Dismissal Motions Rejected in UMMS ERISA Lawsuit

The defendants contest their process ensures that any fees paid by participants are reasonable and all services and investment offerings are in the best interests of the participants.

The U.S. District Court for the District of Maryland has issued an order in an Employee Retirement Income Security Act lawsuit filed on behalf of participants in the University of Maryland Medical System 401(a) Defined Contribution Plan and UMMS Voluntary 403(b) Plan.

The order rejects the defendants’ motion to dismiss the lawsuit, setting the stage for discovery and a potential full trial or settlement.

The defendants are accused of failing to ensure investment options in the plans were prudent in terms of performance and cost, failing to select prudent share classes, and not selecting similar investment options with lower fees, such as collective investment trusts or passive funds instead of actively managed ones. The lawsuit also takes issue with the plan’s use of Prudential’s GoalMaker asset allocation service, calling it “abusive.”

A statement issued to PLANADVISER from UMMS after the lawsuit’s filing says the medical system does not believe that there is “any merit” to the claims.

“UMMS, and/or its designated representatives, routinely monitors the various investment offerings and educational tools offered to its retirement plan participants,” the statement reads. “This process ensures that any fees paid by participants are reasonable and all services and investment offerings are in the best interests of the participants.”

The new court order stretches to 13 pages. It cites various case law and precedents to argue that a prospective plaintiff, to get beyond a motion to dismiss, must only show, through reasonable inferences from well-pleaded facts, that the fiduciary’s choices did not meet ERISA’s requirements.

“For a plaintiff relying on inferences from circumstantial allegations, this standard generally requires the plaintiff to allege facts, accepted as true, showing that a prudent fiduciary in like circumstances would have acted differently,” the order states. “Further, if the court, based on circumstantial factual allegations, may reasonably infer from what is alleged that the process was flawed, and that an adequate investigation would have revealed to a reasonable fiduciary that the investment at issue was improvident, a complaint will survive a motion to dismiss for failure to state a claim.”

The move by the court to allow the case to proceed comes at a busy time for ERISA litigation—a time some compliance experts see as a possible inflection point thanks to recent appellate and Supreme Court rulings. Beyond the emergence of potentially influential precedents, the pace of filings in 2022 has been extremely rapid, with at least 25 cases filed in the first four months of the year. One expert anticipates that anywhere from 75 to 100 cases will be filed by the end of 2022.