Chevron Beats 401(k) Fee Lawsuit

A federal judge threw out a class action suit challenging allegedly excessive fees in Chevron’s 401(k) plan this week.

[Read the complaint here.]

The ruling is noteworthy because of the influx of fee-related lawsuits that have hit 401(k) plans in recent months.

Bloomberg BNA breaks down the ruling:

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.

Does the ruling “raise the bar” for plaintiffs in these cases? BenefitsPro discusses implications:

Typically, there is a “low bar” for plaintiffs’ claims to survive a motion to have a case dismissed, noted Carol Buckmann in a blog post, an ERISA attorney that counsels plan sponsors and a founding partner of New York City-based Cohen and Buckmann.

But in the Chevron decision, Judge Hamilton seems to have raised that low bar. On the issue of whether plan participants paid unreasonable recordkeeping fees via revenue-sharing agreements, she ruled that that “are no facts alleged showing what recordkeeping fees Vanguard charges, so it is not clear on what basis plaintiffs are asserting that the fees were excessive,” according to the decision.

Regarding the bar that plaintiffs’ allegations must exceed to survive a motion to dismiss, Hamilton wrote: “A complaint that lacks allegations relating directly to the methods employed by the ERISA fiduciary may survive a motion to dismiss only ‘if the court, based on circumstantial factual allegations, may reasonably infer from what is alleged that the process was flawed’.” Hamilton was quoting a 2012 appellate decision in St. Vincent v. Morgan Stanley Investment Management Co. 

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