Three participants in the Yanfeng Automotive Interior Systems Savings and Investment 401(k) Plan (the “Plan”), brought a class action lawsuit in federal court in Detroit, Michigan alleging that fiduciaries of the Plan breached their duties of prudence and loyalty under the Employee Retirement Income Security Act (ERISA).
The case is Dover v. Yanfeng, No. 20-CV-11643-TGB-DRG, 2021 WL 4440324 (E.D. Mich. Sept. 28, 2021) (Judge Terrence G. Berg).
What does the Complaint Allege?
The 401(k) retirement plan participants claim that Yanfeng and its Board of Directors failed to adequately monitor other Plan fiduciaries. Additionally, Plaintiffs allege that the Plan’s fiduciaries selected and retained certain actively managed funds with excessively high fees that underperformed other available alternatives including lower-cost index funds. Also, they allege that the Plan’s fiduciaries failed to properly monitor potentially conflicted dual-registered advisors and their commissions.
Who is included in the proposed class?
The proposed class covers current and former participants in the Plan from June 22, 2014 to the present.
How did the Court rule?
First, Defendants argued that the named Plaintiffs did not have constitutional standing to challenge Defendants’ selection of 11 of the Plan’s funds because they didn’t invest in those funds. Plaintiffs argued that this does not matter because they allege wrongdoing through “general practices” taken by the Plan fiduciaries across their management of all the Plan’s investment options. The Court agreed, stating: “at this point Plaintiffs have standing to move forward.”
Second, the Court found Plaintiffs’ allegations “taken as a whole are sufficient to make out a claim of breach of the duty of prudence.” In particular, the Court held that the Complaint sufficiently alleged that it was imprudent for Defendants to include sixteen funds in the Plan where the Plan share class had a higher net expense ratio than another available share class in the same fund.
In addition, the Court found that Plaintiffs stated a claim for imprudence by alleging that the Plan includes too many actively managed funds and that there exist on the market comparable alternative passively managed funds at a much lower cost. Specifically, the Complaint alleges that seventeen actively managed funds—68% of the fund offerings—were identified by Plaintiffs as being significantly more expensive than comparable funds.
Third, the Court ruled that Plaintiffs had sufficiently alleged that the Plan’s fiduciaries had imprudently selected underperforming investment options.
Finally, the Court held that Plaintiffs stated a claim that Defendants did not appropriately monitor the Committee Defendants who were responsible for making investment choices, and hiring outside advisors. Accordingly, the Defendants’ motion to dismiss was denied.
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.