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Compliance December 27, 2022
District Court Narrows $750,000 Retirement Theft Lawsuit Claims
A federal judge granted the motion to dismiss one of three defendants in a retirement theft lawsuit.
Reported by Noah Zuss
A New York judge denied two motions to dismiss fiduciary breach claims brought by a retired Colgate-Palmolive marketing executive against Alight Solutions and the Colgate-Palmolive employee relations committee—but granted the motion to dismiss the Bank of New York Mellon Corporation from the lawsuit.
Plaintiff Paula Disberry’s original complaint, filed in U.S. District Court for the Southern District of New York, stated that in September 2020, after unsuccessfully trying to log in to her account, she was informed her entire accumulated retirement plan balance of $751,430.53 had been withdrawn in one lump sum without her knowledge.
Court documents show that a fraudster was able to intercept a temporary PIN sent by Alight to Disberry’s correct address in January 2020, changed the address to the fraudster’s residence in Las Vegas and proceeded to request distribution from Alight in March 2020, all despite multiple failed attempts at identity verification.
“On March 20, 2020, BNY Mellon mailed a check for $601,144.42 ($751,430.53, the gross amount of the distribution, less mandatory tax withholdings) to the Las Vegas mailing address,” states the court order. “Whoever received the check cashed or deposited it at a bank in Las Vegas on March 27, 2020.”
Disberry’s complaint alleged one count against all defendants for breach of fiduciary duty under the Employee Retirement Income Security Act.
Each of the three defendants argued that allegations in the complaint should be dismissed for failure to state a claim under the Federal Rule of Procedure Rule 12(b)(6). Under ERISA, to sufficiently state a claim for breach of fiduciary duty, the plaintiffs must allege that the defendant was acting as a fiduciary to the plan, the defendant breached that duty and, lastly, that the breach caused harm to the plaintiffs.
Alight Solutions and BNY Mellon moved to dismiss the claim on the basis they were not acting as fiduciaries for the plan. Senior U.S. District Judge Colleen McMahon granted BNY Mellon’s motion, but she ruled against dismissing the plaintiff’s claims against Alight Solutions.
“It is not possible to dismiss out of hand the possibility that Alight would qualify as a ‘functional fiduciary’ within the meaning of ERISA, given its alleged role in directing the institution that held the plan assets (BNY Mellon) to make the distribution in the plaintiff’s case,” McMahon wrote.
Alight argued, unsuccessfully, it was not a plan fiduciary because the plaintiff’s complaint identified it as “performing purely ministerial tasks,” the judge states in the order.
However, an organization may also be deemed an ERISA fiduciary if it meets the definition of “functional fiduciary,” as defined by 3(21)(A) of ERISA—detailed in an advisory opinion by the Department of Labor’s Employee Benefits Security Administration—which was also noted in McMahon’s order.
ERISA requires that every employee retirement benefit program must provide for one or more named fiduciaries to possess the authority for control, operation and administration of the plan. For the Colgate-Palmolive plan, the entity or individual identified as the administrator in the plan document is automatically deemed a named fiduciary, which is in this case the retirement plan committee, not Alight Solutions, according to the order.
McMahon’s decision stated, “Common law claims that would be preempted were they asserted against a plan fiduciary may in fact be asserted against non-fiduciaries such as persons who perform ministerial tasks with respect to an ERISA plan.”
BNY Mellon served as a plan trustee for the Colgate-Palmolive retirement plan, provided investment management services, served as custodian of the plan’s assets and made payments from the plan’s trust fund, according to court documents. BNY Mellon was dismissed as a defendant because it did not act as a fiduciary for the plan, ruled McMahon.
“Its argument succeeds where Alight’s failed,” she wrote. “The only action that BNY Mellon took in connection with the fraud was to issue a check for the amount in the plaintiff’s account.”
As the plan administrator and named fiduciary for the Colgate-Palmolive defined contribution plan, the committee did not dispute that the first factor applied. Instead, it argued that Disberry failed to plead facts showing the committee breached any fiduciary duty to the plaintiff or that any act of the committee caused the harm.
“I agree with the plan committee,” McMahon wrote. “The plaintiff is the unfortunate victim of a clever criminal. But the committee—the one entity that inarguably can be sued under ERISA (and only ERISA)—is simply not alleged to have done anything that violates ERISA.”
Despite her agreement, McMahon did not dismiss the allegations because of the potential for negligence on behalf of the committee in its choice and monitoring of Alight Solutions.
While the complaint alleged, in “purely conclusory fashion,” that each of the “defendants failed to monitor other’ fiduciaries distribution processes, protocols and activities … [I]f indeed the committee was negligent in its selection of Alight or in monitoring Alight’s protocols and activities (whether or not Alight was a fiduciary), it might be liable for breach of fiduciary duty,” McMahon wrote.
McMahon’s order also set the leave-to-amend and discovery schedules for the continuing case against Alight and the Colgate-Palmolive employee relations committee.
Alight Solutions did not respond to a request for comment. Representatives for BNY Mellon and Colgate-Palmolive declined comment.