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In a complex but informative ruling, a federal judge describes
why many aspects of an ERISA complaint leveled against Allianz Asset Management
should be allowed to proceed to a full trial, while others should not.
Plaintiffs in the case originally leveled a host of complaints
against two sets of defendants overseeing the Allianz Asset Management 401(k)
plan, suggesting the “total plan cost of 0.77% is outrageously high for a
defined contribution plan with over $500 million in assets.”
Named in the complaint are Allianz Asset Management of
America (both AAM-LP and AAM-LLC), as well as “the Committee of the Allianz
Asset Management of America, L.P. 401(k) Savings and Retirement Plan … [Chief
Operating Officer and Managing Director of AAM] John Maney … and John Does 1 to
30 … who improperly managed Plan assets for the benefit of themselves and their
affiliates instead of the Plan and its participants.” Several participating
employers and companies within the Allianz family are also named in the
complaint.
Lead plaintiffs Aleksandr Urakhchin and Nathan Marfice filed
their claims in the U.S. District Court for the Central District of California,
seeking an order for Allianz and company “to remedy breaches of fiduciary
duties and unlawful self-dealing.” Plaintiffs seek to recover the financial
losses suffered by the plan through improper fees and self-dealing, and to
obtain injunctive and other equitable relief from the defendants, as provided
by ERISA. Allianz quickly moved with a motion to dismiss the complaint, leading
to the current decision.
In making her decision, District Court Judge Josephine
Staton cites an impressive list of precedents established by, among other cases,
Daniels-Hall v. National Education (2010);
Bell Atlantic Corp. v. Twombly
quoting Papasan v. Allain, (1986); Harris v. Amgen, Inc. (2013) quoting Tellabs, Inc. v. Makor Issues & Rights,
Ltd. (2007); Starr v. Baca (2011);
Chandler v. State Farm Mutual Auto Insurance
Co. (2010); and United States v.
Alcan Electrical & Engineering Inc (1999).
Also informative is the list of evidence and exhibits offered
up by Allianz to the court, urging the rejection of all charges: “Defendants
requested that the Court take judicial notice of six exhibits: (1) a copy of the
2012 Restatement of the Allianz Asset Management of America L.P. 401(k) Savings
and Retirement Plan and amendments thereto (the “Plan Document”), (2) excerpted
copies of Form 5500s for the Plan, which
were publicly filed with the Department of Labor, (3) excerpted copies of
annual reports and prospectuses for the funds at issue, which were publicly
filed with the SEC, (4) an excerpted copy of A Close Look at 401(k) Plans,
a document prepared by the Investment Company Institute, (5) an excerpted copy of
The Study of 401(k) Plan Fees and Expenses, a document prepared by the
Department of Labor, and (6) Morningstar web pages regarding certain funds at
issue in this action.”
NEXT: Incorporation
by reference
As Judge Staton explains in her written opinion, “Generally,
a court may not consider material beyond the complaint in ruling on a motion to
dismiss, via Intri-Plex Techs Inc. v. Crest Group (9th Circuit 2007). However,
courts may consider certain materials—documents attached to the complaint,
documents incorporated by reference in the complaint, or matters of judicial notice—without
converting the motion to dismiss into a motion for summary judgment, via United
States v. Ritchie (9th Cir. 2003).”
Under the “incorporation by reference” doctrine, the
decision explains, courts may take judicial notice of a document where “the
plaintiff’s claim depends on the contents of a document, the defendant attaches
the document to its motion to dismiss, and the parties do not dispute the
authenticity of the document, even though the plaintiff does not explicitly
allege the contents of that document in the complaint … Under Federal Rule of
Evidence 201, a fact is appropriate for judicial notice if it is not subject to
reasonable dispute in that it is (1) generally known within the territorial
jurisdiction of the trial court or (2) capable of accurate and ready
determination by resort to sources whose accuracy cannot reasonably be
questioned … A court must take judicial notice if a party requests it and the
court is supplied with the necessary information.”
In explaining her ruling, Staton first observes the plaintiffs
take no issue with the first and fifth documents, “documents which were
incorporated by reference into the complaint and were attached to the plaintiffs’
complaint … The Court therefore takes judicial notice of these documents. As
for the second, third, and fourth requests, plaintiffs acknowledge that courts
may and often do take judicial notice of such documents, but they argue that defendants’
proposed application of the documents is improper. As to these documents, the
Court takes judicial notice solely of the existence of these matters of public
record, and it does not take judicial notice of one party’s opinion of how a
matter of public record should be interpreted or for the truth of the matter
asserted therein,” the decision states.
“Finally, the court addresses the defendants’ sixth request.
