Verizon Fee Disclosure Lawsuit Sees Most Claims Dismissed

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By Jacklyn Wille

Verizon Communications Inc. is largely free of a proposed class action claiming it implemented an overly complex and risky investment structure for its defined contribution retirement plans and failed to explain how the plans charged fees ( Jacobs v. Vierzon Commcn’s Inc. , S.D.N.Y., No. 1:16-cv-01082-PGG, order partly granting motion to dismiss 9/28/17 ).

A federal judge on Sept. 28 dismissed a relatively novel claim brought by the lawsuit: that Verizon and its plan record-keeper, Fidelity Management Trust Co., failed to disclose the plans’ fee structure in violation of the Department of Labor’s 2010 Participant Fee Disclosure Rule. The lawsuit said Verizon’s fee disclosures were deficient because they didn’t explain what portion of the expense ratios for each plan investment was used to offset record-keeping expenses. The judge disagreed, saying the DOL has instructed that revenue-sharing arrangements like the one between Verizon and Fidelity need not “itemize or identify” the specific expenses being paid from the fees tied to plan investment options.

All that’s necessary is an explanation that “some of the plan’s administrative expenses” were paid from the fees tied to one or more plan investment option, the judge said. The “exact dollar amount” requested by the plan participant isn’t required, he said.

The judge also dismissed the claim that Verizon’s plans were full of risky, complex target-date funds that had unnecessary layers of fees and were inappropriate for average investors. Retirement plans are free to offer investments of different risk levels as part of a balanced investment lineup, the judge said.

With respect to the idea that the plan lineup was overly complex, the judge said courts have “bristled” at the “paternalistic” idea that retirement plans can’t allow participants to make their own choices.

Despite these victories for Verizon and Fidelity, the judge refused to dismiss claims that Verizon failed to monitor and remove the plan’s Global Opportunity Fund, which plan participants say is a historic underperformer. That fund had an average annual return of 1.74 percent over a 10-year period in which its benchmark returned 10.37 percent, the judge said. This was sufficient to state a claim for fiduciary breach under the Employee Retirement Income Security Act, the judge said.

The Verizon retirement plans at issue in this lawsuit have more than $30 billion in combined assets and more than 140,000 participants, according to the complaint.

Judge Paul G. Gardephe of the U.S. District Court for the Southern District of New York wrote the decision.

The Verizon plan participant is represented by Harwood Feffer LLP, Schneider Wallace Cottrell Brayton Konecky LLP, and Edgar Law Firm LLC. Verizon is represented by DLA Piper. Fidelity is represented by Goodwin Procter LLP.

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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