Seriously? Yale Law Professor Sends Letters to Plan Sponsors Alleging Potential Fiduciary Breach

In an article published this morning on by Brian Graff, CEO/Executive Director of ASPPA and NAPA, the retirement industry has learned that a Yale law professor is sending out letters to plan sponsors claiming that he has identified their sponsored retirement plan as a “potential high-cost plan.” In response, a plan sponsor is supposed to (a) contact Ayres if they have questions or (b) go to and search for their plan.

In the redacted example letter posted by napa-net, Ayres claims that the plan ranks 34,367 out of 46,875 plans in the brightscope database analyzing 5500 data from 2009.

The professor, Ian Ayres, and colleague Quinn Curtis, also claim to be publishing a study in the spring of 2014 about the “financial impact of investment and administrative fees in retirement plans.”  A draft of that study is available on Ayres’ website.

Graff is, unsurprisingly, highly critical of Ayres’ letter writing campaign, calling the tone of the letters “shocking.” His list of criticisms include:

  • The data is old — 2009 Form 5500 data — and insufficient to make any meaningful relative comparisons.
  • The data is incomplete since it ignores fees paid directly by the plan sponsors, thus not allowing for a complete assessment of the reasonableness of aggregate fees.
  • The data does not take into account the relative complexity of the plan design.
  • The data does not factor in levels of service or relative performance, including whether a professional plan advisor is helping the plan sponsor and participants.

We at FRA PlanTools have reviewed the draft study as well as another version of the letter being sent to plan sponsors. This letter doesn’t offer a ranking of the plan, but instead after claiming the plan is a potential high-cost plan, apparently offers unsolicited legal advice:

  • “As a 401(k) plan administrator, you have a fiduciary duty to plan participants. Fiduciary duties are the most stringent imposed by the law, and require administrator to act solely in the interests of plan participants. Plaintiffs have won substantial settlements, for example in Braden v. WalMart Stores (2009), by claiming that plans imposed excessive costs. Menus that don’t allow for sufficient diversification can also give rise to liability for the plan sponsor. To best comply with your duties to plan investors, I recommend that you improve your plan offerings, including adding lower-fee options, both at the plan and fund-level, and consider eliminating high-fee funds that do not meaningfully contribute to investor diversification.”

Additionally interesting to us is that in the letter posted to napa-net, Ayres claims to be comparing the targeted plan against a universe of 46,875 plans, where as in his draft study, he has limited the universe to just 3,552 due to the difficulty of comparing plan costs. Another unexplained inconsistency is that the draft study claims that brightscope only has 12,475 plans with an end date of December 31, 2009, but again, the letters being sent claim a universe of 46,875. 

Also unexplained is, if they already have their draft study and a universe of plans to draw their assumptions from (3,552 plans), what is the motive of these professors and brightscope in sending these letters? What’s the next step by a plan sponsor that helps the professors with the draft study? What’s the next step by a plan sponsor that helps brightscope?

Finally, let me provide a brief  insight into my previous life as an ERISA litigator on behalf of plan participants. I spent considerable amounts of time analyzing Form 5500 data in support of potential and actual litigation. This has led to me being asked to speak at the CFDD conference on the topic in October and previous blog posts on the subject. I can say with a 100% guarantee that we never threatened fiduciary breaches or filed litigation alleging the same with only data from Form 5500s. Especially using data that is currently 4 years old and will be 5 years old at the time these plan sponsors will allegedly be “out-ed” on Twitter and in the New York Times.

The response of the industry to these letters and study will be interesting, to say the least.

Breaking – Cigna and Prudential Settle Excessive Fee Lawsuit for $35 Million

Today, June 21, 2013, the parties in Nolte v. Cigna Corp. filed papers indicating they have settled their lawsuit and are now seeking approval of the district court. Key defendants in the case are Cigna Corp. and Prudential Retirement Insurance And Annuity Company (PRIAC). In total, they have agreed to pay to plaintiffs $35 million and have agreed to substantive affirmative relief. A copy of the motion seeking settlement can be found here. The settlement agreement is attached to the motion as Exhibit A.

