Judge Dismisses ERISA Lawsuit Against Trader Joe’s

The plaintiffs sued for failing to seek competitive bids for recordkeeping, but admitted to not knowing the amount Trader Joe’s paid in recordkeeping fees.

A lawsuit accusing the Trader Joe’s Co. of several fiduciary breaches, including the failure to seek competitive bids for recordkeeping, has been dismissed.

U.S. District Judge Percy Anderson said the plaintiffs did not have sufficient evidence to corroborate the allegations. “The court therefore finds that plaintiffs’ allegations regarding the allegedly excessive recordkeeping fees are insufficient to survive a motion to dismiss,” he wrote.

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Filed in the U.S. District Court for the Central District of California in January, the Employee Retirement Income Security Act (ERISA) lawsuit alleged two primary breaches—imprudence in the selection of investment options and a lack of care given to monitoring the services and fees paid by the plan. Plaintiffs of the complaint, which was filed on behalf of all participants in the Trader Joe’s defined contribution (DC) plan, also stated plan managers had paid unreasonable recordkeeping fees to the company’s investment manager, Capital Research; failed to seek competitive bids every three years for recordkeeping; and allowed Capital Research to collect and invest excessive fees before giving them back to the plan. Capital Research was not listed as a defendant in the case.

In the complaint, plaintiffs admitted to not knowing the amount Trader Joe’s paid to Capital Research in recordkeeping fees. Instead, the plaintiffs assumed the plan paid “roughly $140 per participant” in recordkeeping fees. In response, Anderson said the guess had no factual basis and failed to claim a breach of fiduciary duties in connection with the recordkeeping arrangement between Trader Joe’s and Capital Research.

The plaintiffs’ next complaint on seeking competitive bids was dismissed on the motion that it “simply recites legal conclusions and does not allege any facts suggesting that the plan fiduciaries could have obtained less expensive recordkeeping services elsewhere through competitive bidding,” Anderson wrote. Additionally, he found no facts “allegedly showing the plan fiduciaries failed to consider putting the fee structure out for competitive bidding or failed to negotiate a reasonable fee structure with Capital Research.”

In response to the complaint on the cost of mutual fund share classes, Anderson found that the plaintiffs “alleged no specific facts” to suggest Trader Joe’s infringed on its fiduciary duty by allegedly failing to offer institutional class shares as opposed to investor class shares.

On Capital Research’s collection of fund revenue, Anderson again said the plaintiffs do not “allege any facts” to support their claim that Capital Research’s repayment of money to participants demonstrated an “admission of excessive fees,” and a breach of duty of prudence.

As for the claim that Trader Joe’s failed to monitor its fiduciary members and process, Anderson stated that because plaintiffs “failed to plead sufficient facts as to their other allegations, they cannot maintain a claim that [Trader Joe’s] failed to monitor their fiduciaries.”

Anderson said he couldn’t conclude that an amendment complaint would be “futile,” so he granted plaintiffs leave to amend. He gave the plaintiffs 14 days from the date of his order to file a first amended complaint.