AT&T Defeats ERISA Challenge, but Amended Complaint Is Likely

The United States District Court for the Central District of California has ruled in favor of AT&T’s motion to dismiss an Employee Retirement Income Security Act (ERISA) challenge that also included allegations of wrongdoing against Fidelity and Financial Engines.

The court’s decision is based on questions of timeliness and a lack of standing, rather than on the facts of the relevant compensatory arrangements in place between the defendants.

As explained in case documents, the plan in question here is a defined contribution retirement plan subject to the fiduciary care requirements of ERISA. It is a mega-sized plan, with more than $34 billion in assets, and is funded by a typical combination of salary withholdings by its participants and employer matching contributions. The plaintiffs sought to establish class standing and were all current or former employees of AT&T.

The allegations in the underlying complaint matched those leveled in related cases involving Fidelity and Financial Engines, and they are summarized in the text of the decision as follows: “In light of the plan’s large size and the competition among recordkeeping service providers, the plan had the bargaining power to obtain and maintain very low fees for recordkeeping and other administrative services, and had significant leverage to procure high quality management and administrative services at a low cost. Defendants, however, failed to leverage the plan’s size to obtain reasonable recordkeeping fees.”

Plaintiffs had argued further claims to the effect that, in 2014, Fidelity began to receive “indirect compensation from Financial Engines without providing any material service to Financial Engines or plan participants to justify these payments. Defendants’ failure to monitor Fidelity’s total compensation caused the plan’s participants to pay unreasonable administrative expenses to Fidelity. This was part of a larger agreement between AT&T and Fidelity, whereby Fidelity offered other benefits to AT&T and was motivated primarily by defendants’ self-interest and at the expense of the plan’s participants.”

Finally, plaintiffs argued that defendants “controlled the mutual funds that would be offered to the plan’s participants through [Fidelity’s] BrokerageLink and offered retail shares of certain mutual funds when less expensive institutional shares of the same fund were also available.”

After reviewing the full sweep of the allegations, along with a series of cross motions from each party, the court first agrees with defendants that the “lack of allegations that any of the named plaintiffs invested in a retail share of a mutual fund for which institutional shares were supposedly available is fatal because plaintiffs have thus failed to show the requisite injury with respect to BrokerageLink.”

“Here, while the complaint alleges that Plaintiff Bugielski made investments through BrokerageLink to his ‘financial detriment,’ the complaint lacks any details as to what funds Bugielski purchased or how this led to his ‘financial detriment,’” the decision explains. “The complaint does not allege that any plaintiff purchased any of the more expensive retail shares through BrokerageLink. The allegation that Bugielski was enrolled in BrokerageLink is not sufficient to support a plausible inference that he suffered an injury.”

Important to note, the court has left room for the plaintiffs to amend this part of their complaint, meaning the matter may not entirely be settled.

On the timeliness question, the court again sides strongly with defendants and applies ERISA’s shorter of two possible statutes of limitation, on the following grounds: “The Ninth Circuit has held that the actual knowledge that triggers the statute of limitations is the plaintiffs’ knowledge of the transaction that constituted the alleged violation, not their knowledge of the law. Thus, a plaintiff’s receipt of certain plan documents, such as a Form 5500, can give rise to the actual knowledge that triggers the three-year statute of limitations.”

As noted in the decision, plaintiffs filed this suit in November 2017.

“Although plaintiffs argue that the Form 5500s, of which the court has taken judicial notice, were not distributed to participants, plaintiffs do not and cannot dispute that such documents were indeed publicly available by October 2014, and that these Form 5500s form the basis of their recordkeeping and BrokerageLink claims,” the decision explains. “Even if the court were to adopt plaintiffs’ literal reading of ‘actual knowledge,’ the complaint lacks any allegation regarding when plaintiffs discovered defendants’ alleged misconduct and the court is unable to determine whether the statute of limitations applies. This defect, however, does not appear incurable, and while the court grants defendants’ motion on timeliness grounds, the court will allow plaintiff leave to amend.”

The full text of the decisions is available here.