Phoenix, AZ, May 18, 2021 – Stantec Consulting Services, Inc. must face a proposed class action accusing it of breaching its fiduciary duties in managing the company’s 401(k) retirement plan, an Arizona federal judge ruled on Tuesday.
U.S. District Judge G. Murray Snow denied Stantec’s motion to dismiss Samantha Gotta’s and Michael De Sena’s Employee Retirement Income Security Act challenge to the fiduciaries handling of the plan, which had more than 10,000 participants and roughly $1.4 billion in assets at the end of 2019, making it a “mega” retirement plan.
The Complaint alleged that Stantec, the plan’s sponsor, and other fiduciaries breached their duties under ERISA: “(1) by selecting high-cost share classes where a lower-cost share class was available for the exact same investments; (2) by failing to choose funds with substantially the same benefits and significantly lower expense ratios than the funds offered; (3) by failing to utilize lower-cost collective trusts in their offerings; (4) by retaining underperforming investments with unreasonably high expense ratios; and (5) by failing to monitor the record-keeping and administrative expenses of the plan.
In particular, Plaintiffs identify the JPMorgan Smart Retirement date funds for 2020, 2025, 2030, 2035, 2040, 2045, 2050, 2055, and 2060; the American Beacon Large Cap Value R5 Fund; the JPMorgan Smart Retirement Income Fund R6; and the PIMCO All Asset Authority Institutional Fund as underperforming offerings with unreasonably high expense ratios. They further claim that Defendants’ failure to identify “lower cost collective trust versions of the exact same investment offerings” unnecessarily increased the expense of the investment offerings.
Finally, apart from the Plan’s offerings, Plaintiffs allege that the recordkeeping and administrative costs of the Plan were excessive. Specifically, that “[t]he total amount of recordkeeping fees (both through direct and indirect payments) currently is at least $75 per participant annually – when a reasonable fee ought to be no more than $25 per participant annually.”
In their bid to dismiss the Complaint, the Stantec defendants argued that “offering actively managed funds and declining to offer additional index funds or collective trusts cannot be per se violations of their duties…” The court rejected this argument, stating: “Whether this failure runs afoul of how ‘a prudent man acting in like capacity and familiar with such matters’ would act is a question of fact that cannot be resolved on a motion to dismiss.” Because Plaintiffs’ first allegation in support of their breach of fiduciary claim was sufficient to state a claim, the Court did not address Plaintiffs’ remaining arguments.
Additionally, the court denied Stantec’s motion to dismiss a separate claim that the company and its Board of Directors failed to monitor other fiduciaries of the 401(k) plan. Specifically, Plaintiffs alleged that Defendants failed to “monitor the processes by which Plan investments were evaluated,” “remove Committee members whose performance was inadequate,” or “monitor and evaluate the performance of the Committee Defendants or have a system in place for doing so.” The court stated that this is sufficient to state a claim.
The case is Gotta v. Stantec Consulting Services, Inc., No. 2:20-cv-01865-GMS, in the U.S. District Court for the District of Arizona.
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.