U.S. District Judge William J. Martini agreed with John Hancock’s argument that plaintiffs’ Employee Retirement Income Security Act (ERISA) claims are derivative, meaning they belong to the plans, so the plaintiffs must first make demand upon the trustees of the plan to file suit. The court found no such demand was made, nor are the trustees listed as defendants in the action.
Martini pointed out that the 2nd U.S. Circuit Court of Appeals has held that in relation to an ERISA § 502(g) claim, which is akin to the Section 502(a) claims in the current suit, “[a] participant in a fund governed by ERISA can sue derivatively on behalf of the fund only if the plaintiff first establishes that the trustees breached their fiduciary duty.” According to Martini, arguably, this would seem to preclude suit here – because plaintiffs’ complaint makes no allegations against the plans’ trustees.
Also, Martini said, the appellate court was applying the rule mandating demand on the trustees, except when such demand is futile. Martini found that plaintiffs made no allegations against the trustees or that demand is otherwise futile.
According to the opinion, John Hancock Life Insurance Company operates 401(k) plans through group annuity contracts (GACs), which it establishes by selecting a menu of investment options or funds. John Hancock provides the menu of options to the employer who then selects a subset of the funds. Participants in a portfolio offered by John Hancock direct their monies into their own separate sub-accounts, where they are allocated into particular funds within the portfolio.
John Hancock charges plan sponsors a contract level fee and charges plan participants fees for their investment in the sub-accounts.
A participant invested in two John Hancock subaccounts within her employer-sponsored 401(k) plan alleged that John Hancock’s sales and service is excessive and in violation of ERISA, that the firm allowed payment of 12b-1 fees in violation of ERISA, that John Hancock allowed its investment management division to charge plan participants an advisory fee in violation of ERISA, and that the firm wrongfully received revenue sharing payments from participants’ investments into sub-accounts in violation of ERISA.
The opinion is here.