Compliance April 21, 2022

Xerox’s Motion to Dismiss ERISA Lawsuit Is Denied

The court order states that plaintiffs plausibly stated a claim for breach of fiduciary duty.

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The breach of fiduciary duty lawsuit against Xerox Corporation’s 401(k) retirement plan fiduciaries will proceed after a District Court denied the defendants’ motion to dismiss the complaint.

Plaintiffs alleged in the complaint that the plan’s fiduciaries—Xerox Corporation, the Xerox Corporation Plan Administrator Committee and unnamed individuals—breached the plan’s fiduciary duties to participants, caused the plan to pay excessive recordkeeping fees to plan sponsor-affiliated entities and failed to monitor the administration of the plan.    

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The court order states that “plaintiffs have plausibly alleged that defendants breached the duty of prudence by retaining affiliated recordkeepers that charged excessive fees under circumstances that would have alerted a reasonably prudent fiduciary of the need to investigate further.”

Furthermore, it says, “plaintiffs have plausibly claimed that ‘an adequate investigation would have revealed to a reasonable prudent fiduciary’ that the retention of the affiliated recordkeepers was ‘improvident,’ such that ‘a prudent fiduciary in like circumstances would have acted differently.’”

A Xerox spokesperson declined to comment on the ongoing litigation.

According to the court order, other recordkeepers were available to provide comparable services for significantly lower fees during the time in question. “[S]uch recordkeepers in fact charged fees of $35 per participant to recordkeep for plans of roughly similar size to the Xerox Plan; and, given its size, the plan would have had a certain degree of bargaining power, but the plan did not attempt to leverage a competitive recordkeeping fee from the affiliated recordkeepers or a competitor,” the order states.

The plan had two recordkeepers from 2015 to 2021, according to the complaint. From 2015 to 2017, the plan’s recordkeeper was Xerox HR Benefits Services, a wholly owned subsidiary of the defendant— meaning all profits accrued by Xerox HR in the administration of the plan passed on to Xerox. In 2017, Xerox HR spun off into Conduent Human Resources Services, and the plan’s recordkeeping services were provided by Conduent from that point until 2021, when the plan hired an unaffiliated recordkeeper.

“Plaintiffs allege that Xerox ‘retained significant equity in Conduent,’ and that Conduent’s relatively small client portfolio rendered Xerox a significant client for Conduent,” says the order. Plaintiffs have alleged that the profits incurred by the two recordkeepers between 2015 and 2021 flowed to Xerox. 

The defendants’ motion for dismissal on an associated breach of duty of loyalty claim was also denied. According to the order, “a plan fiduciary’s duty of prudence incorporates an ongoing duty to monitor the prudence of investment options and recordkeeping fees, in order to be cost-conscious in administering their duties.”

“The survival of plaintiffs’ claim that defendants Xerox and [unnamed individuals] failed to monitor the committee’s administration of the plan will generally depend on the survival or failure of their claims that all defendants breached their duties of loyalty and prudence,” the order states.

The Xerox Corporation 401(k) plan comprised between 21,000 and 30,000 participants and $3.6 billion and $4.3 billion in assets from 2015 through 2019, according to the complaint. Plaintiffs have alleged that plans of this size should be able to negotiate lower recordkeeping fees because of their scale.

“[D]efendants breached their duty of loyalty by retaining affiliated recordkeepers for the purpose of providing benefits to defendants, at the expense of plan participants,” the order states. “Plaintiffs essentially allege that defendants imprudently hired affiliated recordkeepers for the disloyal purpose of benefiting themselves by way of the excessive recordkeeping fees. Such allegations plausibly state a claim for breach of the duty of loyalty.”

ERISA requires 401(k) retirement plan fiduciaries to operate employee benefit plans with loyalty and prudence and to always act in the best interests of participants. 

The plaintiffs’ complaint argued that under Xerox HR Benefit Services, plan recordkeeping costs more than doubled, from $54 per participant in 2013 to $136 in 2019, the last year for which data is available, despite recordkeeping costs in the market overall declining in that time.

Defendants contended that plaintiffs failed to state their claim for breach of fiduciary duty of loyalty or prudence. The motion to dismiss was heard by Judge Sarala V. Nagala in the United States District Court  for the District of Connecticut.

Discussing the legal standard for a claim to survive a motion to dismiss for failure to state a claim, the court order states that the complaint satisfied the threshold under Federal Rule of Civil Procedure 12(b)(6). The court found that the plaintiffs alleged more than mere affiliation between the plan sponsor and recordkeeper. 

“They allege that defendants’ retention of affiliated recordkeepers was the result of an imprudent decision-making process, which plausibly suggests that such decision was the result of a disloyal motivation,” the order states. 

Because the court tossed defendants’ argument that the plaintiffs failed to state a claim for breach of duty of loyalty and prudence, the failure to monitor count also survived.  

