Court Denies Summary Judgement in SafeWay ERISA Lawsuits

The court has ruled that the litigation can proceed to trial because SafeWay’s summary dismissal argument that the plaintiffs’ case is premised entirely on hindsight “misses the point.”

After a ruling issued by the U.S. District Court for the Northern District of California, two Employee Retirement Income Security Act (ERISA) lawsuits filed against SafeWay will proceed to trial.

Technically, the court’s new order grants in part and denies in part Safeway defendants’ motions for summary judgement, while also denying as moot defendant Aon Hewitt’s motion for reconsideration. The court has previously rejected motions to dismiss the two substantially similar ERISA lawsuits, known as Lorenz v. Safeway and Terraza v. SafeWay.

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In the latest round of cross-motions, SafeWay moved for summary judgment on the grounds that “plaintiff has not established a causal link between any specific alleged breach and loss to the Safeway 401(k) Plan.” But according to the new ruling, there is a triable dispute of fact about whether the SafeWay Benefit Plans Committee discharged its duty of prudence in monitoring and, in some cases, selecting assets for the plan.”

The plaintiffs contend, based on expert opinion, that SafeWay should have “applied a conservative approach of monitoring the plan’s investment options based on a top-quartile criterion and removing investment options with six quarters of cumulative underperformance.” The court says it will decide after considering the testimony whether the benefit plan committee failure to adhere to this standard was imprudent.

“If it was, then the court will determine whether there were comparable assets the benefits plan committee could have offered plan participants that would have performed better,” the decision states. “Plaintiffs have identified such assets; whether they are fair comparators is an issue the court will resolve at trial.”

According to the ruling, SafeWay’s argument that the plaintiffs’ case is premised entirely on hindsight misses the point.

“As they did in their motion to dismiss, the SafeWay defendants again conflate the principle that investment decisions should not be evaluated based on information available after the decision is made with the need to use historic information available at the time the decision was made,” the ruling states. “Accordingly, summary judgment on this issue must be denied.”

The ruling continues by addressing the defendants’ summary judgement argument that there is no evidence suggesting the committee’s process in selecting or retaining the J.P. Morgan target-date funds (TDFs) was imprudent.

“To the contrary,” the ruling states, “there is evidence from which the inference can be drawn that the benefit plan committee accepted J.P. Morgan’s proposal to replace certain of the plan’s investment options to shift the responsibility for payments for recordkeeping services from SafeWay to the plan. Specifically, after analyzing J.P. Morgan’s proposal, Aon informed the committee that the plan’s revenue-sharing component had been insufficient to offset J.P. Morgan’s recordkeeping fees in past quarters and, as a result, that SafeWay may soon be required to make direct payments to J.P. Morgan to pay for the shortfall unless the committee accepted J.P. Morgan’s proposal.”

As the court stated in other orders, there is a dispute of fact about whether this prospect actually motivated the benefit plan committee; that issue will be resolved at trial.

Turning to the issue of recordkeeping fees, the decision points out that SafeWay’s argument for summary dismissal rests on the contention that the testimony of plaintiff’s expert, Roger Levy, is inadmissible. But since the court has previously ruled that Levy’s testimony is admissible, the basis for this argument collapses. SafeWay here also argues that plaintiff’s claim “ignores that the committee renegotiated the plan’s recordkeeping fees to lower the costs throughout the relevant time period.”

“That the fees were lowered by some amount during the relevant period does not establish as a matter of law that SafeWay discharged its duty of prudence or that it reasonably might have, and should have, obtained the same services at lower cost,” the ruling states.

Despite these setbacks, the SafeWay defendants prevailed on one claim having to do with the offering of “Chesapeake and Interest Income Funds.”

“Here, it is not sufficient for the complaint to state that defendants have breached their fiduciary duties but leave them to guess the funds as to which the breach allegedly occurred,” the ruling states. “Nor is it sufficient to suggest that because the Interest Income Fund was mentioned in a different capacity, defendants were on notice that it was the basis of a claim for breach of fiduciary duty. Plaintiffs mention several funds in their complaint that are not the subject of criticism, so mere mention of a fund puts no one on notice.”

Accordingly, the court granted SafeWay’s motion as to the Chesapeake and Interest Income Funds because the second amended complaint does not allege that either fund was either imprudently selected or retained.

Also of note, the court’s prior order denying Aon’s motion for summary judgment in the Terraza action did not address Aon’s arguments regarding the Chesapeake or Interest Income Funds. As to those funds, Aon’s motion is now granted. Its motion for reconsideration is denied as moot.

The full text of the new ruling is available here.

Senators Introduce Legislation to Further AHPs

Last June, the Department of Labor (DOL) finalized regulations to expand the opportunity to offer employment-based health insurance to small businesses through Association Health Plans (AHPs), but a district court struck them down.

Last June, the Department of Labor (DOL) finalized regulations to expand the opportunity to offer employment-based health insurance to small businesses through Small Business Health Plans, also known as Association Health Plans (AHPs). However, earlier this month, a district court determined that the DOL’s regulations are unlawful, leaving in limbo the creation of new AHPs.

 

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Now, a group of senators, led by Senator Mike Enzi, R-Wyoming, have introduced legislation that would ensure the new pathway remains available for small businesses to offer AHPs under the DOL’s final rule.

 

AHPs are intended to allow small businesses to group together and leverage power in numbers to obtain comprehensive and affordable health insurance as though they were a single large employer. The coverage offered to association members is subject to the consumer protection requirements that apply to the nearly 160 million Americans who receive coverage from large employers.

 

According to a press release on Enzi’s website, roughly 30 AHPs have formed under the rule so far. According to the Congressional Budget Office, about 4 million people are expected to enroll in an AHP by 2023, including 400,000 who would otherwise be uninsured.

 

“Association health plans offer millions of Americans in the individual health insurance market who have been left behind by Obamacare the opportunity to buy the same kind of lower-cost health insurance with the same patient protections as the roughly 160 million Americans who already get their insurance by working for a large employer,” says Chairman of the Senate Health, Education, Labor and Pensions Committee Senator Lamar Alexander, R-Tennessee. “This legislation would make sure that working Americans who are uninsured, underinsured, or paying through the nose in the individual market can continue to have this option.”

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