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Brian J. Boyle DLA PIPER LLP (US) 1650 Market St., Suite 5000 Philadelphia, PA 19103 (215) 656-2424
Attorneys for ADP Defendants
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
BETH BERKELHAMMER and NAOMI RUIZ,
Plaintiffs,
v.
ADP TOTALSOURCE GROUP, INC., AUTOMATIC DATA PROCESSING, INC., ADP TOTALSOURCE RETIREMENT SAVINGS PLAN COMMITTEE, NFP RETIREMENT, INC., AND JOHN DOES 1-40,
Defendants.
Civil Action No.: 20-cv-05696-ES-MAH
MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF THE
ADP DEFENDANTS’ MOTION TO DISMISS PLAINTIFFS’ COMPLAINT
Motion Date: September 8, 2020
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TABLE OF CONTENTS
Page INTRODUCTION ..................................................................................................... 1
BACKGROUND ....................................................................................................... 4
A. ADP Defendants .................................................................................... 4
B. The Plan ................................................................................................. 5
C. The Plan’s Investment Options ............................................................. 8
D. The Plan’s Managed Account Services ................................................. 9
STANDARD OF REVIEW ..................................................................................... 10
ARGUMENT ........................................................................................................... 12
I. All of The Prudence Claims Should Be Dismissed. ...................................... 12
A. Count I Should Be Dismissed Because Plaintiffs Fail to Plausibly Allege a Breach of the Duty of Prudence Regarding the Plan’s Recordkeeping Expenses. .................................................................... 12
B. Count VII Should Be Dismissed Because the Allegations Regarding Managed Account Services Do Not Support a Claim for Breach of Fiduciary Duty. .................................................................................... 16
C. Plaintiffs’ Allegations Regarding the Plan’s Investment Alternatives Fail to State a Claim for Breach of the Duty of Prudence. ................. 18
1. Plaintiffs’ Allegations that the Plan Did Not Always Offer the Cheapest Share Class of Certain Funds Does Not Support a Plausible Inference that ADP’s Process was Imprudent........... 18
2. The Inclusion of Actively-Managed Funds Does Not Plausibly Support an Inference of Imprudence. ....................................... 20
3. Plaintiffs’ Hindsight Allegations Regarding the Performance of a Handful of Investment Alternatives Do Not Support a Plausible Inference of Imprudence. .......................................... 21
D. Plaintiffs’ Participant Data Claim (Count IX) Should Be Dismissed. 23
1. Plaintiffs Lack Standing to Assert Count IX. ........................... 23
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2. Count IX Fails to State a Claim. ............................................... 25
II. Plaintiffs Fail to State a Claim for Breach of the Duty of Loyalty. .............. 27
III. Plaintiffs Fail to State a Prohibited Transaction Claim. ................................ 31
A. Plaintiffs Fail to Plead a Prohibited Transaction Claim Regarding Recordkeeping Fees Paid to Voya. ........................................................ 33
B. Plaintiffs Fail to Plead Any Plausible Claim for Prohibited Transaction Regarding Amounts Paid to TotalSource. ............................................. 33
C. Plaintiffs Fail to Plead a Prohibited Transaction Claim Regarding Payment of Investment Expenses. .......................................................... 36
D. Plaintiffs Fail to Plead a Prohibited Transaction Claim Regarding Plan Participant Data. ...................................................................................... 36
IV. Plaintiffs’ Derivative Claims Should be Dismissed. ..................................... 38
CONCLUSION ........................................................................................................ 38
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TABLE OF AUTHORITIES
Page(s)
Cases
Ashcroft v. Iqbal, 556 U.S. 662 (2009) ................................................................................ 10, 11, 37
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ................................................................................ 10, 11, 17
Berg v. Obama, 586 F.3d 234 (3d Cir. 2009) ............................................................................... 24
Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256 (3d Cir. 2006) ................................................................................. 4
Bussian v. RJR Nabisco, Inc., 223 F.3d 286 (5th Cir. 2000) .............................................................................. 27
Cassell v. Vanderbilt Univ., 285 F. Supp. 3d 1056 (M.D. Tenn. 2018) .......................................................... 30
