Dueling Dismissal Motions Denied in BlackRock Self-Dealing Lawsuit

The ruling states there are genuine disputes of material facts as to make summary judgement, whether in favor of the plaintiffs or the defense, inappropriate at this time.

A new ruling has been issued by the U.S. District Court for the Northern District of California in an Employee Retirement Income Security Act (ERISA) lawsuit involving BlackRock.

Underlying the lawsuit are allegations that BlackRock engaged in self-dealing within its own retirement plan. The complaint suggests plan fiduciaries selected and retained high-cost and poor-performing investment options with “excessive layers of hidden fees that are not included in the fund expense ratios.”

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Technically, the new ruling comes in response to several motions before the court, including the defendants’ motion for summary judgment, the plaintiffs’ cross-motion for partial summary judgment and a motion to strike. The parties also filed numerous administrative motions to file documents under seal in connection with their briefs. In sum, it denies both motions for summary judgment and the motion to strike, while granting the parties’ administrative motions to file under seal. Short of a voluntary withdrawal by the plaintiffs, such a ruling allows the case to proceed to either a trial or settlement.

The text of the short ruling covers each of these motions in turn, starting with plaintiffs’ motion for partial summary judgment, in which they argue that there are no genuine disputes of material fact as to render a trial necessary. Their motion suggests the record clearly establishes that fiduciary violations occurred.

“The court finds that there are genuine disputes of material fact relevant to whether defendants failed to follow the BlackRock plan’s investment policy statement [IPS] and whether they thereby violated their fiduciary duties,” the ruling counters. “To give one, non-exhaustive, example, plaintiffs argue that defendants failed to obtain an opinion of counsel as required by the IPS before including BlackRock-affiliated funds in the BlackRock plan. The IPS does not define what qualifies as ‘an opinion of counsel.’ Defendants point to evidence in the record that BlackRock’s ERISA counsel were present at the relevant investment committee meetings. … Similarly, the court also finds that there are genuine disputes of material facts relevant to liability under [the U.S. Code].”

The defendants’ motion for summary judgment is similarly rejected.

“Like plaintiffs, defendants also seek resolution of disputed issues of material fact in their favor in their motion for summary judgment,” the ruling states. “As discussed with regard to plaintiffs’ motion, there is a genuine dispute as to whether defendants complied with the IPS’s direction to ‘obtain an opinion of counsel’ that a prohibited transaction exemption [PTE] applied when selecting a fund managed by BlackRock or one of its subsidiaries. This disputed issue is material to the court’s fiduciary duty analysis.”

The ruling notes that the defendants also argue that they are entitled to summary judgment on plaintiffs’ prohibited transactions claims because their actions satisfied certain prohibited transaction exemptions.

“But these exemptions require that the court analyze the reasonableness of the compensation received by defendants,” the ruling states. “As discussed above in relation to plaintiffs’ motion for summary judgment on their [fiduciary liability] claims, analysis of the reasonableness of defendants’ compensation requires resolution of disputed issues of fact; summary judgment is therefore inappropriate.”

On the plaintiffs’ motion to strike the expert testimony of a defense witness, the court is also skeptical. 

“[The witness] is not being offered as an expert in ERISA law but rather as an expert on the processes 401(k) plan fiduciaries apply in their selection and monitoring of funds for plan participants,” the ruling states. “Given the purposes for which [her] testimony is being offered, the court finds that her qualifications provide a reliable basis in the knowledge and experience of the relevant discipline. Given that plaintiffs’ claims are based on defendants’ alleged breaches of fiduciary duty, the testimony about fiduciary processes and practices is also relevant. Therefore, plaintiffs’ motion to strike is denied.”

The full text of the ruling is available here.

Common Mistakes Advisers Make That Should be Avoided

Experts outline several ways advisers can ensure they keep the loyalty of their clients.


Advisers can sometimes slip up on delivering the service they provide to plan sponsors and participants, which could lead to the loss of a client. Here, industry experts outline common mistakes advisers can avoid to remain in their clients’ good graces.

The first thing a retirement plan adviser that charges a sponsor more than $1,000 a year needs to do is disclose their fee, as mandated by the Department of Labor (DOL), says Ary Rosenbaum, managing partner at The Rosenbaum Law Firm P.C. If the adviser fails to do so, Rosenbaum says, the DOL could consider any transaction with the adviser to be a prohibited transaction and could charge the plan sponsor financial penalties.

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Jay Jumper, chief executive officer of ProNvest, agrees, saying, “One of your best options to inspire confidence in the plan sponsor is to be upfront about your fees, making them easy to understand and competitive with the market.”

Sponsors also need to ensure that the fees their adviser is charging them are reasonable, Rosenbaum says. If, through requests for proposals (RFPs) or requests for information (RFIs), the sponsor discovers the fee is unreasonable, they might grow dissatisfied with their adviser, he says.

Rosenbaum goes on to say that there are many advisers who fail to meet with their sponsor clients on a regular basis, which, he maintains, should be twice a year at a minimum, in order to “review the plan, go over the investment lineup and conduct participant enrollment/education meetings.”

Ann-Marie Gorczyca, senior vice president, client services and operations at Vestwell, concurs that this is a common mistake advisers make. “Advisers should be continually engaging with both the plan and participants to increase participation and results,” Gorczyca says. “Where we see unhappy clients is when advisers are less present—or, perhaps, not present at all. Sponsors want regular feedback on employee engagement, fund lineups, plan design, costs and more. If sponsors feel like the plan and its participants are operating on an island, it’s very likely they’ll devalue the need for having an adviser at all.”

Jumper adds that advisers should ensure that they are talking to the key decisionmakers for their clients. “If the adviser is simply in touch with an HR [human resources] or office manager, they won’t have the necessary buy-in,” he says.

Likewise, Rosenbaum says, there are advisers who do not communicate with the plan participants. “ERISA [the Employee Retirement Income Security Act] requires a process that includes a prudent section of plan investments based on set criteria and providing enough information to plan participants so they can make informed investment choices,” Rosenbaum says.

Advisers also need to be on their game when it comes to recommending service providers, he says. “A plan sponsor often relies on their financial adviser for referrals because they assume that the providers should know a thing or two about which providers do a decent job of providing plan service to 401(k) sponsors,” he notes.

Should an adviser make a mistake, Rosenbaum says, they immediately need to own up to it and help the plan sponsor correct it, he says.

“Advisers make mistakes—some more than others,” he says. “The important part is that it’s not frequent and the adviser is willing to make amends for their error.”

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