The United States District Court for the Northern District of Illinois, Eastern Division, has ruled for the defendants in an Employee Retirement Income Security Act (ERISA) lawsuit filed by participants in the Caterpillar 401(k) plan against Aon Hewitt.
A number of Aon Hewitt companies were named as defendants in the lawsuit, including Aon Hewitt Financial Advisors, Hewitt Financial Services and Hewitt Associates. Another provider, Financial Engines, was also named in the text of the suit but was not actually challenged as a defendant.
The central claim in the proposed class action was that plaintiffs were forced to overpay significantly for advisory services provided by Financial Engines, with the excess payments essentially amounting to kickbacks returned to Hewitt defendants. As the text of the lawsuit laid out, for periods prior to 2014, Financial Engines provided services directly to plaintiffs and other Caterpillar plan participants and was paid directly from participants’ accounts. But the fee for those services was significantly higher than it should have been because the agreement between defendants and Financial Engines required Financial Engines to kick back to defendant Hewitt a significant percentage of the fees charged by Financial Engines, plaintiffs claimed, even though Hewitt and its sister company co-defendants did not perform any investment advisory or other material services in exchange for the payment they received.
Responding to these allegations, the defendants denied wrongdoing and argued that the plaintiffs failed to state any legally cognizable claims—and that the complaint should be summarily dismissed. Defendants argued they are not a fiduciary of the plan for the purposes in question here, and that they did not act as a fiduciary with respect to Hewitt’s receipt of fees from Financial Engines or the firms’ retention of Financial Engines as subadviser.
Beyond this, defendants argued that plaintiffs’ prohibited transaction and self-dealing claims should collectively fail because they “do not allege their essential elements.” Additionally, defendants asserted plaintiffs’ non-fiduciary liability claims should be dismissed because the plaintiffs “fail to allege a predicate prohibited transaction.”
The text of the decision includes detailed argumentation on all of these points, with the court broadly siding with defendants throughout.
For example, the decision states clearly that “nowhere in her complaint does [the lead plaintiff] allege that Hewitt is identified as a fiduciary in any plan documents, and [the plaintiff’s] conclusory allegations that Hewitt controlled Caterpillar’s decision to engage Financial Engines are contradicted by the Hewitt/Financial Engines Master Service Agreement.”
The decision goes on: “The language of the Hewitt/Financial Engines Master Service Agreement makes it clear that Caterpillar, and not Hewitt, retained the sole and final authority to decide whether to hire Financial Engines. [Plaintiff’s] allegations that (1) Hewitt gave Caterpillar no choice but to accept Financial Engines if Caterpillar wished to provide investment advisory services, and that (2) Hewitt hired Financial Engines on the Plan’s behalf are conclusory and not plausible in light of the parties’ agreement. In light of the language of the Hewitt/Financial Engines Master Service Agreement, and nothing to the contrary in the record except Scott’s bald allegations of ‘control,’ the court concludes Caterpillar had sole authority to select and hire Financial Engines, and it is not plausible on this record that Hewitt had any final authority or control over the selection and hiring of Financial Engines.”
As the court points out, similar claims have recently been rejected by other district courts.
“Even construing the facts in her favor, as the court must do at the motion to dismiss stage, nowhere in her complaint does [the lead plaintiff] allege any facts to support a claim that Hewitt provided individualized investment advice to the plan on a regular basis pursuant to a mutual agreement that its advice would serve as a primary basis for the plan’s investment decisions,” the decision further explains. “There is nothing to indicate, other than bare and conclusory allegations, that Hewitt exercised discretionary authority over the plan or its assets, and those bare and conclusory allegations are not enough to survive a motion to dismiss.”
Importantly, the dismissal was handed down “without prejudice,” and the plaintiff may, if she chooses to do so, file an amended complaint consistent with the court’s opinion and order. There is a 30-day deadline assigned for this purpose.
Another important caveat pointed out in the dismissal decision is that “it is not disputed that Aon Hewitt Financial Advisors [AFA] is a fiduciary to the plan for the purpose of providing investment advice to the plan participants, but that does not make AFA a fiduciary for all purposes.” This is important because the plaintiff here alleged that AFA breached its fiduciary duties by receiving an excessive fee from Caterpillar. “However, it is well-established that a service provider who negotiates its own compensation with a plan fiduciary at arm’s length is not a fiduciary for that purpose,” the decision concludes. “Courts have held that a fiduciary’s negotiation of its own compensation is a non-fiduciary act as a matter of law.”
The full text of the decision includes significantly more detail arguments as to why the plaintiff has broadly failed to state an actionable claim and is available in full here.