The Nolte case was filed in March of 2007 by current and former participants in Cigna’s own in-house 401(k) plan and was stayed pending the outcome of the 7th Circuit decision in Hecker v. Deere. The judge allowed the case to move forward and in September 2011, the plaintiffs filed their fourth amended complaint. The following quote from the plaintiffs’ class certification motion gives a good overview of plaintiffs’ allegations:

Broadly, Plaintiffs contend that their employer CIGNA Corporation and its officers, employees, and subsidiaries operated Plaintiffs’ 401(k) Plan not for the exclusive benefit of Plan participants as ERISA requires, but instead as a profit center for CIGNA’s business by taking unreasonable fees from participant accounts, using its own funds, never putting Plan services out for competitive bids, and engaging in prohibited transactions with Plan assets. Indeed, Plaintiff’s 401(k) Plan was the flagship and largest 401(k) plan in CIGNA’s Retirement Division, which it sold in April 2004 to Prudential Financial Inc. for over $2 billion. Despite their retirement assets providing seed capital for CIGNA’s retirement business, Plan participants received none of the profit CIGNA received from the sale. A vital component of that sale was a secret “gentlemen’s agreement” between CIGNA and Prudential under which CIGNA secretly committed to keep Prudential on as the fee-earning fiduciary of the Plan for at least three years after the sale, to get a higher sale price for itself and to ensure Prudential would benefit from the profits generated by the unreasonable 401(k) Plan fees paid by participants. Even though CIGNA remained a Plan fiduciary, it allowed Prudential to continue taking unreasonable and prohibited fees from Plan assets. Prudential, which became a fiduciary to the Plan upon closing the sale, commenced doing the same thing CIGNA had done—using its own funds, not putting services out for bids, taking grossly excessive fees, determining what its own fees are, and engaging in prohibited transactions with Plan assets.

A significant part of plaintiffs’ claims had to do with an investment of over $1 billion in stable value assets invested in Cigna’s general account, a practice the plaintiffs alleged was imprudent and self-serving. Generally, the allegations here resemble those in other cases that have previously settled, such as Kanawi v. Bechtel Corp., Martin v. Caterpillar, Inc., and Will v. General Dynamics Corp, which all involved in-house plans and self dealing.

In settling a case such as this, the parties seek to have the case certified as a class action for purposes of the settlement. Here, the proposed settlement class is defined as:

All persons who, at any time between April 1, 1999 and May 31, 2013, inclusive, had an account in the Cigna 401(k) Plan, as well as their beneficiaries, alternative payees or attorneys-in-fact who are or become entitled to any portion of such an account; provided, however, that the Class shall not include; (a) any Defendant, or member of the Investment Committee or the Administrative Committee betweenApril 1, 1999, and May 31, 2013, and as to each person within the scope of clause (a), his/her immediate family members, beneficiaries, alternate payees or attorneys-in-fact.

Plaintiffs were represented by Schlichter, Bogard & Denton, which will seek to have $11,666,667 in fees and $1.2 million in costs approved by the district court and taken from the gross settlement fund. This is the largest settlement, by nearly double, that has ever been obtained in an excessive fee lawsuit by the firm, although the judgment in Tussey v. ABB, Inc. was slightly higher.

Cigna was represented by Morgan Lewis & Bockius, LLP and Prudential was represented by O’Melveny & Myers, LLP.

Motions to Dismiss Filed in Two Church Plan Exemption Cases

On June 17, 2013, defendants in Chavies v. Catholic Health East and Rollins v. Dignity Health each filed motions to dismiss the lawsuits against them. A copy of the motion in Chavies is available here. A copy of the motion in Rollins is available here.

Each motion makes two broad arguments: (1) the defined benefit pension plan is a proper church plan and (2) the church plan exemption does not violate the Establishment Clause.

Each motion is highly factual in arguing how each hospital association is closely connected with and controlled by the Roman Catholic Church. This is not a surprise, as the issue of control is going to be the key to resolution of these cases. For example, the motion in Chavies attaches a comprehensive affidavit from a nun/adminstrator that spends significant pages explaining canon law of the Catholic church. The Chavies motion also lays out what appears to be a complete, or nearly complete, listing of every court case to ever address the church plan exemption.

Of interest, both motions were filed by the law firm Morgan Lewis & Bockius, LLP, although by different groups of attorneys within the firm, many of whom I’ve had the pleasure of previously litigating cases against.


Fidelity Files a Motion to Dismiss the Lawsuit Regarding Its Own In-House Plan

Today, June 3, 2013, Fidelity filed a motion to dismiss the complaint in Bilewicz v. FMR, LLC. As previous readers will know, a former participant in the Fidelity in-house 401(k) profit sharing plan filed a lawsuit on March 19, 2013 alleging various violations of ERISA because Fidelity only uses its own proprietary products in the plan. A previous post about the lawsuit (and others) can be found here: Fidelity is Targeted Again and This Time Regarding Its Own In House Plan (April 16, 2013).