Attached to the complaint are Morningstar reports that analyze the performance
of certain funds at issue in this litigation. Defendants argue that for the
purpose of completeness, the court should consider Morningstar web pages that
subjectively rate the expense level of each fund in the plan. The court finds
that Defendants improperly seek judicial notice of disputed issues of fact.
Accordingly, the court DENIES the Request for Judicial Notice as to these
webpages.”
NEXT: Defendants side
of the picture
In their own motion, defendants rely on three securities
fraud cases where, “to the extent the named plaintiffs did not own the
securities at issue, the claims were dismissed.”
“These cases are inapposite,” the judge writes. “Claims
under sections 11 and 12 of the Securities Act require allegations of a
defendant’s material misrepresentation or nondisclosure when selling
securities. Thus, because of the unique factual nature of these claims, courts
have consistently found that plaintiffs suffer no injury from offerings which
they did not purchase. However, courts have declined to apply the above
bright-line rule when addressing ERISA claims for breach of fiduciary duties.”
According to Judge Staton, it does not matter, at least for
the purpose of constitutional standing, that the plaintiff had not invested in
certain funds being considered in the case. Rather, courts look to the nature
of the claims and allegations to determine whether the pleaded injury relates to
the defendants’ management of the plan as
a whole.
“Here, the crux of plaintiffs’ claims involves the defendants’
alleged practice of selecting and retaining Allianz-affiliated investments
solely to benefit the Allianz family, rather than considering lower cost, unaffiliated
options for the benefit of plan participants,” the decision says. “Due to this alleged
misconduct, plaintiffs were unable to select low-cost options when investing in
the plan. Thus, as in Walsh and Glass Dimensions, the plaintiffs
here allege an injury rooted in defendants’ conduct in managing all the funds
as a group … For this reason, this case is distinguishable from the remaining
cases cited by defendants.”
The decision goes on to cite Fuller v. SunTrust Banks (2012). In Fuller, Judge Staton writes, the
plaintiff provided nothing more than a “bare assertion that a breach of
fiduciary duty harms all plan participants … Here, in contrast, the non-speculative
harm plaintiffs allegedly suffered relates to the defendants’ plan management
and fund selection process as a whole rather than the unique factual nature of
individual funds. Accordingly, plaintiffs adequately allege constitutional
standing as to all the challenged funds in the plan at issue, including funds
in which plaintiffs did not invest. The motion to dismiss is therefore DENIED
on this basis.”
NEXT: Role of the
statute of limitations
Considering statute of limitations issues raised by
defendants in their motion, the complaint concludes the following: “Defendants
argue that information regarding the fees and expenses of alternative plans
were publicly available before 2013, but they do not point to any judicially noticeable
documents indicating that pre-2013 fees, expenses, or cost percentages of
alternative plans were the same or lower than the 2013 or 2014 figures alleged
in the complaint. Nor do any of the plaintiffs’ allegations raise any such
inference. Accordingly, because this affirmative defense is not ‘obvious on the
face of the complaint, dismissal is not warranted on this basis at this stage
in the litigation.”
Judge Staton concludes the plaintiffs “adequately allege a
conflict of interest and improper fiduciary acts that breach the above duties
to plan participants. Contrary to defendants’ assertions, these allegations
adequately question whether the fiduciary used appropriate methods to
investigate the merits of the transaction.”
The ruling actually finishes by granting one significant aspect
of the motion to dismiss as it relates to plaintiffs’ seeking certain forms of
equitable relief: “Plaintiffs fail to allege that any of the money sought to be
disgorged can be traced to particular funds or property in the defendants’
possession. In their opposition brief, plaintiffs assert they will be able to
trace the exact transactions and entities related to each fiduciary breach, and
thus the property is sufficiently traceable for purposes of an equitable
restitution claim. However, plaintiffs fail to make any such allegations in
their operative complaint, and they may not amend their [complaint] through an opposition
brief. Plaintiffs also argue there is a ‘limited exception’ to the traceability
requirement ‘for an accounting for profits, a form of equitable restitution’
wherein a plaintiff may ‘recover profits produced by defendant’s use of plaintiff’s
property, even if they cannot identify a particular res containing the profits
sought to be recovered.”
Seeking an accounting of profits against fiduciaries is
generally considered equitable relief, Judge Staton observes, “while a suit
seeking the identical relief against a non-fiduciary would normally be a suit
at law, thereby characterizing the relief sought as legal rather than equitable
… Given that this third claim is alleged against non-fiduciary defendants, the ‘limited
exception’ to the traceability requirement does not apply here … Accordingly,
for the above reasons, plaintiffs fail to state a claim for equitable relief
under § 1132(a)(3). The Motion is therefore GRANTED as to this claim, which is DISMISSED
WITHOUT PREJUDICE.”