The defense has filed a motion to dismiss the Employee Retirement Income Security Act (ERISA) lawsuit known as Pinnell v. Teva Pharmaceuticals USA.
The case is pending in the U.S. District Court for the Eastern District of Pennsylvania. In the underlying suit, the plaintiffs—three former employees of Teva Pharmaceuticals USA—claim that the defendants breached their ERISA fiduciary duties by imprudently managing the company’s retirement plan.
Distinguishing this challenge from other ongoing fiduciary breach lawsuits is the fact that the plaintiffs do not challenge the performance of any plan investment. Rather, their claims focus solely on the fees paid by the plan’s participants, alleging the defendants violated ERISA’s duties of prudence and loyalty by failing to select the least expensive investment options and permitting participants to pay excessive recordkeeping fees.
While similar ERISA “excessive fee” lawsuits have seen some success in the district and appellate courts, the defense says the Eastern District of Pennsylvania should dismiss this complaint because the plaintiffs’ theory of liability is “antithetical to the discretion afforded to ERISA plan fiduciaries in designing a 401(k) plan investment menu and contrary to Third Circuit precedent.”
On this point, the defense cites a variety of cases, including Renfro v. Unisys Corp., which was decided in 2011 by the 3rd U.S. Circuit Court of Appeals. According to the defense, that case established that, “where participants can choose from a diverse mix of investments charging a reasonable range of fees, the fact that fiduciaries did not select the cheapest investment does not plausibly suggest a breach of fiduciary duties.”
The defense goes on to argue that ERISA establishes the “outer bounds” of prudent conduct, as judged by the reasonableness of a fiduciary’s decision process under “the circumstances then prevailing.”
“Within those bounds, ERISA affords fiduciaries substantial discretion to structure a plan that best suits its participants and the intent of the plan sponsor,” the defense argues. “Plaintiffs’ scattershot critiques of the plan fail to suggest even one plausible legal claim. Plaintiffs advance four primary theories to support their excessive-investment-management-fee claim, all of which are simply different iterations of the contention that the plan could have offered less-expensive investments.”
The plaintiffs, as detailed in the original complaint, are arguing that Teva’s plan fiduciaries did not have a prudent or reasonable process in place to manage the retirement plan investment menu. They say the offering of “retail” share class mutual funds that are more expensive than the otherwise identical and easily available institutionally priced mutual funds is imprudent on its face—as are the plan’s alleged failures to consider the use of collective investment trusts in a timely manner and other cost-savings strategies available to “jumbo retirement plans,” such as the aggressive negotiation of lower recordkeeping fees.
Specifically, Teva’s new dismissal motion argues that the plaintiffs fail to state an actionable claim under ERISA.
“Renfro disposes of plaintiffs’ claim that the plan’s investments were too expensive,” the motion states. “The Renfro plaintiffs alleged that the defendants breached their fiduciary duties by offering retail share class mutual funds that charged excessive investment management fees compared to alternative funds. The plan’s investments charged fees that ranged from 0.10% to 1.21%. The Renfro plaintiffs did not allege ‘any sort of concealed kickback scheme relating to fee payments’ or make other allegations of mismanagement; rather, the allegations concerning fees were directed exclusively to the fee structure. The Third Circuit affirmed dismissal of Renfro because the allegations did not support a reasonable inference that the defendants utilized a flawed fiduciary process.”
In turn, the defense argues, the allegations found deficient in Renfro “are materially indistinguishable from those in the Pinnell complaint.”
“Throughout the class period, plan participants could choose from roughly 27 different investments with varying profiles and expense ratios that ranged from 0.04% to 1.10%, lower than the expense ratios found reasonable as a matter of law in Renfro,” the motion states.
The dismissal motion further states there is “nothing in [ERISA] that requires plan fiduciaries to include any particular mix of investment vehicles in their plan.” Thus, the defense argues, the claim that plan fiduciaries breached their duties because they could have switched to collective investment trusts or separately managed accounts at an earlier date fails as a matter of law.