The Motion to Dismiss filed by Fidelity, IMO, is one of the better briefs I’ve read recently and draws heavily on previous employer successes such as Hecker v. Deere & Co., Loomis v. Exelon Corp., Renfro v. Unisys Corp, and to a large extent, Tibble v. Edison Int’l. A copy of the motion to dismiss can be found here: Bilewicz v. FMR LLC – 13-10636 – (Doc. 24) Motion to Dismiss.

Fidelity makes the following non-exhaustive list of legal and factual arguments:

  1. Plaintiff lacks constitutional standing to bring her claims because she was only invested in a small sub-set of a much larger group of Fidelity funds in the plan.
  2. The claims are barred under ERISA’s 3-year and 6-year statute of limitations. Only a very limited number of the funds in the plan were added during those time periods.
  3. Fidelity offered free advice to all participants to help them pick from the plan’s lineup.
  4. Between 2007 and 2011, Fidelity contributed $2.1 billion in employer contributions, which purportedly amounts to 10 times the alleged amount of excessive fees paid back to Fidelity from the plan’s investments.
  5. Prohibited Transaction Exemption 77-3 expressly allows a company like Fidelity to use its own mutual funds.
  6. FMR, LLC is not a fiduciary.
  7. The plaintiff has no right to a jury trial.

From here, a couple of things may happen. The plaintiff may amend their complaint which would then start the process over again, with Fidelity (almost definitely) filing another motion to dismiss. Or the plaintiff may go ahead and stick with the complaint they have, file a response, then Fidelity files a reply, then oral argument before the district court judge, and then a ruling.

Stay tuned.


If you know of other cases that you would like tracked here, please email Tom at

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Oral Argument Held in 7th Circuit Class Certification Appeal

On May 29, 2013, the parties in Abbott v. Lockheed Martin Corporation had their oral argument before the 7th Circuit Court of Appeals. As a refresher, this case is on an interlocutory Rule 23(f) appeal after the district court partially granted class certification and partially denied it. This means that its an appeal in the middle of the case, rather than at the end of the case, specifically geared toward appealing decisions granting or denying class certification. If you are interested in reading (or re-reading) the district court’s order being appealed, it is available here. Previously, the district court had granted class certification a first time, but that was vacated by the 7th Circuit in light of their opinion in Spano v. Boeing. So this is the second time this case has been appealed under Rule 23(f) to the 7th Circuit.

For those interested in listening, here is a link to the 7th Circuit’s website which has audio of the oral arguments. Caution: it is about 30 minutes long but for those who are interested in this topic, it’s one of the more interesting oral arguments I have listened to or attended.

I will state this very important warning from reading too much into what was actually said at oral argument. Oral arguments are not always what they seem. Nothing is final until a written opinion is published and the mandate has issued. Judges tend to hold their cards very tightly. That being said, however, my very mini-summary is that Circuit Judge Wood, who previously wrote the opinion in Spano, as well as both opinions in Hecker v. Deere, seemed to demonstrate more sympathy towards the arguments of the plaintiffs than of the defendants. Of the many issues discussed, two seem most important to me for this case and others. First, Judge Wood seemed comfortable with the idea that an imprudent management claim for just one investment fund is the type of case that could arguably move forward as a class action because if each participant in a plan had to bring individual claims, the possibility of differing results would be a problem. Second, Judge Wood suggested that including a benchmark to compare the investment fund against so that a class could be defined seemed reasonable because granting class certification is entirely a tentative ruling under the class action rules. Said another way, the judge can always change his or her order after a merits trial. Importantly, the district court rejected plaintiffs’ proposed class definition for their claim alleging the plan’s stable value fund was imprudently managed as compared to the returns of the Hueler FirstSource Index, because they hadn’t yet proved that the Hueler FirstSource Index was a prudent alternative. Judge Wood seemed to suggest that having to determine the actual prudent benchmark at the class certification stage was putting too much of the merits-cart before the class certification-horse. (my joke, not hers)

My ultimate conclusion, however, is that I am not going to read any tea leaves and will instead wait for the published opinion. Of course, you will get it here first, so stay tuned.


If you know of other cases that you would like tracked here, please email Tom at

Follow us on Twitter @PlanTools or subscribe via email to receive all future updates about these cases and others we are tracking on the ERISA Litigation Index. We will post information as soon as possible after it becomes available.