Amended Complaint Clears Dismissal in PNC ERISA Lawsuit

The U.S. District Court for the Western District of Pennsylvania has issued a new order in an Employee Retirement Income Security Act  lawsuit filed against the PNC Financial Services Group and other related defendants.

The order tosses out parts of the lawsuit related to alleged breaches of the ERISA fiduciary duty of loyalty, but it otherwise denies the defendants’ motion to dismiss. The plaintiffs in the case are participants in PNC’s own incentive savings plan.

As recounted in the text of the order, the plaintiffs originally initiated the case by filing a three-count complaint against the PNC defendants for the alleged breach of their ERISA fiduciary duties, the alleged failure to monitor fiduciaries and, in the alternative, liability for participation in the breach of fiduciary duties. The order also notes that the court dismissed a prior version of the lawsuit for its failure to adequately state its various fiduciary breach claims.

Following that dismissal, the court granted the plaintiffs leave to amend their complaint. The plaintiffs subsequently filed an amended complaint that asserts the same three fundamental claims alleged in the original complaint but with additional factual support. At the heart of the litigation are allegations that plan participants paid, on average, an excessively high per-year administrative fee, which allegedly rose from about $85 to about $90 from 2014 to 2018. The plaintiffs also allege that the defendants improperly “caused the plan to compensate PNC Financial Services, at an average of over $235,000 per year from 2014 to 2018, purportedly for ‘certain administrative services’ performed as the plan administrator.”

As in the original complaint, the plaintiffs support their imprudence claim by comparing the plan’s recordkeeping and administrative fees to those fees paid by other, similar plans during the relevant period. Unlike the original complaint, which relied on an industry publication to demonstrate that “smaller plans” paid $35 per participant, the amended complaint provides tables which compare the plan’s fees to four similarly sized 401(k) plans with the same recordkeeping service provider.

As the order states, the tables include the respective number of participants, assets, recordkeeping fees and recordkeeping fees per participant during 2018. According to the order, this information shows that, while the plan’s 2018 recordkeeping fee per participant was $50.99, the comparator plans’ fees ranged from $25.30 to $33.20 during the same year. The plaintiffs allege that, since the plan continued to pay a rate nearly double that of “similarly sized” plans, the defendants must have failed to follow a prudent process to ensure that the plan paid reasonable fees. They argue defendants “neglected to seek quotes from other recordkeepers and engage in processes to evaluate the reasonableness of the plan’s recordkeeping fees.”

The order discusses at length what it takes for plaintiffs to demonstrate standing in these circumstances, ultimately finding the amended complaint has resolved some of the key shortcomings that led to the first dismissal of the suit.

“The fact that the plaintiffs paid less than the benchmark does not necessarily show that the fees plaintiffs paid were in fact reasonable,” the order states. “While it may be an appropriate benchmark to compare the plan with other, similar plans, the benchmark is not a figure that can be used when determining individual participants’ injuries. Accordingly, the $25 benchmark is not indicative of an individual’s lack of injury in fact. … Drawing all reasonable inferences in the plaintiffs’ favor, the court concludes that plaintiffs have pled sufficient circumstantial evidence from which a breach can be inferred. As such, the court will deny defendants’ motion to the extent it seeks dismissal of plaintiffs’ claim in Count I for breach of the duty of prudence.”

The order then weighs the plaintiffs’ arguments regarding the defendants’ alleged breaches related to their duties of loyalty. After another technical discussion, the order reaches a conclusion in favor of the defense.

“Defendants argue that plaintiffs, in alleging disloyalty, have merely repackaged their imprudence theory and that PNC’s receipt of an average of nearly $227,000 per year in administrative services do not sufficiently demonstrate disloyalty and therefore, the plaintiffs, once again, fail to sufficiently allege a breach of the duty of loyalty,” the order states. “Accepting the amended complaint’s allegations as true, plaintiffs still fail to plead sufficient facts necessary to establish a breach of the duty of loyalty. Just like the [original] complaint, plaintiffs argue in the amended complaint that the duty of loyalty claim is substantiated by the plan’s payment of annual administrative fees for legal counsel, auditing, investment advisory services and pension consulting services. … Taken together, these allegations simply contend that defendants were employed to provide services to the plan. However, the duty of loyalty is grounded in the motivation driving a fiduciary’s conduct, and liability will not lie where a fiduciary’s decisions were motivated by what is best for the plan, even if those decisions also incidentally benefit the fiduciary.”

The order further explains that, while the allegation that the defendants hired PNC for additional trustee services does, at most, identify a “potential for a conflict of interest,” in reality it asks the court to infer that the defendants operated with disloyal motivation “just because PNC was compensated for a service.”

“As a potential for conflict, without more, is not synonymous with a plausible claim of fiduciary disloyalty, and because the court has already given leave to amend this claim once before, plaintiffs’ disloyalty claim will be dismissed with prejudice,” the order states.

The full text of the order is available here.