ERISA Fiduciary Breach Lawsuit Targets Coca-Cola Bottler MEP

The complaint alleges the defendants failed to choose less costly and equally or better-performing investment options for the plan, or to use the plan’s size to reduce recordkeeping fees.

A new Employee Retirement Income Security Act (ERISA) lawsuit filed in the U.S. District Court for the District of Kansas claims a bottlers’ association working for Coca-Cola has committed fiduciary breaches in the operation of its multiple employer plan (MEP).

According to the complaint, the defendants failed to act for the exclusive benefit of the plan and its participants and beneficiaries by not acting to leverage the plan’s sizable assets to qualify for lower-cost versions of the same investments. Furthermore, the complaint alleges, the defendants failed to choose less costly and equally or better-performing investment options for the plan, or to use the plan’s size to reduce recordkeeping fees.

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In addition to these claims, which are common in ERISA lawsuits filed against individual employers, the complaint suggests the defendants imprudently included as an option the Coca-Cola Common Stock Fund, which they call “an undiversified investment,” instead of well-diversified options, even though the Coca-Cola Co.’s common stock allegedly performed poorly in comparison to its benchmark.

Importantly, such claims have met varying levels of success across the federal court system, based mainly on the degree to which a given complaint establishes that an imprudent fiduciary management process was potentially in place. In other words, it is not enough for a potential class of plaintiffs to merely point out that their plan has relatively expensive investments or administrative fees relative to its peers. See Davis v. Salesforce and Kurtz v. Vail Corp. In this latest case, much of the complaint’s real estate is used in comparing the plan’s investment options to those of its peer group, rather than speaking directly to the evaluation process used by fiduciaries.

The Coca-Cola Bottlers’ Association (CCBA), a Georgia corporation with its headquarters located in Atlanta, is named as the main defendant by the complaint, along with various individuals in positions of corporate leadership. As detailed in the complaint, the CCBA members consist of all 65 U.S. independent bottlers of Coca-Cola, as well as associate members that include bottler-owned production cooperatives.

According to the complaint, as of December 31, 2018, the plan included 24 investment options, including 22 mutual funds, one collective investment trust (CIT) fund and the Coca-Cola Common Stock Fund. According to the plan’s 2019 Form 5500, as of December 2019, the plan had just shy of $800 million in net assets.

“Defendants failed to consider and select lower cost investment options that were similar to or in the same investment style as those being offered in the plan,” the complaint states. “For example, defendants should have realized that the T. Rowe Price target-date mutual funds were directing a substantial portion of their assets into the proprietary T. Rowe Price Equity Index 500 fund, which charged a fee that Morningstar called ‘outrageous.’ … Defendants served up target-date funds [TDFs] that, for at least part of the class period, directed a substantial portion of their assets to an S&P 500 fund that charged more than seven times the market rate.”

Similar points are raised by plaintiffs with respect to the failure to offer collective investment trusts in the plan.

“Even though the Wells Fargo Stable Return Fund Class N has been available since October 1, 1985, at a cost of 41 basis points [bps], the plan was using the Wells Fargo Stable Return Fund Class N35 during the class period at a cost of approximately 76 basis points—more than 85% more expensive than its identical Class N counterpart,” the complaint states.

Participants in Terminated 403(b) Plan File ERISA Lawsuit

The plaintiffs allege the use of actively managed funds and higher-cost share classes caused them to lose millions.

A group of 403(b) plan participants are suing their employer for allegedly keeping imprudent investments as choices in the plan and for causing them to pay excessive fees for plan investments, among other things.

According to the Employee Retirement Income Security Act (ERISA) lawsuit, “for the period beginning January 1, 2015, through the date the plan was terminated, May 31, 2019, plan participants lost approximately $4.6 million due to excessive fees and costs as a result of Columbus Regional’s breaches of fiduciary duty.”

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The lawsuit alleges that Columbus Regional Healthcare, which was acquired by Atlanta-based Piedmont Healthcare in 2018, selected and maintained actively managed funds in the 403(b) plan “in the hope of generating ‘excess returns.’” However, it says the health care system ignored the “red flags” of high expense ratios which cost participants millions of dollars. The plaintiffs say the actively managed funds underperformed and did not recoup them for high fees. The lawsuit claims a prudent fiduciary would have considered index funds as options for the plan.

The health care system is also charged with selecting high-priced share classes and not negotiating as a “large plan” for lower-priced share classes.

The lawsuit says Columbus Regional failed to prudently select, evaluate and monitor the plan’s target-date fund (TDF) suite. It says the family of TDFs managed by American Century did not have a consistent track record of outperforming the market and that the returns did not justify their costs. In addition, Columbus Regional is accused of selecting the most expensive share classes for the TDFs—Class A—when it could have selected cheaper R-6 share classes.

The lawsuit also calls out the stable value fund selected by Columbus Regional, saying it generated lower returns than “substantially identical” stable value funds offered by other investment managers.

Plaintiffs challenge the administrative expenses of the plan, saying that revenue sharing hid the true cost of the plan. They say the fees charged by the investment adviser to the plan were “grossly excessive” and that the fees charged by the plan’s recordkeeper were 1.7 to 3.1 times what a reasonable fee would have been.

Plaintiffs also say they were not provided with information they needed to make informed investment decisions. They say Columbus Regional did not disclose the excessive fees participants were paying and that it had selected higher-cost share classes for investments in the plan. “The disclosures Columbus Regional did provide to participants consisted of incomplete and vague boilerplate [information] furnished by the very same service providers that benefited from the excessive fees and kickbacks,” the complaint states.

Columbus Regional’s parent company did not respond to a request for comment.

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