Compliance

Chevron Wins Dismissal of ERISA Challenge

The text of a decision by a U.S. district court judge to dismiss ERISA claims against Chevron Corporation offers some important insights into the difference between the duties of “prudence” and “loyalty.” 

By John Manganaro editors@plansponsor.com | August 31, 2016
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An Employee Retirement Income Security Act (ERISA) lawsuit filed by participants in a Chevron Corporation defined contribution (DC) plan has been dismissed after a hearing before the U.S. District Court for the Southern District of California—making for some informative reading for ERISA industry practitioners.  

Similar to a host of other lawsuits filed against a wide range of employers over the last several years, the complaint, White vs. Chevronaccused the international energy company of failing to use its negotiating power to obtain lower investment and recordkeeping fees on behalf of plan participants.

Specifically, the six plaintiffs who filed the proposed class action alleged that plan fiduciaries “breached their duties of loyalty and prudence by providing participants with a money market fund as a capital preservation option, instead of offering them a stable value fund; by providing retail investment options that charged higher management fees than lower-cost institutional versions of the same investments; by providing mutual funds that charged higher management fees than other lower-cost investment options such as collective trusts and separate accounts; by failing to put plan administrative services out for competitive bidding on a regular basis, and instead paying excessive administrative fees to Vanguard as recordkeeper through revenue sharing from plan investment options; and by retaining the Artisan Small Cap Value Fund as an investment option despite its underperformance compared to its benchmark, peer group, and lower-cost investment alternatives.”

Plaintiffs also alleged that Chevron Corporation breached its fiduciary duty by failing to monitor its appointees’ performance and fiduciary process, failing to ensure that the appointees had a fiduciary process in place, and failing to remove appointees whose performance was inadequate.

One more novel claim was that, “by providing participants the Vanguard Prime Money Market Fund instead of a stable value fund, as represented by the Hueler Index, from February 2010 to September 30, 2015, Chevron Corporation caused its 401(k) plan, participants and retirees to lose more than $130 million in retirement savings.” In the original complaint, Hueler Analytics Pooled Fund Comparative Universe (Hueler Index) data was used to show the returns of the funds in the Hueler Index “have far exceeded the returns of the Vanguard Prime Money Market Fund in the plan. The Hueler Index shows stable value funds dramatically outperformed the plan’s money market fund—up to 67 times the return of the Vanguard Prime Money Market Fund.”

The gist of the complaint was that the value of the proposed class members’ retirement accounts would have been greater had defendants chosen alternative funds or investment options with either higher returns or lower administrative and management fees (or both), and that based on the alleged breaches of fiduciary duty, defendants are personally liable to make good to the plan any losses resulting from their failure to choose investment options with higher returns and/or lower fees.

NEXT: Tossed for failure to state a claim  

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