District Court Partially Dismisses ERISA 401(k) Fee And Performance Claims For Lack Of Standing – Employment and HR

A federal district court in New York recently granted Omnicom
Group Inc.’s (“Omnicom’s”) motion to dismiss, for
lack of Article III standing, claims challenging the offering of
investment options in Omnicom’s 401(k) plan in which the
plaintiff participants did not invest. The court denied
Omnicom’s motion to dismiss, however, with respect to the
remainder of the claims, which alleged that Omnicom’s
administrative committee breached its fiduciary duties under ERISA
by including allegedly costly and underperforming funds in its
401(k) plan, causing the plan to pay excessive recordkeeping fees
and offering an investment lineup that was overly expensive.

With respect to the standing argument, the court first rejected
defendants’ reliance on the Supreme Court’s recent decision
in Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020), which
held that participants in a defined benefit plan do not have
standing to sue when they personally suffered no monetary injury.
The court concluded that it was of “decisive importance”
that Thole involved a defined benefit plan as opposed to a
defined contribution plan, like the one at issue here. Nevertheless
the court held that this did not change the fact that a plaintiff
must allege and show that she has been personally injured to
demonstrate injury-in-fact as required under Article III. Relying
on analogous case law from the Second Circuit, the court concluded
that a plaintiff in a defined contribution plan who does not
personally invest in a challenged fund lacks Article III standing
to sue.

In so ruling, the court rejected the notion that plaintiffs
suing derivatively on behalf of a plan under ERISA § 502(a)(2)
automatically have standing. The court explained that a plaintiff
must assert both a cause of action under ERISA and a
constitutionally cognizable injury-in-fact. Since plaintiffs could
not have suffered an injury from the alleged mismanagement of funds
in which they did not invest, the court concluded that plaintiffs
could not demonstrate the requisite injury. Similarly, the court
concluded that merely because plaintiffs filed their lawsuit as a
class action did not change the analysis because the requirements
of Article III are “no less true with respect to class
actions” than with other suits. Finally, despite its finding
that Thole was inapplicable, the court did cite
Thole for its statement that “there is no ERISA
exception to Article III.”

The court then concluded that plaintiffs can only seek relief
with respect to funds in which they were invested. The court did,
however, allow plaintiffs to challenge the entire suite of target
date funds even though plaintiffs invested in only five of the
thirteen funds, because the funds were all part of the same product
line.

With respect to the claims for which plaintiffs had standing,
the court rejected defendants’ arguments for dismissal. It
concluded that plaintiffs stated a claim for imprudence with
respect to the suite of target date funds because plaintiffs
sufficiently alleged that the funds charged higher fees, or
underperformed relative to comparable funds. In so ruling, the
court referenced what it found to be the trend among courts in the
Second Circuit to defer deciding whether the complaint identified
suitable comparator funds until after discovery. For the same
reason, the court declined to dismiss plaintiffs’ claim that
the overall investment menu was overly expensive.

The court also declined to dismiss plaintiffs’ claim that
the plan paid excessive recordkeeping fees because, it found,
plaintiffs provided sufficient evidence that comparable plans paid
lower fees and defendants’ arguments to the contrary were more
appropriately evaluated after discovery. Finally, the court allowed
plaintiffs’ failure to monitor and knowing breach of trust
claims to proceed because plaintiffs plausibly alleged an
underlying breach of fiduciary duty and that defendants knew or
should have known of the alleged breaches.

View from Proskauer

The court’s ruling on the standing issue is potentially
significant because plaintiffs frequently challenge the prudence of
funds in which they did not personally invest. It is unclear how
helpful it will ultimately prove to be, however, because many
courts have already ruled that plaintiffs do have standing to
challenge funds in which they did not invest. Hopefully, courts
examining fresh challenges on standing grounds will follow this
court’s lead, given the thorough and persuasive manner in which
the court presented its rationale for the ruling.

The case is In re Omnicom ERISA Litig., No. 20-cv-4141
(S.D.N.Y. Aug. 2, 2021).

District Court Partially Dismisses ERISA 401(k)
Fee And Performance Claims For Lack Of Standing

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