Pension & Benefits News ERISA fiduciary breach claims arising from allegedly excessive plan investment fees subject to arbitration
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Monday, January 27, 2020

ERISA fiduciary breach claims arising from allegedly excessive plan investment fees subject to arbitration

By Pension and Benefits Editorial Staff

A putative class action brought by 401(k) plan participants, alleging that plan fiduciaries breached their duties under ERISA by populating the plan’s investment menu with high fee, actively managed options and failing to monitor and remove imprudent options, was referred to arbitration by a federal trial court in Texas. The arbitrator would need to determine whether the participants’ claims were excluded from an arbitration agreement and whether a participant’s individual representative claim on behalf of the plan was waived under the agreement.

Allegedly excessive plan investment fees. Greystar, a property management company based in Texas, sponsors a 401(k) plan that covers over 10,000 participants and holds assets of between $100 and $250 million. Plan participants charged that, for every year between 2013 and 2017, the administrative fees charged to plan participants exceeded 90 percent of the fees of comparators, when fees were calculated on either a cost per participant basis or as a percentage of total assets.

The participants further averred that the plan fiduciaries selected and retained the plan’s excessively costly, actively managed investments while failing to adequately and prudently investigate the use of readily available lower cost, passively managed funds. As a consequence of the fiduciaries’ breach of their duties of prudence and loyalty and their failure to monitor the plan’s investment options, the participants claimed that they lost millions of dollars in retirement savings through excessive fees.

The fiduciaries brought a motion to compel individual arbitration and to dismiss the complaint. The fiduciaries relied on an arbitration provision in the Greystar Mutual Agreement to Arbitrate Claims. The court granted the motion to compel arbitration but held in abeyance the motion to dismiss the participants’ claims pending the arbitration proceeding.

Order to compel arbitration. The court in a brief, two-page order that did not address any of the participants’ substantive ERISA claims referred to arbitration the following issues for determination.

  1. Whether any claim in the lawsuit was excluded from the arbitration agreement because it is based on “stock option plans, team member pension and/or welfare benefit plans [which contain] some form of a grievance, arbitration, or other procedure for the resolution of disputes under the plan.”
  2. Whether a plaintiff’s individual representative claim on behalf of the plan was waived under the arbitration agreement.
  3. Whether waiver of an individual representative claim under the arbitration agreement was to be determined by the arbitrator, rather than the court.

In addition, the case was referred to arbitration for a ruling on any individual claim raised by the named plaintiff, on her own behalf as a beneficiary of the plan, that was separate and apart from her claim on behalf of the Plan.

Note: The case reflects a growing receptivity in the federal courts to the arbitration of ERISA claims. The Texas case arose shortly after a decision by the Ninth Circuit in August 2019, in which the appeals court ruled that a participant in a plan sponsored by Charles Schwab was required to submit claims for fiduciary breach to arbitration pursuant to a plan provision that required the individual arbitration of ERISA claims (Dorman v. The Charles Schwab Corp.). The Ninth Circuit relied heavily on the Supreme Court’s holding in American Express Co. v. Italian Colors Restaurant, that federal statutory claims are generally arbitrable and arbitrators are competent to interpret and apply federal statutes (U.S. Sup. Ct (2013), 570 U.S. 228)

Source: Torres v. Greystar Management Services, L.P. (DC TX).

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