Newark, NJ, May 25, 2021 – Konica Minolta Business Solutions U.S.A., Inc., is unable to duck a proposed class action accusing it of breaching its fiduciary duties in managing the company’s 401(k) retirement plan, a New Jersey federal judge ruled on Tuesday.
U.S. District Judge John Michael Vasquez granted in part and denied in part Konica’s motion to dismiss the proposed class action lawsuit under the Employee Retirement Income Security Act brought by Ray Allen Luense, Pamela Pearson, Daniel F. Settnek, and Neil Rose (“Plaintiffs”). The case challenges the fiduciaries handling of the plan, which had roughly $810 million in assets at the end of 2018, making it a “large” retirement plan.
The Complaint alleged that Konica, the plan’s sponsor, its Board of Directors, and the Konica Minolta 401(k) Plan Committee breached their fiduciary duties of prudence and loyalty by (1) including “many mutual fund investments that were more expensive than necessary and otherwise were not justified on the basis of their economic value to the Plan”; (2) failing “to have a proper system of review in place to ensure that participants in the Plan were being charged appropriate and reasonable fees for the Plan’s investment options”; and (3) failing “to leverage the size of the Plan to negotiate lower expense ratios for certain investment options maintained and/or added to the Plan during the Class Period.”
In their bid to dismiss the Complaint, Defendants argued that Plaintiffs lack standing to assert claims related to the eighteen investment options in which they did not invest because they suffered no personal injury as a result of those investments. The court rejected this, stating “If a plan’s participants “have alleged an injury to their own investments by virtue of the Fiduciaries’ mismanagement, sufficient to create a case or controversy for Article III purposes,” then ERISA “grants the Participants a cause of action to sue on behalf of the Plan.” Opinion at 7 (quoting McGowan v. Barnabas Health, Inc., No. 20-13119, 2021 WL 1399870, at *4 (D.N.J. Apr. 13, 2021)).
Defendants also challenged Plaintiffs’ allegations that they were fiduciaries of the Plan. The court ruled that both Konica and the Plan Committee are fiduciaries of the Plan, however, the Board, the individual members of the Board, and the individual members of the Committee did not function as fiduciaries with respect to the acts alleged in the Complaint. Opinion at 10-13.
With respect to Plaintiffs’ first legal claim, alleging breach of the duty of prudence against the Plan Committee, the court denied Defendants’ motion, stating: “First, Plaintiffs adequately plead that the Plan included funds with higher expense ratios than comparable funds, and the Plan’s funds failed to outperform the less-expensive comparable funds…. Second, Plaintiffs sufficiently allege that many funds were retained in the Plan despite their underperformance as compared to their benchmarks.” Opinion at 15-16.
Additionally, the Complaint “also plausibly pleads a failure to monitor and/or control the Plan’s recordkeeping expenses.” Opinion at 16. Specifically, during the proposed Class Period, “the cost per participant rose from $22.89 to $92.54 during the period,” but ”normal recordkeeping fees for a comparable plan would be between $20 and $40 per participant at the start of the Class Period, and should have been lower in the following years.” Opinion at 17.
The court also denied Konica’s motion to dismiss Plaintiffs’ claim that Konica and the Board of Directors failed to monitor other fiduciaries of the 401(k) plan. While the court found that the Board had no such obligation, it ruled that Plaintiffs had sufficiently alleged that Konica failed to monitor the processes by which Plan investments were evaluated, or monitor and evaluate the performance of the Plan Committee. Opinion at 19-20.
Finally, the court granted Konica’s motion to dismiss a separate claim alleging that excessive and unreasonable compensation paid to the Plan’s recordkeeper, Prudential, constituted a prohibited transaction under ERISA. Opinion at 20-23.
The case is Luense v. Konica Minolta Business Solutions U.S.A., Inc., No. 2:20-cv-06827-JMV-MF, in the U.S. District Court for the District of New Jersey.
Edelson Lechtzin LLP is a national class action law firm with offices in Pennsylvania and California. In addition to cases involving retirement plans, our lawyers focus on class and collective litigation in cases alleging violations of federal antitrust laws, securities fraud, wage theft, consumer fraud, and dangerous and defective drugs.