

This complaint represents an early step in the litigation process. Different results have come from similarly argued complaints, depending on the specific facts and circumstances being considered and based on different legal precedents held in different regions. For its part, CDI Corp. has not yet responded to a request for comment.