Challenge to Union Retirement Plan Fees Clears Early Hurdle

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

An unusual lawsuit challenging the fees associated with a union 401(k) plan is moving forward after a federal judge trimmed some of the proposed class action’s claims.

Employees covered by the Supplemental Income 401(k) plan, a $922 million union plan providing retirement benefits to about 27,000 Teamsters and other workers, got the green light to proceed with claims that the plan charged excessive fees for record-keeping services. Their challenge to the plan’s use of retail mutual funds didn’t fare as well: The judge dismissed this claim for lack of standing but gave them a chance to try again.

Large companies including Verizon, Chevron, American Airlines, and Anthem have been accused of similar 401(k) plan violations, but class actions challenging the fees of union retirement plans are rare. In recent years, litigation over 401(k) plan fees has trickled from the billion-dollar plans of large public companies to more modest plans, including those of Checksmart Financial LLC ($25M), Gucci America Inc. ($97M), and Novitex Enterprise Solutions Inc. ($157M). Elite universities, including Yale, Duke, and Vanderbilt, also have been targeted.

The lawsuit against the union plan is one of a growing number of Employee Retirement Income Security Act cases to argue that plan fiduciaries should be held liable if they offer expensive retail share classes when identical institutional share classes are available at a lower cost. Federal courts have disagreed over whether this is a viable claim under ERISA. Judges have allowed these claims to proceed against Cornell, Emory, and MIT, while Johns Hopkins, Columbia, and the University of Pennsylvania saw these claims dismissed.

In this case, the judge said the workers had a valid complaint against the plan’s record-keeping fees, which allegedly ranged between $143 and $175 per person, per year. The plan trustees tried to dismiss this claim as untimely and for lack of standing, which relates to whether the workers have been or will be harmed by the fees. The judge rejected each of the trustees’ arguments.

However, the judge rejected the workers’ challenge to the plan’s use of retail share classes. The workers lacked standing to bring this claim because they never identified which retail funds they owned, the judge said. He gave the workers 20 days to file a new complaint with more information supporting this claim.

Judge James V. Selna of the U.S. District Court for the Central District of California wrote the April 24 decision.

The workers are represented by Frank Sims & Stolper LLP and Franklin D. Azar & Associates PC. The plan trustees are represented by Morgan Lewis & Bockius LLP.

The case is Ybarra v. Bd. of Trs. of Supplemental Income Tr. Fund, C.D. Cal., No. 8:17-cv-02091-JVS-E, order partly granting motion to dismiss 4/24/18.

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