A new Employee Retirement Income Security Act (ERISA) lawsuit filed in the U.S. District Court for the Southern District of Ohio names as defendants the Cintas Corporation, its board of directors, its retirement plan investment committee, and some 30 John Does.
The complaint was filed by two plan participants, who are suing on behalf of similarly situated participants and the Cintas Partners’ retirement plan as a whole. They allege that during the putative class period of December 13, 2013, to the present, these fiduciary defendants breached the duties they owed to the plan and its participants.
The lawsuit specifically alleges that the 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 maintaining certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories.”
The plaintiffs further allege that the defendants failed to utilize the lowest cost share class for many of the mutual funds within the plan, and failed to consider collective trusts, commingled accounts, or separate accounts as alternatives to the mutual funds in the plan. In addition, the plan fiduciaries are accused of overpaying for recordkeeping services.
“Defendants’ mismanagement of the plan, to the detriment of participants and beneficiaries, constitutes a breach of the fiduciary duties of prudence and loyalty, in violation of 29 U.S.C. § 1104,” the lawsuit states. “Their actions were contrary to actions of a reasonable fiduciary and cost the plan and its participants millions of dollars.”
Based on this conduct, the plaintiffs assert claims against defendants for breach of the fiduciary duties of loyalty and prudence (count one) and failure to monitor fiduciaries (count two).
Anticipating likely challenges about the lawsuits’ timeliness, the plaintiffs suggest they “did not have knowledge of all material facts (including, among other things, the investment alternatives that are comparable to the investments offered within the plan, comparisons of the costs and investment performance of plan investments versus available alternatives within similarly-sized plans, total cost comparisons to similarly-sized plans, information regarding other available share classes, and information regarding the availability and pricing of separate accounts and collective trusts) necessary to understand that defendants breached their fiduciary duties and engaged in other unlawful conduct in violation of ERISA until shortly before this suit was filed.”
Further, plaintiffs say they did not have and do not have “actual knowledge of the specifics of defendants’ decision process with respect to the plan, including defendants’ processes for selecting, monitoring, and removing plan investments, because this information is solely within the possession of defendants prior to discovery.”
“Having never managed a jumbo 401(k) plan such as the plan, plaintiffs lacked actual knowledge of reasonable fee levels and prudent alternatives available to such plans,” the lawsuit suggests. “Plaintiffs did not and could not review the committee meeting minutes or other evidence of defendants’ fiduciary decision making, or the lack thereof. For purposes of this complaint, plaintiffs have drawn reasonable inferences regarding these processes based upon (among other things) the facts set forth herein.”
The text of the lawsuit includes the typical recitations of the fiduciary duties demanded by ERISA, as well as arguments supporting the class certification of the claims. It also includes generic argumentation about the ability of large retirement plans to secure better-than-retail pricing for investment products and plan administration services, as well as an argument that passive investment funds are more appropriate for ERISA-covered retirement plans.
“During the class period, the plan lost millions of dollars in offering investment options that had similar or virtually identical characteristics to other investment options other than a higher price,” the lawsuit suggests. “For example, as of the end of 2017, all but two of the funds in the plan were much more expensive than comparable funds found in the market-place. The T. Rowe Price Retirement 2030, 2040, 2020, 2035, 2050, and 2025 Advisor target-date funds had expense ratios of 0.92%, 0.97%, 0.86%, 0.95%, 0.97%, 0.89%, respectively, which were nearly twice the category median fee of 0.56% for plans with at least $1 billion in assets. … The T. Rowe Price Growth Stock Adv. and Artisan Mid Cap Investor had .92% and 1.18% expense ratios, respectively, nearly three- and four-times the 0.31% median for domestic equity funds.”
Cintas leadership shared the following statement with PLANADVISER: “Cintas has no comment on this pending litigation beyond the fact that we believe it has no merit and will defend ourselves vigorously in court.”