United States: Checklist For Strengthening Your Defenses To 401k Plan Class Actions

The last ten years have seen a proliferation of high-profile class actions alleging breach of ERISA fiduciary duties of prudence and loyalty against plan fiduciaries. The claims are usually based upon alleged excessive investment management fees, excessive plan recordkeeping and other administrative expenses, and poor performance of investment options selected by and retained in the plan's investment menu by the plan's fiduciaries. Many of these cases also include claims based on alleged prohibited transactions between a plan and its fiduciaries or parties in interest under ERISA section 406.

Application of the governing legal standards (adapted from the law of trusts) to these claims – performance of fiduciary duties solely in the interest of the plan's participants and beneficiaries and with the care and diligence "under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims (29 U.S.C. § 1104(a) – is flexible, imprecise and fact-intensive.

These cases usually settle after protracted and expensive litigation, with substantial awards of attorneys' fees to plaintiffs' counsel. "Plaintiffs Ramp Up 401(k) Lawsuits." The Wall Street Journal, July 14, 2017. For example, surviving aspects of both the Tibble and Tussey cases, referenced below, are still being litigated after ten years of motion and appellate practice. Accordingly, it is in the interest of plan sponsors and plan fiduciaries to take all reasonable steps to head off claims quickly if they are asserted. The following checklist is offered as a non-exclusive guide for those purposes.