Davis v. Abington Mem’l Hosp., 765 F.3d 236 (3d Cir. 2014) ............................................................................... 11
Davis v. Wash. Univ. in St. Louis, 960 F.3d 478 (8th Cir. 2020) ........................................................................ 20, 22
Disselkamp v. Norton Healthcare, Inc., No. 18 Civ. 48 (GNS), 2019 WL 3536038 (W.D. Ky. Aug. 8 2019) ................ 30
Divane v. Nw. Univ, 953 F.3d 980 (7th Cir. 2020) .......................................................................passim
Dorman v. Charles Schwab Corp., No. 17-cv-00285-CV, 2018 WL 6803738 (N.D. Cal. Sept. 20, 2018) ................................................................... 38
Dorman v. Charles Schwab Corp., No. 17 Civ. 285 (CW), 2019 WL 580785 (N.D. Cal. Feb. 8, 2019) .................. 21
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Ferguson v. Ruane Cunniff & Goldfarb, Inc., No. 17 Civ. 6685 (ALC), 2019 WL 4466714 (S.D.N.Y. Sept. 18, 2019) ............................................................................................................. 16, 30
FOCUS v. Allegheny Cty. Ct. of Common Pleas, 75 F.3d 834 (3d Cir. 1996) ................................................................................. 24
Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009) .......................................................................passim
In Re Fidelity ERISA Float Litig., 829 F.3d 55 (1st Cir. 2016) ................................................................................. 37
James v. City of Wilkes-Barre, 700 F.3d 675, 679 (3d Cir. 2012) ....................................................................... 10
Leckey v. Stefano, 501 F.3d 212 (3d Cir. 2007) ............................................................................... 27
Leimkuehler v. Am. United Life Ins. Co., 713 F.3d 905 (7th Cir. 2013) ........................................................................ 18, 19
Loomis v. Exelon Corp., 658 F.3d 667 (7th Cir. 2011) .............................................................................. 12
Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) ............................................................................................ 24
Marks v. Trader Joe’s Co., No. 19 Civ. 10942, 2020 WL 2504333 (C.D. Cal. Apr. 24, 2020) .................... 16
Marroquin v. 7-Eleven, Inc., No. 14 Civ. 1609 (SRC), 2014 WL 6611511 (D.N.J. Nov. 20, 2014) ................................................................................................................... 11
Marshall v. Northrop Grumman Corp, No. 16 Civ. 6794 (AB) (JCx), 2019 WL 4058583 (C.D. Cal. Aug. 14, 2019) ............................................................................................................. 16
Martin v. CareerBuilder, LLC, No. 19 Civ. 6463, 2020 WL 3578022 (N.D. Ill. July 1, 2020) ........................... 21
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Meiners v. Wells Fargo & Co., 898 F.3d 820 (8th Cir. 2018) .............................................................................. 23
Nicolas v. Trs. of Princeton Univ., No. 17 Civ. 3695, 2017 WL 4455897 (D.N.J. Sept. 22, 2017) .................... 28, 30
O’Shea v. Littleton, 414 U.S. 488 (1974) ............................................................................................ 24
Patterson v. Morgan Stanley, No. 16 Civ. 6568 (RJS), 2019 WL 4934834 (S.D.N.Y. Oct. 7, 2019) ................................................................................................................... 22
Pegram v. Herdrich, 530 U.S. 211 (2000) ............................................................................................ 25
Pledger v. Reliance Tr. Co., 240 F. Supp. 3d 1314 (N.D. Ga. 2017) ............................................................... 15
Reich v. Compton, 57 F.3d 270 (3d Cir. 1995) ................................................................................. 32
Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir. 2011) ......................................................................... 12, 32
Renfro v. Unisys Corp., No. 07 Civ. 2098, 2010 WL 1688540 (E.D. Pa. Apr. 26, 2010), aff’d, 671 F.3d 314 (3d Cir. 2011) ...................................................................... 23
Rinehart v. Akers, 722 F.3d 137 (2d Cir. 2013), abrogated on other grounds by Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014) ....................................... 37
Rochow v. Life Ins. Co. of N. Am., 780 F.3d 364 (6th Cir. 2015) .............................................................................. 38
Rosen v. Prudential Ret. Ins. & Annuity Co., No. 15 Civ. 1839 (VAB), 2016 WL 7494320 (D. Conn. Dec. 30, 2016) ................................................................................................................... 20
Sacerdote v. New York Univ., No. 16 Civ. 6284 (KBF), 2017 WL 3701482 (S.D.N.Y. Aug. 25, 2017) ............................................................................................................. 27, 30
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Santomenno v. John Hancock Life Ins. Co., No. 10 Civ. 1655 (WJM), 2013 WL 3864395 (D.N.J. July 24, 2013), aff’d, 768 F.3d 284 (3d Cir. 2014) .................................................... 18, 19
