Deutsche Scales Back Workers’ Claims Ahead of 401(k) Fee Trial

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 Carmen Castro-Pagan

Deutsche Bank Americas Holding Corp. workers are advancing to trial with some of their claims that the multinational bank violated federal benefits law by filling its 401(k) plan with expensive, affiliated funds.

The workers can move forward with their claims of fiduciary breach based on the offering of in-house funds that carried excessive fees and performed poorly, as well as Deutsche’s alleged failure to monitor high fees and fiduciaries, Judge Lorna G. Schofield of the U.S. District Court for the Southern District of New York held June 6.

The workers, however, can’t proceed with their claims that Deutsche engaged in prohibited transactions under the Employee Retirement Income Security Act by offering proprietary mutual funds in the plan, Schofield said.

The decision is the latest installment in a closely watched case that’s set for trial starting July 9. In 2016, Schofield largely refused to dismiss the workers’ claims and last year she allowed them to proceed as a class. In December, the U.S. Court of Appeals for the Second Circuit blocked Deutsche’s efforts to decertify the class, which includes 22,000 workers, despite the U.S. Chamber of Commerce’s request to take the case.

In her latest ruling, Schofield rejected Deutsche’s move to dispose of the fiduciary breach claims before trial by arguing that the workers failed to establish “loss causation"—an element of securities claims, not used in the ERISA context.

Schofield declined to make any rulings on the testimonies of the parties’ expert witness, saying that it isn’t appropriate to do so at this stage. The workers’ expert witness stated that the plan incurred between $56.4 million and $68.9 million in losses from 2009 to 2017 due to Deutsche’s mismanagement of the plan’s investments. Deutsche’s expert witness argues to the contrary, saying that the workers’ witness didn’t establish damages.

Schofield ruled in Deutsche’s favor in relation to the prohibited transaction claims because the challenged transactions are exempt under certain Labor Department regulation.

Under the DOL regulation if a fiduciary sells shares shares in its mutual fund to its own employees’ 401(k) plan at the same price that it sells shares to all other investors in the mutual fund, the transaction is exempted from the prohibited transaction restrictions. Deutsche argued that it met this requirement and the workers failed to argue otherwise, Schofield said.

Nichols Kaster PLLP represents the class. Goodwin Procter LLP represents Deutsche.

The case is Moreno v. Deutsche Bank Americas Holding Corp., 2018 BL 200044, S.D.N.Y., No. 1:15-cv-09936-LGS, order granting in part defendants’ motion for partial summary judgment 6/6/18.

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