  • Strengthen Defenses to a Class Action
    • Have legal counsel evaluate the complaint in light of the prevailing case law in your jurisdiction. The following is a summary of seminal cases:
      • Tibble v. Edison International, 135 S. Ct. 1823 (2015).
      • The only Supreme Court case in the area held that plan sponsors have a continuing duty to review investments in 401(k) plans, even if the investment was initially selected outside ERISA's six-year statute of limitations period for fiduciary claims.
      • Tatum v. RJR Pension Inv. Comm., 761 F.3d 346 (4th Cir. 2014).
        • The Fourth Circuit affirmed the district court's holding that an employer breached its fiduciary duty under ERISA when it liquidated two employer stock funds held by a 401(k) plan, which resulted in substantial loss to the participants, without conducting a thorough investigation.
      • Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014)
        • "Because the content of the duty of prudence turns on 'the circumstances prevailing at the time the fiduciary acts [under 29 U.S.C. §1104(a(1)(B)] the appropriate inquiry will necessarily be content specific."
      • Pension Benefit Guar. Corp. ex rel. St. Vincent v. Morgan Stanley Inv. Mgmt. (St. Vincent"), 712 F.3d 705, 716 (2d Cir. 2012)
        • A fiduciary's actions are judged based upon information available to the fiduciary at the time of each investment decision and not from the vantage point of hindsight. A court is required "to consider the extent to which plan fiduciaries at a given point in time reasonably could have predicted the outcome that followed."
      • Tussey v. ABB, Inc., 746 F.3d 327 (8th Cir. 2014).
        • The court found that the fiduciaries breached their duty of loyalty and prudence by failing to:
          • Adequately monitor recordkeeping costs;
          • Determine whether the record keeping costs were competitive; and
          • Adequately leverage the plan's size to reduce fees
        • Significant facts were that plan fiduciaries were allowing revenue sharing as a kickback for including the record keeper's proprietary funds as plan investment options, had allowed the plan to subsidize non-plan operations of the plan sponsor and record keeper, and had disregarded a consultant's warning that the plan expenses were excessive.
    • Alert the fiduciary insurance carrier to get defense coverage in place.
    • Hire a damage expert to evaluate potential exposure from both plaintiffs' and defendants' best case perspective and help craft a settlement offer.
    • Be attentive to safeguarding the attorney-client privilege and work product doctrine protection in discovery and if the case goes to trial. Consider obtaining advice and analysis from consultant(s) who will not be a testifying as expert witnesses on summary judgment or at trial. Keep written consultant reports to the necessary minimum.
    • Hire a law firm with a good track record in winning ERISA fiduciary duty class actions or obtaining reasonable early settlements.
    • Early stage litigation strategy.
      • Attempt to knock out the case on a motion to dismiss, (as successfully done by Chevron in the recent case of White v. Chevron Corp., No. 16-cv-0793-PJH, 2016 U.S. Distr. LEXIS 115875 (N.D. Cal. Aug. 29, 2016). In the Chevron case, the District Court ruled that a fiduciary's decision should not be reviewed with hindsight but in light of the circumstances when the decision was made. The Court also said that while investment fees are important, they are only one factor to consider when selecting investments.
      • Likewise, in Meiners v. Wells Fargo & Co., No. 0:16-cv-03981-DSD-FLN (D. Minn. May 25, 2017), the court granted a motion to dismiss with prejudice against claims that Wells Fargo's Target Date Funds underperformed comparable Vanguard funds and were more expensive than comparable Vanguard and Fidelity funds. The court held that comparison of performance for different funds was insufficient to imply that the plan's decision making process was flawed, when the comparator funds had a different investment strategy. The mere fact that the plan's funds were more expensive than other funds did not support a breach of fiduciary duty absent facts that the claimed cheaper comparators were reliable, of similar size and offered similar services. In order to show that the fiduciary breached its duties by promoting its own proprietary funds, the court held that the plaintiff must provide additional facts showing that the fiduciary's decision was based on financial interest rather than a legitimate consideration. The Meiners dismissal has been appealed to the Eighth Circuit.
      • By stipulated agreement or, if necessary, motion, obtain a protective order to safeguard confidential information against improper use and disclosure of confidential information and a Federal Rules of Evidence 502(d) order to preserve rights to protect against inadvertent disclosure of confidential electronically stored information.
      • Take advantage of circuit law to the extent available to invoke the three-year statute of limitations of 29 U.S.C. § 1113(2) by demonstrating that the named plaintiffs had timely "actual knowledge" of facts necessary to support their claims. See, e.g., In re Northrup Grumman Corp. ERISA Litig., 2015 U.S. Dist. LEXIS 176822, **74-100 (C.D. Cal. Nov. 24, 2015) ("Under the standard adopted by the Ninth Circuit, the 'statute of limitations is triggered by knowledge of the transaction that constituted the alleged violation, not by plaintiffs' knowledge of the law, "citing Blanton v. Anzalone, 760 F.2d 989, 992 (9th Cir. 1985). Also see Sulyma v. Intel Corp. Inv. Policy Comm., No. 15-cv-04977-NC, 2017WL 1217185 (N.D. Cal. Mar. 31, 2017) where the Court ruled that the plaintiffs' claims were time barred under ERISA's three year statute of limitations because Intel sent financial disclosures which conferred "actual knowledge" of the transaction (not necessarily knowledge of the law) more than three years prior to the lawsuit. The Sulyma case is on appeal to the Ninth Circuit.
      • See also Brotherston v. Putnam Investments, LLC., No. 1:15-cv-13825-WGY (D. Mass. March 30, 2017), where the court, similarly to Sulyma, granted summary judgment for Putnam on certain claims based on the "actual knowledge" standard.. (On June 19, 2017, after the plaintiffs rested, the court entered judgment for Putnam on the remaining claims in Brotherston because the plaintiffs failed to prove loss causation necessary to support damages for breach of fiduciary duty). Brotherston has been appealed to the First Circuit.
      • Narrow the class with standing arguments (Fuller v. Sun Trust Banks, Inc., 2012 WL 1432306 (N.D. Ga. Mar. 20, 2012) (named plaintiff lacked standing to raise her claims with respect to a fund in which she did not invest) and the time period with statute of limitations arguments (In re Northrop Grumman Corp. ERISA Litig., 2015 U.S. Dist. LEXIS 176822 (C.D.Cal. Nov. 24, 2015)).
      • If possible, try to settle cases before disposition of motions. Such a strategy will usually require class discovery, certification of a class for settlement purposes, notice to putative class members, a fairness hearing by the court, and a consent t order approving the class settlement and barring further litigation of class claims by class members.
    • Summary judgment strategies,/class action strategies
      • Develop arguments under FRCP Rule 23 to limit class scope and require division into subclasses as appropriate.
      • Ensure that notice(s) to putative class members are accurate, informative and unbiased.
      • Prepare for fairness hearing and any opt-out attempts by putative class members.
      • Identify, engage and prepare an expert on plan expense and investment performance who will support the defense by testimony for summary judgment or at trial.
      • Consider Daubert motion(s) challenging qualifications of Plaintiff's expert(s).
      • Preparation of pre-trial order and trial memorandum outlining the defense factual presentation and analyzing and arguing the applicable law.
      • Identification and preparation of trial exhibits.
      • Consider of motions for judgment as a matter of law at the appropriate trial points.
  • Conclusion
    • The foregoing checklist will help your company and the plan fiduciaries minimize class action exposure if one is filed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
26 Sep 2018, Seminar, Tokyo, Japan

Orrick’s Global Japan Practice is hosting a series of “Orrick Library” seminars to explore legal issues in various fields in Japan as well as the United States, Asia and Europe

26 Sep 2018, Conference, New York, United States

Employment Partner, Mandy Perry and Chair of Orrick's Global Employment Law Practice, Mike Delikat will be participating in the Global Business Protections 2018: International Restrictive Covenants and Confidential Information Conference.

10 Oct 2018, Conference, Florida, United States
Julie Totten is Program Chair of this year’s conference, Lynne Hermle is speaking on women in the courtroom, boardroom, and c-suite, and Erin Connell is speaking on pay equity and pay transparency.

Similar Articles
Relevancy Powered by MondaqAI
Proskauer Rose LLP
Proskauer Rose LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Proskauer Rose LLP
Proskauer Rose LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions