Employer Groups Challenge ERISA Class Certification in Appeals Court

The U.S. Chamber of Commerce and the American Benefits Council filed a joint amicus brief Friday asking the U.S. 4th Circuit Court of Appeals to set aside the ERISA class certification approved by a district court in a lawsuit involving the 401(k) pension plan of the National Rural Electric Cooperative Association.

Mullins et al. v. National Rural Electric Cooperative et al. was filed in U.S. District Court for the Eastern District of Virginia by two current plan participants, representing a class of more than 77,000 participants. The district court certified the class on March 6. The plaintiffs accuse NRECA and its fiduciary committee of breaching obligations under the Employee Retirement Income Security Act and charging the multiple employer plan’s participants excessive administrative fees.

In the brief to the appeals court—which hears appeals from federal district courts in Maryland, North Carolina, South Carolina, Virginia and West Virginia—the Chamber of Commerce and the American Benefits Council called the class certification “manifestly erroneous.” The groups claimed the district court had “applied a rubber stamp” to the ERISA class certification of “almost 100,000 persons who worked for 900 separate employers” and had not adequately considered commonality and predominance—or whether all plaintiffs had suffered identical monetary damage, rather than individualized losses. According to the amicus brief, the district court did not mention predominance during its oral ruling, and its written order stated that predominance was satisfied, without specifying reasons.

Further, the brief noted that individual employers could tailor administrative services from NRECA’s plan, and since the alleged excessive fees depended on services received, “mini-trials” would be needed to determine which individual class members were financially impacted.

According to the initial complaint, NRECA, which represents more than 900 electric cooperatives, public power districts and public utility districts in the U.S., allegedly manipulated internal cost-sharing structures to shift more financial burden onto the 401(k) plan, while reducing costs to other benefits programs.

The plaintiffs seek restitution of lost funds, a reform of plan practices and court oversight to prevent further violations.

Implications of Genworth Decision

In March, the 4th Circuit overturned a class certification in Trauernicht v. Genworth Financial Inc., an ERISA lawsuit that accused the financial services company of breaching fiduciary duties. The class certification was granted by a district court in August 2024, and the 4th Circuit ruled in September 2024 that Genworth could appeal the class certification.

In the appeals court’s March decision, U.S. Circuit Judge Paul Niemeyer stated that participants’ monetary losses were individualized in DC plans, since they were based on performance of participants’ individual accounts, as opposed to defined benefit plans, which pool assets and offer fixed benefits.

The decision stated that the district court had not conducted “rigorous analysis” of whether the plaintiffs had received the same financial injury required for class treatment—legal arguments that were mirrored in the NRECA case’s amicus brief.

Legal experts asked about the Genworth decision said it could potentially shrink the size of potential classes in investment–performance cases or eliminate classes altogether. On March 13, just days after the Genworth decision was handed down, U.S. District Judge Michael Nachmanoff, who oversaw the NRECA case in district court, granted an emergency motion to vacate his own class certification. However, he then granted another motion by the plaintiffs for class certification on May 1.

NRECA previously reached two separate settlements, in 2012 and 2019, over ERISA complaints against its retirement plans. In the current NRECA case, the plaintiffs are represented by Baron & Budd P.C., and the defendants are represented by Goodwin Procter LLP.