Safeway Workers Advance Two Challenges to JPMorgan Funds

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By Jacklyn Wille

Grocery giant Safeway Inc. can’t escape two proposed class actions challenging the fees and investments in its 401(k) plan, including its decision to offer JPMorgan target-date funds ( Lorenz v. Safeway, Inc. , 2017 BL 78177, N.D. Cal., No. 3:16-cv-04903-JST, 3/13/17 ; Terraza v. Safeway Inc. , 2017 BL 78148, N.D. Cal., No. 3:16-cv-03994-JST, 3/13/17 ).

Judge Jon S. Tigar on March 13 refused to dismiss claims that Safeway breached its duties by offering the JPMorgan funds, which allegedly carried higher fees than alternatives from Vanguard despite having no proven track record. Writing two opinions in two distinct cases against Safeway, Tigar emphasized that the challenges to the JPMorgan funds didn’t rest solely on fees—rather, Safeway was allegedly influenced by JPMorgan’s “notorious history” of unlawfully steering clients toward its own proprietary funds.

Target-date funds aim to address retirement savings needs by investing in a single fund that accounts for an investor’s retirement date, turning more conservative as the date approaches. A lawsuit challenging the in-house target-date funds in Insperity Inc.'s 401(k) plan recently survived a motion to dismiss. A challenge to the target-date funds in Intel Corp.'s 401(k) plan remains pending.

Most Claims Survive

The two lawsuits attacked the Safeway plan from many angles, and Tigar allowed most claims to proceed.

The judge rejected Safeway’s argument that its 401(k) fees were within a reasonable range. This was an attempt to carve out a “presumption of prudence” for plan fees, the judge said, and the U.S. Supreme Court in 2014 disallowed such presumptions under the Employee Retirement Income Security Act.

Moreover, Tigar said the challenges to particular investments were timely under ERISA, even though they were selected more than six years before the lawsuit was filed. Safeway relied on the U.S. Court of Appeals for the Ninth Circuit’s first decision in Tibble v. Edison Int’l, but the judge said that Tibble cut in favor of the investors by recognizing a valid claim based on the “imprudent retention” of an investment.

The claims of excessive fees were viable because they challenged the inclusion of specific investments, rather than the plan’s overall expense ratio, the judge said. That’s why these claims were viable while recent claims against Chevron Corp.'s 401(k) plan weren’t, he said.

Finally, Tigar allowed some claims involving the revenue-sharing arrangement between Safeway and its record keeper to proceed, finding that factual questions over the arrangement made dismissal improper.

Others Dismissed

However, the judge dismissed claims characterizing the revenue-sharing arrangement as a prohibited transaction under ERISA. He also dismissed all claims against Safeway’s record keeper, Great-West.

Finally, Safeway successfully refuted claims that it acted imprudently by offering too many “opaque” investments, such as collective trusts and separate accounts. Many courts have found these investments to offer benefits not available through mutual funds, Tigar said.

Trucker Huss APC represented Safeway. O’Melveny & Myers LLP represented Great-West. The Safeway participants were represented by Schneider Wallace Cottrell Konecky Wotkyns LLP, Shepherd Finkelman Miller & Shah LLP, Duckworth Peters Lebowitz Olivier LLP and Sahag Majarian.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

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

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