Circuit Judge Diane Wood, writing for a three-judge panel of the 7th U.S. Circuit Court of Appeals, suggested that the move from a predominately defined benefit retirement plan landscape to a predominantly defined contribution retirement plan landscape has necessitated that courts re-examine relief available under ERISA § 502. She noted that in 2008 the U.S. Supreme Court decided individual participants can seek relief under ERISA (see Justices OK Individual ERISA Suits in Landmark Ruling); however, the question still remains whether a class of participants can do so.
With two excessive fee cases to consider, Wood concluded that situations in which the plan as a whole is injured at the same time as the individual employee can arise when the entity responsible for investing the plan’s assets charges fees that are too high or when the plan has been reckless in its selection of investment options for participants. “Inflated fees leave less money left over for investing in shares of stock, or mutual funds, or bonds, or whatever else the plan has offered. At year’s end, and at career’s end, the employee’s portfolio will be worth less because plan assets were burned up in transaction costs,” she wrote.
However, although the court confirmed the possibility of class treatment in ERISA cases, it determined the classes certified in the two cases needed to be better-defined or more-targeted.
The opinion noted that determining whether a case can proceed as a class turns on the conditions of Rule 23 of the Federal Rules of Civil Procedure, which requires that (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.
Focusing only on the classes that the district court actually certified in the two cases before the court, Wood said the panel cannot find the necessary identity of interest among all class members. She concluded that many members of the class have no complaint about certain funds in light of the dates when they first invested and the date when they exited.
For Spano v. The Boeing Company (see Boeing 401(k) Fee Case Sanctioned as Class Action), the district court certified a class of “All persons, excluding the Defendants and/or other individuals who are or may be liable for the conduct described in this Complaint, who are or were participants or beneficiaries of the Plan and who are, were or may have been affected by the conduct set forth in this Complaint, as well as those who will become participants or beneficiaries of the Plan in the future.” The court certified a similar class in Beesley v. International Paper Company (see IPC: 401(k) Fees ‘Not Excessive or Unreasonable’).
The firms argued that this definition “is so diffuse as to be no definition at all.”
According to the opinion, in Beesley v. International Paper Company, the complaint implies that some fees are fund-specific, while others may be imposed equally on every plan participant. Wood said precision on this point is essential to ensure that the class representative’s claim is typical.The January 21 ruling in Spano v. The Boeing Company can be fournd by going here.