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Compliance May 11, 2022
O’Reilly Automotive Latest to Face ERISA Challenge
The national auto parts distributor faces allegations that it failed to prudently and loyally operate its defined contribution retirement plan.
Reported by John Manganaro
A new Employee Retirement Income Security Act fiduciary breach lawsuit has been filed in the U.S. District Court for the Western District of Missouri, naming as defendants the O’Reilly Automotive company, its board of directors and the committee tasked with operating the firm’s 401(k) plan.
The arguments made by the plaintiffs closely resemble those of the many others that have filed ERISA suits in recent years, at least partly due to the fact that the plaintiffs in this case are represented by the increasingly active law firm Capozzi Adler. In fact, the firm has represented clients who sued another national automotive company, Magna International of America, making more or less the same excessive fee arguments advanced in the new case.
According to the new complaint, the O’Reilly plan’s assets under management, which are reported in the range of $1.1 to $1.2 billion, qualify it as a large plan in the defined contribution plan marketplace, and among the largest plans in the United States. As a large plan, the complaint states, it had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments.
“Defendants, however, did not try to reduce the plan’s expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the plan to ensure it was prudent,” the complaint states.
Nearly identical language has been used in numerous prior ERISA fiduciary breach lawsuits. The claims have met with varying degrees 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 its plan has relatively expensive investments or administrative fees relative to its peers. (See Davis v. Salesforce and Kurtz v. Vail Corp.)
“Defendants did not adhere to fiduciary best practices to control plan costs when looking at certain aspects of the plan’s administration such as monitoring investment management fees for the plan’s investments, resulting in several funds during the class period being more expensive than comparable funds found in similarly sized plans,” the complaint states. “Yet another indication that the plan was poorly run and lacked a prudent process for selecting and monitoring the plan’s investments is that, as of 2020, it had a total plan cost of more than .60%, or, in other words, more than 172% higher than the average.”
One new feature in the O’Reilly complaint is the citation of the recent Supreme Court decision in Hughes v. Northwestern University, which concluded that a retirement plan fiduciary cannot simply put a large number of investments on its menu, some of which may or may not be prudent, and assume that the large set of choices insulates the plan sponsor from the duty to monitor and remove bad investments. In other words, having a large investment menu does not itself protect a plan sponsor who permits an overly costly or otherwise imprudent investment to persist, and sponsors cannot hide behind the fact that participants ultimately choose in which funds to invest their money.
The O’Reilly Automotive company has not yet responded to a request for comment about the allegations. The full text of the complaint is available here.