Compliance January 13, 2022

TriNet ERISA Lawsuit Latest to Clear Dismissal Motion

The lawsuit, like many others filed by plaintiffs represented by the law firm Capozzi Adler, also suggests the plan sponsor has failed to use the lowest-cost share classes available to the plan.

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The U.S. District Court for the Middle District of Florida has issued a ruling against the defense’s dismissal motion in an Employee Retirement Income Security Act (ERISA) lawsuit filed against TriNet HR.

Similar to a host of other lawsuits that have been filed against large employers and plan sponsors across the U.S., at a high level, the plaintiffs allege that the defendants failed to objectively and adequately review their defined contribution (DC) retirement plan’s investment portfolios with due care to ensure that each investment option was prudent, in terms of cost. They also allege that the plan’s fiduciaries inappropriately maintained certain funds in the plans despite the availability of identical or materially similar investment options with lower costs and/or better performance histories.

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The plaintiffs in this case are represented by a law firm known as Capozzi Adler, which has gained a reputation in the retirement plan services space as a serial filer of similar proposed class action lawsuits. Using language repeated verbatim in many other Capozzi Adler lawsuits, the complaint against TriHealth states that one indication of the defendants’ alleged failure to prudently monitor the plan’s funds is that the plan has retained several actively managed funds despite the fact that these funds charged “grossly excessive fees compared with comparable or superior alternatives.”

The lawsuit, like the others, also suggests that TriNet has failed to use the lowest-cost share classes available to the plan. In addition to their allegations regarding the selected investments’ costs and performance, the plaintiffs also allege that defendants failed to monitor or control the plan’s recordkeeping expenses.

One distinguishing factor in this case is that the plan being challenged is a multiple employer plan (MEP).

In considering the defense’s dismissal motion, the District Court engages in a substantial discussion regarding the fiduciaries’ duties prescribed by ERISA, as well as the various precedents that have been set in such matters in the relevant federal court circuit and by the U.S. Supreme Court—particularly those that speak to motions to dismiss pursuant to the Federal Rule of Civil Procedure 12(b)(6). Much of this discussion is centered on the idea that the act of approving or denying dismissal at this stage in the legal proceedings has relatively little bearing on the court’s view of the potential ultimate outcome in the case.

“The defendants have not pointed this court to any breach-of-fiduciary-duty ERISA case in which a matter was terminated on a motion to dismiss based only upon the record developed in administrative proceedings,” the ruling states. “The cases that advocate for a deferential standard in such breach-of-fiduciary-duty cases were decided on a later procedural posture.”

Important to the ruling against the motion to dismiss, the court declines to take judicial notice of nearly 1,000 pages of submitted documents. It explains its rational as follows: “Courts may take judicial notice of documents when the facts therein are not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned. Here, many of the documents submitted by the defendants are precisely the sort of evidence that might be submitted at summary judgment or at trial and subject to the typical rules for admission. For example, the defendants submit letters of engagement with third parties, presentations on the recordkeeper [request for proposals] process, agreements and service fee schedules with the plans’ recordkeepers, and performance information on various investment funds, all in an effort to undercut the plaintiffs’ factual allegations.”

Ultimately, the ruling concludes that the only question before the court is whether the plaintiffs have pleaded sufficient facts, taken as true, that meet the requisite pleading standard.

“The plaintiffs have met that burden here,” the ruling states. “Other courts have found similar factual allegations sufficient to allege ERISA breach of fiduciary duties claims.”

The full text of the ruling is available here.

Data and Research January 12, 2022

Student Debt Derails Millennials’ Savings

A significant number of college-educated Millennials feel student debt has affected their ability to save for retirement and to buy a home.

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In a study released today, Legal & General Group argues that student debt has affected the Millennial generation more adversely than any other age cohort, with many 25-year-olds to 40-year-olds feeling financially crippled by the skyrocketing cost of college tuition at a crucial point in their lives—and in an economy struggling to recover.

These findings are part of broad new study, “U.S. Millennials and Home Ownership – A Distant Dream for Most,” which examines the role of student and medical debt in creating a “vicious cycle” that keeps many Millennials from saving and building credit to purchase their own homes.

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The study suggests that a significant number of college-educated Millennials feel student debt has affected their ability to buy a home, with 40% of those surveyed reporting that it has had a “moderate” to “very strong” negative impact on their plans.

According to the study, as of November, Americans owed $1.75 trillion in student loans. The skyrocketing cost of college tuition, coupled with catastrophic economic events such as the 2008 financial crisis and the COVID-19 pandemic, have left many Millennials in poor financial shape. Recognizing this dynamic, the study analyzed the financial standing of Millennials who were not yet homeowners to uncover some of the reasons why and to identify potential solutions.

The study shows that for 45% of Millennials, funding a down payment for a home is their top priority, with 36% calling student debt a major barrier to saving for a down payment. When asked which they would fund, 26% say they would pay off their student loans before anything else. Another 12% say the same about medical debt.

In total, the study shows that 52% of Millennials were not saving for a down payment, while 48% were. Of those who were saving, 80% plan to fund the payment exclusively or mostly from their own or a partner’s savings, and 22% plan to use a family loan, gift or inheritance to fund a down payment. Among the savers, 55% can’t buy yet, and 36% have yet to start a savings account for this purpose. Another 36% do have a savings account.

Millennials who don’t have the benefit of help from family are at a disadvantage in accumulating the sort of wealth afforded by becoming property owners, the study suggests. This group is also more likely to have had to fund their own education.

“Student loan debt is a leading contributor to the economic imbalance our research identifies, meaning that saving for a down payment to purchase is a distant, rather than near-term, goal for many U.S. Millennials,” says Sir Nigel Wilson, Legal & General Group CEO. “It has put this generation at a considerable disadvantage in terms of parlaying their hard-won education into wealth, in the form of home ownership.”

In addition to student loans, the study suggests more Millennials are shouldering their own health care costs. Among Millennials the study surveyed, 51% had received an unexpected medical bill over $2,000, while only 60% held their own health insurance. Out of those facing a large bill, 57% of Millennials surveyed said they had $3,000 or less in savings out of which to pay it, while 22% indicated that they had no savings.

“Traditionally, health insurance in the U.S. has been a benefit provided by corporations to their employees. But a confluence of factors, from the Great Recession to the rise of the gig economy, have affected the degree to which younger Americans were covered during this critical time, or had to purchase their own policies,” says John Godfrey, report co-author and Legal & General corporate affairs director. “When you add the cost of health insurance plans and medical debt to the student loan burden, it’s less surprising that the percentage of U.S. Millennial homeowners is at a historic low.” 

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