Chevron Defeats Lawsuit Challenging 401(k)Fees, Funds

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

Aug. 30 — Chevron Corp. convinced a federal judge to dismiss class action claims challenging the fees and investment options associated with its 401(k) plan ( White v. Chevron Corp. , 2016 BL 281396, N.D. Cal., No. 4:16-cv-00793-PJH, 8/29/16 ).

The lawsuit challenged many aspects of the company’s $19 billion retirement plan, such as the inclusion of a money market fund instead of a stable value fund and the use of mutual funds instead of lower-fee vehicles such as separate accounts and collective trusts. The Aug. 29 order dismissing the case just six months after it was filed surely will be viewed with interest by the many companies accused of 401(k) mismanagement over the past year, including Intel Corp., Anthem Inc., Verizon Communications Inc., Oracle Corp. and American Airlines Inc.

The ruling is noteworthy because it considered—and rejected—several fairly novel and untested theories of liability under the Employee Retirement Income Security Act.

Legal Theories Rejected

In addition to challenging aspects of Chevron’s 401(k) plan under ERISA’s fiduciary duty of prudence—a common claim in ERISA litigation—the lawsuit also contended that the Chevron plan fiduciaries violated the statute’s duty of loyalty. Judge Phyllis J. Hamilton of the U.S. District Court for the Northern District of California rejected this alternative theory of liability after finding no allegations that any fiduciary actions were aimed at benefiting parties other than the plan’s participants.

Hamilton also dismissed the idea that a 401(k) plan can face liability for failing to offer a stable value fund—as opposed to a money market fund—as an option for preserving capital. According to Hamilton, offering a money market fund “as one of an array of mainstream investment options along the risk/reward spectrum” satisfies ERISA’s prudence requirement.

The lawsuit also accused Chevron of offering high-fee investments when it should have used its leverage as a $19 billion plan to negotiate lower fees and investigate alternative arrangements such as collective trusts and separate accounts. Hamilton disagreed, saying that ERISA plan fiduciaries “have latitude to value investment features other than price.” Further, allegations of high fees, without accompanying allegations of a flawed investment selection process, don’t state a claim for fiduciary breach, the judge wrote.

With respect to the alternative arrangements Chevron allegedly failed to consider in lieu of mutual funds, Hamilton explained that the “unique regulatory and transparency features” of mutual funds makes any comparison to collective trusts and separate accounts an “apples-to-oranges comparison.”

Finally, Hamilton rejected the lawsuit’s challenge to the record-keeping fees paid to Vanguard under a revenue-sharing arrangement, finding no support for a “per se rule” against revenue sharing.

Hamilton’s order dismissing the case was without prejudice, which means that the plan participants will have another opportunity to make their case against Chevron.

O’Melveny & Myers LLP represented Chevron. The plan participants were represented by Futterman Dupree Dodd Croley Maier LLP and Schlichter Bogard & Denton, the latter of which has largely spearheaded the decadelong litigation effort against 401(k) plan fees, winning multimillion-dollar settlements with Boeing Co., Lockheed Martin Corp. and Novant Health Inc.

To contact the reporter on this story: Jacklyn Wille in Washington at

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

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