Compliance April 9, 2010

Court Tosses Co. Stock Imprudence Claim

April 9, 2010 (PLANSPONSOR.com) – A federal judge in Georgia has thrown out claims by 401(k) participants that Beazer Homes USA breached its fiduciary duties by offering company stock as an investment option when it was no longer prudent.
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U.S. District Judge Richard W. Story of the U.S. District Court for the Northern District of Georgia explained he was dismissing the imprudence allegation because it was, in reality, a charge that the plan should have been better diversified. The Employee Retirement Income Security Act (ERISA) does not include that diversification requirement, Story asserted as he granted Beazer’s request to throw out that count in the suit.

Story wrote in his opinion that the notion of the prudence presumption runs up against the specific language of ERISA and that three other Georgia federal judges had likewise rebuffed prudence presumption in other cases.

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Even as he dismissed the prudence count of the participant lawsuit, Story gave the plaintiffs permission to move forward with other claims that Beazer also committed an ERISA fiduciary breach by not completely informing employees about its true financial condition including the effects of its subprime mortgage exposure. The court said several other federal judges have recognized that a fiduciary has a duty to disclose to other fiduciaries material information that is necessary to protect the plan.

The class action complaint alleged that Beazer and its top executives breached their ERISA fiduciary duties by maintaining the plan’s “large investment” in the company’s stock from July 28, 2005, to May 12, 2008. The employees claimed that during this time, the stock was an imprudent investment because of the increased foreclosure rate on homes with subprime mortgages.

The case is In re Beazer Homes USA Inc. ERISA Litigation, N.D. Ga., No. 1:07-CV-0952-RWS.

Compliance April 9, 2010

Wells Fargo Wins Some, Loses Some in Self-dealing Case

April 9, 2010 (PLANSPONSOR.com) – A federal court judge has certified as a class action a lawsuit against Wells Fargo over offering mutual funds from one of its affiliates as 401(k) plan investments.
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Before reviewing the elements for class certification, Judge Paul A. Magnuson of the U.S. District Court for the District of Minnesota dismissed claims that Wells Fargo violated Employee Retirement Income Security Act § 406, 29 U.S.C. § 1106, by causing the plan to invest in Wells Fargo controlled funds and by paying investment management and other fees in connection with those investments. Magnuson agreed with Wells Fargo’s contention that Figas knew as early as 1999, but in any case by 2003, that the plan was investing in Wells Fargo controlled funds and that the plan paid fees to invest in those funds, and so the claim was time-barred under ERISA.  

However, the claims that investment in the funds of Wells Fargo Fund Management was a breach of the Employee Benefit Review Committee’s fiduciary duties and violated ERISA § 404, 29 U.S.C. § 1104, and that Wells Fargo is liable for abetting the Committee’s alleged breaches of fiduciary duties were not dismissed and it was for these claims that Magnuson certified a class.  

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As both parties conceded that the proposed class is so numerous that joinder of all the members is impracticable and there are questions of law or fact common to the class, Magnuson moved on to consider whether the claims or defenses of the representative parties are typical of the claims or defenses of the class.

He rejected Wells Fargo’s arguments that plaintiff Robin E. Figas cannot make out any claim related to allegedly excessive fees because Wells Fargo paid for the majority of the fees in her investment account, and that because some plan participants’ investments made more money than the funds Figas points to as the “best available alternatives,” Figas’s claims that her account lost money are not typical of the claims of the class.  

Magnuson pointed out that Figas does not make a separate “excessive fee” claim, but claims that, by paying fees to WFFM that were higher than the fees that might have been charged by other, non-

Wells Fargo-related funds, the fiduciaries breached their fiduciary duties to the plan and its beneficiaries. He also said each individual plan participant’s investment decisions are not necessarily relevant to the typicality inquiry, as the claims are brought on behalf of the plan itself, not on behalf of each individual who participated in the plan.   

Finally, Magnuson found that Figas and her counsel will fairly and adequately protect the interests of the class.  

The case is Figas v. Wells Fargo & Co., D. Minn., No. 08-4546 (PAM/FLN), 4/6/10.

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