The order to deny defendants’ motion to dismiss the lawsuit, Carrigan v. Xerox Corp, et.al., can be viewed here.
Data and Research April 21, 2022

Finding Success in a Tight Labor Market

One study suggests business leaders must focus on increasing public-private collaborative training efforts and embrace competency-based hiring and promotion models based on skills rather than degrees.

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Prior to the start of the pandemic, several long-term demographic trends—including minimal growth in the number of working-age Americans, a diminishing number of working-age adults without a college degree and historically low U.S. birthrates—formed a perfect storm that left countless businesses struggling to fill staffing vacancies, says a new study.

According to the Conference Board’s Committee for Economic Development’s new Solutions Brief, “The U.S. Labor Shortage: A Plan to Tackle the Challenge,” even before the pandemic took hold, the U.S. labor force was already showing signs of being stretched.

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The analysis shows that, while labor force participation data as of March 2022 indicates workers are returning to workplace, employers are still unable to fill available jobs in a tight labor market. Part of the issue is that fewer Americans are receiving bachelor’s degrees or any education after high school, negatively affecting the skills pipeline that feeds the labor market. Additionally, there has been a recent decline in immigration, resulting from both the pandemic and policy action—all factors contributing to the stagnant growth of the U.S. working population.

More workers can lead to more production, more wages and more consumption, the brief says. By contrast, slower labor force growth will pose a challenge for American businesses dependent on the talent available to them when they compete in the global marketplace.

The brief suggests leaders in business, education and public policy collaborate to address the challenges of a tight labor market through initiatives focused on increasing Americans’ participation in the workforce. This includes focusing on increasing public-private collaborative training efforts, particularly in community colleges, and business leaders embracing competency-based hiring and promotion models based on skills rather than degrees.

The brief also points to the importance of reforming occupational licensing requirements, expanding the Earned Income Tax Credit, expanding workplace flexibility for workers with dependent care responsibilities, supporting older workers and creating incentives for unemployed/underemployed workers to upgrade their skills.

“U.S. companies of various sectors and sizes are struggling to fill jobs, as quit rates in the U.S. are at record-high levels, and so is the average time to fill open positions,” says Lori Esposito Murray, president of the Committee for Economic Development. “Businesses and policymakers alike must develop ways to encourage workers to reenter—and remain in—the workforce. A two-tiered approach, aimed at boosting labor participation for workers already in the U.S. and augmenting the workforce through immigration, is the best path forward. Such an approach was needed before the COVID-19 pandemic and has only become more pressing in the years since.”

As companies across the country look at ways to attract and retain talent, a study from Mercer highlights the importance of understanding what employees want in an employer.

In its 2022 Global Talent Trends Study, “The Rise of the Relatable Organization,” Mercer says that four in five C-suite executives believe that individual and business agendas have never been more intertwined, making it crucial for companies to be more open and easier to relate to.

The majority of employees want to work for companies that reflect their personal values, the study says. By the same token, the study suggests, people no longer want to work “for” a company, and instead they want to work “with” a company.

According to Mercer, nearly all executives (96%) say the labor market is currently employee-centric, and 70% of HR professionals are predicting higher than normal turnover this year—most notably with regard to younger workers and those in the digital space. Working in partnership means reassessing the employee-employer relationship and understanding the value in “partnering” over “leading.”

“The future of work will succeed only if everyone feels they are getting a fair deal and benefiting from an equitable relationship between employer and individual regardless of employment status and the type of work they do,” says Kate Bravery, report author and global leader of advisory solutions and insights at Mercer. “Today, it is not only knowledge workers who are demanding flexible options to fit around their life, but all workers—from shop floor workers to truck drivers. Leaders are also grappling with issues of fairness with what is offered to frontline workers versus managers, and with pay for people doing the same job from different locations. They are also grappling with career and health parity for new hires versus current employees.”

The study shows that 90% of HR leaders think there is more work to be done to build a trusting culture at their company, yet only 30% of executives see the return on investment of building a healthy, resilient and equitable future of work. Additionally, 62% of employees would join a company only if they can work remotely or in a hybrid engagement, and 74% believe their organization will be more successful with remote and/or hybrid working.

By contrast, the majority of executives (72%) are concerned about the impact of remote working on the organizational culture, as 75% say they have an apprenticeship culture today where people learn side by side—requiring a redesign of learning.

A staggering 81% of employees feel at risk of burnout this year, up from an already concerning 63% in 2020, the study says. Respondents say the top reason for burnout is not feeling sufficiently rewarded for their efforts. Over one-third (36%) of companies are introducing a strategy to address mental or emotional well-being this year. Good mental health has always been part of overall well-being, and businesses are doing more to help employees achieve it.

“A fundamental change in people’s values is underpinning a structural shift in the labor market. There is now increased pressure for organizations to contribute to society in a way that reflects the values of their customers, employees and investors,” Bravery says. “The challenge is making progress here, whilst grappling with inflationary pressures, pivoting to new crises and tackling differing views on the future of work.”

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