Starwood Hotels Can’t Escape ERISA Lawsuit Over 401(k) Fees

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

Starwood Hotels & Resort Worldwide Inc. must defend a proposed class action accusing it of violating federal benefits law by allegedly mismanaging the company’s $1.2 billion 401(k) plan ( Creamer v. Starwood Hotels & Resorts Worldwide, Inc. , C.D. Cal., No. 2:16-cv-09321, 5/1/17 ).

The participants have sufficiently alleged that Starwood used a flawed process for selecting record-keeping and administrative services for its employees’ retirement plan, Judge Dale S. Fischer of the U.S. District Court for the Central District of California held May 1 in declining to fully dismiss the lawsuit. The participants stated a fiduciary breach claim under the Employee Retirement Income Security Act for the hotel’s alleged failure to ensure reasonable plan fees, Fischer said.

The hotel chain, however, successfully argued that the participants were time-barred from pursuing their claim that the hotel breached its duties by failing to exclude from the plan a BlackRock Inc. mutual fund that carried excessive fees. In ruling this way, Fischer followed a 2015 decision that a fiduciary breach claim against Northrop Grumman Corp. was time-barred where documents sent to the participants disclosed the fees charged, putting them on notice of the allegedly excessive fees.

Several major companies, including Intel Corp., CVS Health Corp. and Chevron Corp., have successfully defended lawsuits by participants challenging the investment options included in their retirement plans. Other companies that have lost early bids to dismiss similar lawsuits include Fujitsu, Oracle Corp., American Airlines Inc. and Safeway Inc.

Starwood argued that ERISA’s three-year statute of limitations barred the participants’ claim for all their five theories of liability, which included the hotel’s failure to offer a stable value fund, follow participants’ investment instructions and provide adequate disclosure regarding revenue sharing.

Starwood’s arguments failed as to the breach of fiduciary duty claim based on excessive record-keeping and administrative fees, Fischer said. However, because the participants received notices—outside the three-year limitations period—disclosing the fees charged by the BlackRock fund, their claim based on this fund is time-barred.

In a footnote, Fischer noted that the participants failed to address Starwood’s arguments regarding the stable value fund, investment instruction and revenue sharing theories of liability, holding that they conceded their merit.

Fischer gave the participants until June 1 to amend their lawsuit to address certain deficiencies asserted by Starwood.

Solouki & Savoy LLP and Howard B. Prossnitz represent the participants. Crowell & Moring LLP represents Starwood.

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

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

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