Spokeo v. Robbins, 136 S. Ct. 1540 (2016) ............................................................................ 23, 24, 25
Sweda v. Univ. Pa., 923 F.3d 320 (3d Cir. 2019) ........................................................................passim
Taylor v. United Techs. Corp., No. 06 Civ. 1494 (WWE), 2009 WL 535779 (D. Conn. Mar. 3, 2009), aff’d, 354 F. App’x 525 (2d Cir. 2009) ................................................... 20
Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020) .................................................................................. 24, 25
Thompson v. Real Estate Mortg. Network, 748 F.3d 142 (3d Cir. 2014) ............................................................................... 10
Tussey v. ABB, Inc., 746 F.3d 327 (8th Cir. 2014) .............................................................................. 19
In re Unisys Sav. Plan Litig., 74 F.3d 420 (3d Cir. 1996) ................................................................................. 11
Vellali v. Yale Univ., 308 F. Supp. 3d 673 (D. Conn. 2018) ................................................................. 30
White v. Chevron Corp., No. 16 Civ. 793 (PJH), 2016 WL 4502808 (N.D. Cal. Aug. 29, 2016) ....................................................................................................... 16, 17, 30
White v. Chevron Corp., No. 16 Civ. 793 (PJH), 2017 WL2352137 (N.D. Cal. May 13, 2017), aff’d, 752 F. App’x 453 (9th Cir. 2018) ...................................... 20, 29, 34
Wildman v. Am. Century Servs., LLC, 362 F. Supp. 3d 685 (W.D. Mo. 2019) ............................................................... 21
Statutes & Other Authorities
26 C.F.R. § 1.401(a)(4)-2(c) ...................................................................................... 7
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26 C.F.R § 1.416-1 ..................................................................................................... 7
29 C.F.R. § 2510.3-101 ............................................................................................ 37
29 C.F.R. § 2510.3-102 ............................................................................................ 37
29 C.F.R. § 2550.408b-2(e)(3) ................................................................................. 34
26 U.S.C. § 401(k)(3)................................................................................................. 7
26 U.S.C. § 401(m)(2) ............................................................................................... 7
26 U.S.C. § 410(b) ..................................................................................................... 7
26 U.S.C. § 413(c)(6)(A) ........................................................................................... 8
26 U.S.C. § 414(q) ..................................................................................................... 8
26 U.S.C.§ 416 ........................................................................................................... 7
29 U.S.C. § 1002(2)(A) .............................................................................................. 5
29 U.S.C. § 1002(34) ................................................................................................. 5
29 U.S.C. § 1002(42) ............................................................................................... 37
29 U.S.C. § 1104(a)(1)(A) ....................................................................................... 29
29 U.S.C. § 1106(b)(1)-(3) ...................................................................................... 34
29 U.S.C. § 1108(c)(2) ............................................................................................. 34
29 U.S.C. § 2550.408b-2 ......................................................................................... 35
29 U.S.C. § 2550.408c-2 .......................................................................................... 35
IRS Rev. Proc. 2002-21 (May 13, 2002) ................................................................... 7
IRS Rev. Proc. 2003-86 (December 15, 2003) .......................................................... 7
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INTRODUCTION
The sum and substance of Plaintiffs’ Complaint are the claims that
Defendants breached ERISA’s duty of prudence (Counts I, V, VI, VII and IX, the
“Prudence Claims”) because the ADP TotalSource Retirement Savings Plan (the
“Plan”) should have paid less for services and offered better performing and less
expensive investments. Plaintiffs then repackage those claims as alleged breaches
of ERISA’s duty of loyalty (Counts I, V, VII, and IX, the “Loyalty Claims”) and
transactions that are allegedly per-se prohibited by ERISA (Counts II, III, IV, VIII,
and X, the “Prohibited Transaction Claims”). Plaintiffs’ Complaint should be
dismissed in its entirety because none of the overlapping and redundant causes of
action plausibly allege a breach of ERISA’s fiduciary duties.
