American Airlines Can’t Nix Retirement Plan Investment Lawsuit

Pension & Benefits Daily™ covers all major legislative, regulatory, legal, and industry developments in the area of employee benefits every business day, focusing on actions by Congress,...

By Carmen Castro-Pagan

American Airlines Inc. must defend a lawsuit accusing it of violating federal benefits law by offering an allegedly poorly performing investment fund in the airline’s 401(k) plan.

The participants have sufficiently pleaded claims to survive American’s motion to have the case dismissed, Judge John McBryde of the U.S. District Court for the Northern District of Texas held Nov. 27 ( Ortiz v. American Airlines, Inc. , N.D. Tex., No. 4:16-cv-00151-A, order denying defendant’s motion to dismiss 11/27/17 ).

The participants alleged in their lawsuit that American violated its fiduciary duties under the Employee Retirement Income Security Act by offering an affiliated credit union mutual fund rather than a stable value fund that would have provided a higher, guaranteed return. Stable value funds are common investments in large 401(k) plans and are conservatively managed to preserve principal and provide a stable credit rate of interest.

McBryde’s decision comes one year after he rejected an $8.8 million proposed settlement that would have ended the dispute between the parties. In rejecting the proposed deal, McBryde said the amount may be “inadequate” because workers may have lost out on as much as $88 million in expected returns over the past six years.

In his two-page ruling, McBryde said that American’s arguments go to the merits of the claims and would more properly be presented in a later stage of the case after discovery is conducted.

ERISA lawsuits involving stable value funds have recently become more prevalent. A number of major companies, including Anthem Inc., Chevron Corp., and Insperity Inc., have been sued—unsuccessfully—for failing to include stable value funds in their investment lineups.

Schneider Wallace Cottrell Konecky Wotkyns LLP and Friedman Suder & Cooke PC represent the participants. Kelly Hart & Hallman LLP and O’Melveny & Myers LLP represent American.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bloomberglaw.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Try Pension & Benefits Daily