The U.S. District Court for the District of Connecticut has dismissed without prejudice a class-action Employee Retirement Income Security Act (ERISA) challenge filed by a participant on behalf of the Cedars-Sinai Medical Center 403(b) Retirement Plan.
Darlene Dezelan, the lead plaintiff, alleged in the suit that Voya Retirement Insurance and Annuity Company improperly profited from stable value funds offered to the plan through annuity contracts.
According to the original complaint, Voya sells group annuity contracts to retirement plans which include what it labels and markets as stable value funds, referred to in the complaint as “SVAs.” The SVAs periodically credit a certain amount of interest income to retirement plans and the participants in such plans who invest their retirement plan accounts in SVAs. This income, generally expressed as a percentage of the invested capital, is determined pursuant to the “Crediting Rate.” The Crediting Rate varies in each Crediting Period, and Voya sets a Crediting Rate for all money in and added to its SVAs in that period.
The lawsuit alleged that Voya set the Crediting Rate “well below the internal rate of return (IRR) on the plan’s deposits to the SVAs, guaranteeing a substantial profit for itself through both the retention of the spread between the two rates and/or the use of the spread for its own purposes.” Further, the lawsuit suggested, “Voya does not disclose to its retirement plan clients and their respective participants the amount of the spread, so it collects hundreds of millions of dollars annually in undisclosed compensation.”
As laid out in the district court decision, important to the outcome of this case is that Ms. Dezelan “does not allege that she has withdrawn money from the Separate Account or receives annuities from Voya. Rather, her allegations concern the accumulation phase of her Plan’s Contract. She alleges that Voya breached its fiduciary duties to the Plan during this period, reducing the amount of Plan funds that would eventually be available for her to withdraw.”
The decision further clarifies: “Ms. Dezelan makes three claims against Voya. The essence of all three claims is that Voya unlawfully profited by setting the Crediting Rate for its stable value funds for its own benefit. First, Ms. Dezelan alleges that Voya violated Section 406(a)(1)(C) of ERISA, which provides that a fiduciary shall not cause a plan to engage in a transaction if it knows that the transaction constitutes direct or indirect furnishing of goods or services by a party in interest to a plan. … Second, she argues that Voya violated Section 406(b)(1) of the law, which prohibits a fiduciary from dealing with plan assets in his own interest or for his own account. … Finally, she argues that Voya breached the fiduciary duties it owed to the Plan, in violation of Section 404(a)(1).”
NEXT: Voya’s successful counter arguments
Against these arguments, Voya countered that Ms. Dezelan’s claims concerning its general account stable value funds should be dismissed because she does not in fact have standing to bring the claims: “Ms. Dezelan lacks standing because Voya did not offer general account products to her Plan, and because she cannot bring this claim on behalf of purported class-members who did invest in these products … Voya also moves to dismiss Ms. Dezelan’s claims concerning the Separate Account product in which she invested, arguing that she fails to state a claim upon which relief may be granted.”
In short, the court agrees with Voya’s take. Here is how the broad strokes of the decision are explained: “Voya argues that Ms. Dezelan’s claims concerning its general account stable value funds should be dismissed because it did not offer any general account products in the Cedars Sinai Plan, and because Ms. Dezelan does not have standing to pursue claims concerning plans in which she did not participate. Ms. Dezelan responds that courts routinely certify classes, brought by plaintiffs who did not purchase every product encompassed within a class definition … Because she has standing to bring her own claims against Voya, Ms. Dezelan argues, she can represent class-members who purchased general account products, even if she herself did not. The Court agrees with Voya. Ms. Dezelan does not have standing to bring her claims concerning Voya’s general account products. She also does not have class standing to bring these claims on behalf of potential class members who invested in those products.”
The decision goes into significant detail regarding the court’s move to dismiss, highlighting the theme that to successfully bring an ERISA suit to trial, a plaintiff “must demonstrate both constitutional standing and a cause of action under ERISA.”
“To demonstrate constitutional standing,” the decision explains, “the plaintiff must have (1) suffered an injury-in-fact; (2) there must be a causal connection between the injury and the conduct at issue; and (3) the injury must be likely to be redressed by a favorable decision … Because Ms. Dezelan did not own any general account stable value funds, she cannot show that any of Voya’s alleged misdeeds concerning those funds caused her to suffer a distinct and palpable injury, and therefore lacks standing to bring all three causes of action to the extent that they relate to those products.”
The decision clarifies that Ms. Dezelan importantly “does not dispute Voya’s contention that it did not offer a general account stable value fund through the Cedars Sinai Plan. While her Complaint concerns hypothetical general account products, she does not allege that she was a participant, beneficiary or fiduciary of a general account stable value fund, and therefore does not have standing to bring claims concerning these products.”
The full text of the decision is available here.