Anthem 401(k) Fiduciaries Denied Summary Judgment in Fee Case

In a second attempt to win an excessive fee suit filed by participants, fiduciaries of the Anthem 401(k) Plan were denied summary judgment on all counts.

According to the court document, the defendants assert four arguments in their motion for summary judgment: Plaintiffs’ money market fund claims are time-barred and legally and factually baseless; Plaintiffs’ excessive fee claims are time-barred and legally and factually baseless; Plaintiffs’ failure to monitor claim falls within their breach of fiduciary duty claims; and the document request claim fails as a matter of law because there is no evidence that the request was ever received.

Money market fund claims

The defendants assert the plaintiffs’ money market fund claims are time-barred because they and the rest of the class were repeatedly informed, prior to December 29, 2012, that the Vanguard Money Market Fund was neither aiming to return, nor in fact returning, significant income on assets invested in it. Plan information provided to participants stated that the fund sought “to provide current income while maintaining liquidity and a stable share price of $1.”

U.S. District Judge Tanya Walton Pratt of the U.S. District Court for the Southern District of Indiana countered that the plaintiffs do not argue that offering the money market fund as the plan’s only capital preservation investment option was per se imprudent; they argue that, “Defendants’ fiduciary process in evaluating the fund lineup was imprudent.” Pratt cited a 7th U.S. Circuit Court of Appeals decision in which it said “either an expert opinion or actual harm would likely be necessary before” a participant “could know of the flaws in the substance of a fiduciary’s decision.”

Recently, the 9th U.S. Circuit Court of Appeals issued a decision in which it stated, “First, ‘actual knowledge of the breach’ does not mean that a plaintiff has knowledge that the underlying action violated ERISA. Second, ‘actual knowledge of the breach’ does not merely mean that a plaintiff has knowledge that the underlying action occurred. ‘Actual knowledge’ must therefore mean something between bare knowledge of the underlying transaction, which would trigger the limitations period before a plaintiff was aware he or she had reason to sue, and actual legal knowledge, which only a lawyer would normally possess.”

Likewise, Pratt found that the plaintiffs’ money market fund claim is not time-barred because, although the participants received disclosures of the nature of the investment options offered, they were not informed of how those options were chosen nor that there may lower cost or higher yield alternatives that the plan did not offer.

She added that the plaintiffs have established a genuine issue of disputed fact as to whether the process by which the Pension Committee managed the capital preservation funds offered in the plan comported with the Employee Retirement Income Security Act’s (ERISA)’s prudent fiduciary standard. “Some designated evidence suggests that the Pension Committee did at least discuss the possibility of adding other funds to the plan’s capital preservation options—including a stable value fund. But other evidence indicates the Pension Committee rarely considered whether a money market fund was the optimal investment tool for participants or whether some superior option was out there,” she said in her opinion.

Excessive Fee Claims

The defendants contend that the plaintiffs’ excessive fee claims are time-barred because the plan disclosed its expense ratios to participants, giving them actual knowledge of the facts giving rise to their complaints more than three years before the initiation of the lawsuit. They also argue that the plaintiffs have not made a viable claim for breach of fiduciary duty because ERISA does not mandate particular fee structures or share classes, nor does it mandate requests for proposal or negotiation at any particular frequency. In addition, the defendants allege that the plaintiffs cannot show any loss resulting from defects in the Pension Committee’s process of selecting recordkeeping fees.

Pratt rejected the defendants contention that the excessive fee claims are time-barred for the same reason as he did in relation to the money market fund claims. “The generic plan information defendants rely on to impute knowledge to the plaintiffs did not disclose that identical lower-cost alternative fee structures may be available, nor did it provide plaintiffs with actual knowledge of the defendants’ solicitation and monitoring process,” she said.

Pratt agreed that nothing in ERISA required the committee to use a flat fee structure or to avoid an asset-based fee structure. However, she said that is beside the point, as the plaintiffs do not argue that the defendants were duty-bound to implement a specific type of fee structure or asset class. They argue that ERISA required the defendants to consider, periodically, different types of fee structures to determine which structure would have resulted in the highest yield for participants. They further argue that ERISA imposed a duty on the defendants to review the plan’s recordkeeping fees and attempt to negotiate lower fees if the plan’s fees are unreasonable.

Pratt found that the plaintiffs designated more than enough evidence to create disputed questions of fact as to whether the defendants discussed or even understood the difference between certain types of fee arrangements, whether they periodically checked to see if the plan could pay lower administrative fees, and whether the defendants acted prudently regarding the fees paid by the plan. “Plaintiffs cite deposition testimony of Anthem employees and Pension Committee members who indicate they do not understand the difference between different kinds of share classes or did not ask Vanguard whether lower-cost fee arrangements were available for the plan,” she pointed out.

Pratt further ruled that the element of damages goes hand-in-hand with the reasonableness of the fees—if the defendants breached their fiduciary duty by failing to ensure the plan paid reasonable fees, that breach necessarily shrunk the plaintiffs’ investment by overpaying on administrative and investment fees.

Duty to monitor claim

The defendants argue that the duty to monitor claim is derivative of the money market fund and excessive fee claims, and because Pratt denied summary judgment on those claims, she denied summary judgment on the duty to monitor claim as well.

Document request claim

According to the court document, the plaintiffs’ second amended complaint alleges that one plaintiff sent a letter to the Pension Committee on October 5, 2015, requesting information, and her request went unanswered. The complaint alleges she sent a second letter on October 27, 2015, which also went unanswered. The defendants argue that the plaintiffs have not shown that the Pension Committee received the request; that the letters were not addressed to the proper recipient identified in the plan’s summary plan description; and awarding a penalty for violating this section of ERISA is at the court’s discretion, and the record does not reveal any bad faith on the defendants’ behalf in failing to respond to the request.

But, Pratt said the Pension Committee cannot avoid its statutory obligation to furnish plan information to participants by designating a third party and directing requests to that party in the summary plan description. “ERISA requires the ‘administrator’ to provide information, and it is the administrator who may be penalized when plan information is not provided,” she said.