June 8, 2021, New York, NY – U.S. District Judge Jesse Furman rejected a motion to dismiss an ERISA class action lawsuit pursued by five current and former employees of Estee Lauder Inc. Plaintiffs argue that they fell victim to unreasonably high fees associated with the company’s offered retirement plan.
Participants in the Estee Lauder Companies 401(k) Savings Plan (the “Plan”), represented by Edelson Lechtzin LLP, complain that the cosmetics company failed to adequately leverage their $1.6 billion retirement plan to secure more affordable fees for investors. Plaintiffs claim that “Defendants failed their fiduciary duties to the [Plan] and its participants by imprudently selecting and monitoring investments.”
In their motion, Defendants characterized Plaintiffs’ allegations as a complaint that the Plan’s fiduciaries needed to “scour” the market for cheapest investment options available. Plaintiffs responded that this was a misrepresentation of their claims, as they allege that the company had reasonable access to lower-cost, better performing alternatives that were “otherwise materially indistinguishable” from the Plan’s investment options. The alleged mismanagement resulted in investments underperforming and failing to adequately justify the Plan’s high fees.
In addition, Plaintiffs allege that the Plan had unreasonably high recordkeeping fees – a generic service that does not warrant such expenses. These excessive administrative fees further inhibited the growth of participants’ savings.
Defendants also challenged Plaintiffs’ allegations that the Plan should have included a stable value fund (“SVF”) as an investment option, which would have provided low-risk and affordable growth. Plaintiffs assert that the absence of a SVF in a Plan of this size is indicative of a flawed fiduciary process. Among other things, Defendants argued that the Plan’s Investment Policy Statement did not mandate the inclusion of a SVF in the Plan. Plaintiffs countered this assertion by pointing out that the requirements outlined in an investment policy are not sufficient measures of imprudence under ERISA.
In addition, Defendants argued that Plaintiffs did not have standing to sue based on the U.S. Supreme Court’s decision on Thole v. U.S. Bank. They asserted that the SCOTUS ruling limits the claims of the proposed class to the funds in which the named plaintiffs invested. Because legal standing requires an injury-in-fact, Defendants contended that Plaintiffs could not have suffered financial losses due to the alleged imprudence of funds that they did not personally invest in. Plaintiffs responded that their claims are asserted on behalf of the Plan as a whole and that they allege a flawed fiduciary process that negatively impacted the entire Plan, not just the fund in which they invested. Therefore, the particular investments made by Plaintiffs would be immaterial to their standing to bring claims challenging the fiduciary process that resulted in the selection and retention of imprudent investment. Moreover, Plaintiffs argued that Thole, which involved a defined benefit plan, has no relevance to which involves a defined contribution plan utilized by Estee Lauder.
Taking these arguments into account, the Court denied Estee Lauder’s motion to dismiss in its entirety. The Court stated that it will provide an explanation for its decision at a pretrial conference set for July 8th.
The Case is Bilello et al. v. Estee Lauder Inc. et al., Case Number 1:20-cv-04770, in the U.S. District Court for the Southern District of New York.
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.