Compliance April 21, 2022

USI Wins Dismissal of ERISA Lawsuit

The complaint was dismissed in its entirety for failure to state a claim.

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A district court judge has dismissed claims that the USI Insurance Services 401(k) plan charged participants excessive fees for retirement plan services and engaged in self-dealing.

The court granted defendants’ motion to dismiss the claim of alleged violations under the Employee Retirement Income Security Act.

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The plaintiff, a 401(k) plan participant, alleged in the complaint that the plan’s fiduciaries—its’ board of directors, the USI 401(k) plan committee and two unnamed individuals—breached the plan’s fiduciary duties to participants and failed to adequately monitor other plan fiduciaries by employing USI Consulting Group to provide plan services to participants, and allowed the subsidiary to charge participants excessive fees for retirement plan services.  

The plaintiff had sought class action status on behalf of the whole plan and its participants.

USI argued for each claim to be dismissed by the court. Judge Nelson S. Román, U.S. District Court for the Southern District of New York, agreed, and tossed out the entirety of the plaintiff’s complaint without prejudice. The court ruled that discovery at this stage would be inappropriate and instructed that the plaintiffs have one month to file an amended complaint.

Should the plaintiff do so, the defendants have until June 20 to answer or otherwise respond, the order stated.

“[If the plaintiff] cannot show good cause to excuse such failure, any claims dismissed without prejudice by this opinion and order may be deemed dismissed with prejudice,” the order stated.

The motion to dismiss threshed the plaintiff’s argument for breach of fiduciary prudence.

Judge Román explained that the plaintiff had failed to demonstrate to the court that the plan fiduciary’s conduct was inappropriate and that a breach of duty claim had occurred. “In analyzing a claim for breach of the duty of prudence, courts must evaluate the ‘fiduciary’s conduct in arriving at an investment decision, not on its results, and ask whether a fiduciary employed the appropriate methods to investigate and determine the merits of a particular investment,’” the order to dismiss stated.

Plan fiduciaries are required to act with care, skill, prudence and diligence under ERISA, and to operate the plan in the best interests of participants. The courts are tasked with analyzing a plan fiduciary’s “process to determine prudence, not [the] outcome,” the order to dismiss stated.

The original complaint stated that at $109 per participant, the fees charged for plan services are excessive as measured against comparable retirement savings plans. The plaintiff’s calculated estimates of the plan’s average number of participants, recordkeeping and administrative price, and recordkeeping and administrative price per participant from its Form 5500 filings from 2015 to 2019 show that the plan had charged excessive fees for such services, according to the complaint.

The submitted table claimed to show that while the other plans’ price per participant ranged from $28 to $53, the USI plan charged $109.

The plaintiff did not demonstrate with sufficiency, the grounds on which to state this claim, as the “defendants correctly point out,” the order to dismiss stated.

“As confirmed by plaintiff’s own exhibit submitted with her response in opposition, the service codes in the 2018 Form 5500 filings of these plans indicate that the services provided are different or more limited than those the plan participants receive. Most notably, none of these [10] purportedly ‘comparable’ plans offer participants the pension consulting or valuation services USICG [USI Consulting Group] offers to the plan participants,” according to the order. “[M]ost significantly, plaintiff’s allegations also crucially fail because there is no indication of how [she] calculated the per-participant fees for recordkeeping and administrative costs for the plan and each of the comparable retirement savings plans.”

Defendants argued that the plaintiff’s breach of fiduciary loyalty claim should also fail because it is “duplicative” of the claim for breach of the duty of prudence.

The court agreed with the defendants. “Even when construing the complaint in the light most favorable to her, plaintiff’s claim for breach of the duty of loyalty appears intrinsically dependent on her claim for breach of the duty of prudence,” the order stated. “If plaintiff’s claim for breach of the duty of prudence fails, then her claim for breach of duty of loyalty will also consequently fail.”

The court was also unconvinced by the plaintiff’s claim on the count of failure to monitor. The complaint alleged that the defendants failed to evaluate retirement plan service fees for the plan, monitor the process for how the retirement plan service provider fees are evaluated, investigate lower-cost plan service options when available and remove the individuals responsible for high-cost plan service fees.

The plaintiffs alleged that “individuals permitted the USI Plan to pay the same RPS fees notwithstanding the purported availability of less expensive options,” the order stated.

The court was not swayed by the plaintiff’s arguments for this claim.

“As defendants correctly point out, plaintiff’s claim for failure to monitor is premised, once again, on her claim that defendants breached their duty of prudence,” the order stated.

The order to dismiss the lawsuit Lauren Cunningham Vs. USI Insurance Services, LLC, Board of Directors of USI Insurance Services LLC, USI 401(k) plan Committee and John and Jane Does can be viewed here.

Data and Research April 20, 2022

Study Shows Baby Boomers Were Pushed Out of the Workforce

Many employees ages 55 to 74 aren’t part of the Great Resignation—they got fired.

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The labor market is tight, with employers scrambling to sign up people for their bounteous openings. At the same time, there’s the pandemic-era phenomenon called the Great Resignation, where folks quit their jobs at record rates.

 

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Turns out that, for one group of workers, no such large voluntary exodus occurred. Among employees ages 55 to 74, getting the boot was a huge factor in their joining the retirement rolls. So says a study from economics professor and retirement expert Teresa Ghilarducci at the New School’s Schwartz Center for Economic Policy Analysis.

 

Since March 2020, the onset of the pandemic, the retired population ages 55 to 74 expanded beyond its normal trend by an additional 1.1 million. While that seemed to play into the Great Resignation narrative, the study says, “most of these retirements occurred after periods of unemployment rather than directly from employment.”

 

In other words, it appears that they got canned first, spent a while unemployed, and failed to gain new jobs. Then they retired.

 

Older workers got slammed hard in the early days of COVID-19. In March 2020, some 35 million of these older employees were working. The next month, 3.8 million (11%) of that group lost their jobs. Only 2% of those workers actually retired then, according to the study.

 

Out of these 3.8 million older workers, 400,000 retired involuntarily one year later, the report finds. Compare that to a normal year: Usually, 180,000 older workers lose jobs in a given month and 30,000 of them end up retired one year later.

 

So will these axed older workers try to re-join the workforce, now that many jobs are going begging? It is “too soon to tell,” the study says, but indications are that they won’t be returning en masse. True, raises have been robust for young and mid-career workers with less experience—from 8.3% and 3.9% in February 2020 to 11.4% and 4.4% in February 2022, respectively. But wage growth for the older bunch has not exceeded the pre-pandemic peak for them of 2.9%.

 

“Low levels of wage growth suggest that the decision to remain retired may not reflect the preferences of many retirees, but rather the lack of demand for their skills and experience,” the study says. Thus, even if they want to return, despite the meager wage increase, many employers won’t want them, Ghilarducci’s report concludes.

Among the younger segment of this older cohort, those 55 to 59, the picture is more mixed. A study from the Employee Benefit Research Institute states they have lagged in their return to employment, although with variations depending on race and gender. The number of employed Black and Hispanic Americans in that age group was slightly higher at the end of 2021 than in 2019, except for Black males, EBRI reports. The age group’s number of white Americans employed dipped, but that was mostly confined to females.

 

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