Details of Settlement of Franklin Templeton Self-Dealing Lawsuit Revealed

In addition to a more than $13 million payment, Franklin has agreed to select a non-proprietary target-date fund (TDF) for its 401(k) plan’s investment lineup and increase company match contributions for three years.

Franklin Resources will pay $13,850,000 and make other provisions to settle a lawsuit alleging that defendants breached their Employee Retirement Income Security Act (ERISA) fiduciary duties by causing Franklin Templeton’s 401(k) plan to invest in funds offered and managed by Franklin Templeton when better-performing and lower-cost funds were available.

A month before the trial in the case was set to begin, the parties in the lawsuit announced they had reached a settlement but needed 60 days to file a motion for preliminary approval.

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According to the settlement agreement, in addition to the settlement payment, the fiduciaries to the plan with responsibility for selecting plan investment options will add a nonproprietary target-date fund option (TDF) to the investment lineup, which will be maintained as a plan investment option for the duration of the compliance period in addition to the plan’s qualified default investment alternative (QDIA)—the LifeSmart Target Date Funds. “The choice of TDF will be made by the fiduciaries responsible for selecting Plan investment options in a manner consistent with their fiduciary oversight responsibilities, following a search of nonproprietary TDF options conducted by the Plan’s independent investment consultant, Callan Associates, Inc.,” the settlement agreement says.

Also, Franklin has agreed to increase the company match contributions to the plan from a 75% company match rate to an 85% company match rate beginning with the first full quarter of participant deferrals following the effective date of the settlement agreement, for a period of three years.

The settlement agreement says the defendants do not admit any liability in the action, including that any of their prior or existing practices violate any federal or state laws, statutes or regulations.

Retaliation Claim Against Central States Multiemployer Plan Dismissed

Employees of Kroger say Central States’ plan trustees refused to negotiate a proposal with them after they filed an ERISA fiduciary duty lawsuit, but court documents show the trustees attempted negotiations after the filing of the suit and not before.

A federal district court judge has dismissed an Employee Retirement Income Security Act (ERISA) Section 510 retaliation complaint against the Central States, Southeast and Southwest Areas Pension Plan, the plan’s trustees and its executive director, explaining that the defendants’ refusal to negotiate a proposal presented by Kroger before employees filed a lawsuit means the defendants’ unwillingness to negotiate after the lawsuit was filed could not represent improper retaliation.

Current and former employees of The Kroger Company, who are enrolled in the Central States, Southeast and Southwest Areas Pension Plan, allege that the defendants neglected their duties of prudence and loyalty by refusing to consider a third-party’s offer to take on the plaintiffs’ pension liabilities and thereby preserve their retirement benefits. They also claim that the defendants retaliated against them for filing a lawsuit by refusing to negotiate about the third-party offer after the complaint’s filing. The defendants moved to dismiss the retaliation claim.

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The Kroger Co. and the International Brotherhood of Teamsters (IBT), which represents Kroger employees in collective bargaining, proposed to set up a separate, fully-funded pension plan for the Kroger participants, taking away the Central States’ responsibility to pay participants’ benefits. However, in exchange, Kroger and the IBT would not have to pay ERISA withdrawal liability to the Central States plan. Within five days of the proposal, the trustees rejected the proposal in a letter saying they were “not authorized to accept the non-cash consideration offered by Kroger,” emphasizing that the fund had a “firm policy against facilitating employer withdrawals in any way,” and disputing that the proposal would leave the plan better off than if it held Kroger to its duty to make cash withdrawal payments.

The plaintiffs filed a lawsuit one year later. The Central States plan’s executive director sent an email to Kroger saying the trustees would “either negotiate or litigate, but not both.” The court opinion lays out details of attempted negotiations following the filing of the lawsuit.

However, the plaintiffs allege that the letter was in essence saying that the trustees were not willing to negotiate the proposal because of the lawsuit and that, “After the lawsuit was filed, Defendants attempted to create the appearance of bargaining in order to gain a litigation advantage.” However, U.S. District Judge Edmond E. Chang of the U.S. District Court for the Northern District of Illinois found that “the defendants’ pre-lawsuit refusal to negotiate fatally undermine the plausibility of the retaliation claim, so [it] must be dismissed.”

Chang said this meant there was no need to determine whether the plaintiffs have sufficiently alleged that the defendants had a specific intent to interfere with the plaintiffs’ benefits. However, he pointed out that Kroger funded and directed the lawsuit, including by selecting the plaintiffs’ counsel, so the defendants’ refusal to negotiate appears to be a strategy intended to prevent Kroger’s maneuver in instigating the lawsuit—not one intended to interfere with the plaintiffs’ benefits.

The Central States plan still faces breach of fiduciary duty claims for refusing to consider Kroger and the IBT’s proposal.

Kroger withdrew from the plan on December 10, 2017, and Kroger and the plan signed a settlement agreement on February 2, 2018, in which Kroger agreed to pay $418,546,581.91 for its withdrawal liability. Kroger and the IBT have established a new fund that will make up benefits that are reduced by Central States as a result of Kroger’s withdrawal. Should Central States become insolvent and benefits are reduced, the new fund will restore benefit reductions above the level guaranteed by the Pension Benefit Guaranty Corporation (PBGC).

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