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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
Plan participants in 401(k) plans may be able to bring a class action for breach of fiduciary duty involving excess fees and imprudent investment options if the class is properly defined to ensure that the applicable typicality and adequacy of defense requirements are satisfied, according to the Seventh Circuit Court of Appeals in Spano v. The Boeing Company (CA-7) and Beesley v. International Paper Company. However, the court vacated a class certification that was so broad and diffuse as to not allow for a determination of whether there was sufficient congruence between the interests of members of the class.
Class action suits allege excess fees and other fiduciary breaches
Participants in 401(k) plans maintained by Boeing and International Paper brought separate suits under ERISA, alleging various breaches of fiduciary duty. Specifically, it was charged that the fiduciaries: caused the plans to pay excessive fees and expenses (through contract fees and revenue sharing for mutual funds in the plans); included improper investment options in the plans; and concealed material information from participants regarding plan fees and expenses and plan investment options.
The trial court granted each of the participant representatives' motions to certify a class under Federal Rule of Civil Procedure 23(b)(1) (Rule 23). The class definition adopted by the trial court included "all persons, excluding the Defendants and/or other individuals who are or may be liable for the conduct described in the Complaint, who are, were, or may have been affected by the conduct set forth in the Complaint, as well as those who will become participants or beneficiaries of the Plan in the future."
The companies appealed, arguing that the class definition did not meet the applicable procedural requirements. More broadly, the companies asserted that class treatment is never permissible for actions under a defined contribution (DC) plan because each employee chooses which instrument to include in his or her account and the amount of the investment. The Seventh Circuit consolidated the cases in order to review the disputed class certification.
Class action fiduciary breach claims under DC plans
Initially, the appeals court found that individual participants in a DC plan are not precluded, under LaRue v. DeWolff, Boberg & Associates (552 U.S 248 (2008)), from bringing fiduciary breach claims as a class action. However, LaRue does not guarantee individual participants the right to proceed as a class. The Seventh Circuit emphasized that before deciding whether to allow a case to proceed as a class action, a trial court must make the factual and legal inquiries necessary under Rule 23. It is not sufficient for the trial court to review the complaint and ask whether, taking the facts as the party seeking the class presents them, the case seems suitable for class treatment.
With respect to the Boeing plan participants, the court initially found that the charge that the company imposed excess fees on participants and the claim that the company failed to satisfy its fiduciary duties in the selection of investment options described problems that could operate across the plan, rather than just at an individual level. Accordingly, the court concluded that the proposed class met the commonality requirement of Rule 23(a)(2).
However, the court was unable to determine whether the typicality requirement of Rule 23(a)(3) was met because the class was defined too broadly to allow it to ascertain whether there was sufficient congruence between the investments held by the named plaintiffs and those held by the unnamed members of the class. A class representative in a DC case, the court explained, must "at a minimum, need to have invested in the same funds as class members."
In addition, the court could not determine, because of the size of the class, whether the adequacy of defense requirement of Rule 23(a) was met. The court suggested that some members of the broadly defined class could actually be harmed by the relief being sought.
With respect to Rule 23(b), the court stressed that, absent a common interest between the class members, it could not assume that an adjudication of one person's claim would be dispositive of the interests of other members not parties to individual adjudication or would substantially impair or impede their ability to protect their interests (as required under Rule 23(b)(1)((B)).
The court further found that the failure to satisfy the requirements of typicality and adequacy of defense also applied to the class of International Paper participants. According to the court, there was no guarantee that the misrepresentation claims of the lead plaintiff were typical of the other members of the class. Similar problems pertained to the imprudent investment option claims and excess fee charges.
CCH Note: The court suggested that a more clearly defined class could satisfy the Rule 23(a) requirements. In defining the class more narrowly on remand, the trial court would, however, need to assure the class representatives, at a "meaningful level of detail" stand in the same position as the absentee members of the class.
For more information, visit http://www.wolterskluwerlb.com/rbcs.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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