The Court should dismiss all of the Prudence Claims because Plaintiffs’
Complaint fundamentally misconstrues ERISA’s duty of prudence, which judges a
fiduciary’s process for making decisions, not the results. Plaintiffs’ allegations do
not plausibly support an inference that the ADP Defendants’ process was
imprudent. First, Plaintiffs’ claim that a few single-employer plans paid lower
recordkeeping fees is an inappropriate comparison as those plans are much easier
to administer and operate than this Plan, which is a “multiple employer plan.” See
Background, Section B. The Complaint fails to address the significant
differences in the cost to administer a “multiple employer plan” and provides no
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relevant comparison to similar recordkeeping fees paid by any similar multiple
employer plans. See Argument, Section I.A.
Second, Plaintiffs’ Prudence Claims regarding a few of the Plan’s
investments likewise fail. Nothing in ERISA requires that plans offer only
passively-managed index funds, or offer the best-performing or least-expensive
investment options. See Argument, Sections I.B., I.C.1, and I.C.2. Similarly,
Plaintiffs’ 20/20 hindsight allegations that a handful of the Plan’s investment
options slightly underperformed their benchmarks in certain cherry-picked periods
of time do not plausibly support the inference that the ADP Defendants’ employed
an imprudent process. See Argument, Section I.C.3. Lastly, Plaintiffs’ Prudence
Claim regarding the use of Plan participant data should be dismissed because
Plaintiffs lack standing to assert that claim, and every court that has considered a
similar claim has rejected it. See Argument, Section I.D.
Plaintiffs’ Loyalty Claims are merely repackaged prudence claims that
courts routinely reject. Plaintiffs do not allege any plausible facts indicating that
any of the ADP Defendants benefitted, financially or otherwise, from any decisions
related to the Plan or that they engaged in any disloyal conduct to benefit
themselves or someone other than the Plan’s participants and beneficiaries. Courts
routinely dismiss Loyalty Claims, like these, that simply recast purported breaches
of the duty of prudence as disloyal acts without alleging any plausible facts that
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support the inference that the defendants acted for the purpose of benefitting
themselves or someone else. This Court should do the same. See Argument,
Section II.
The Court should likewise dismiss Plaintiffs’ Prohibited Transaction claims
because they merely repackage the Prudence and Loyalty Claims, and do not
plausibly allege any facts indicating that any ADP Defendant acted to benefit
themselves or a third party. Plaintiffs’ Prohibited Transaction Claims essentially
allege that ordinary transactions that all pension plans enter into to acquire
necessary products and services are prohibited. The Third Circuit has described
such an interpretation of ERISA as absurd. Plaintiffs also fail to address the
specific statutory exemptions relevant to their Prohibited Transaction Claims,
which are the reason courts, including the Third Circuit, have flatly rejected these
claims. See Argument, Section III.
Finally, Plaintiffs’ Failure to Monitor and Other Remedies claims (Counts
XI and XII) are derivative of an underlying breach and should be dismissed. See
Argument, Section IV.
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BACKGROUND1
A. ADP Defendants
ADP, Inc. (“ADP”), a publicly-traded company headquartered in Roseland,
New Jersey, is one of the world’s leading providers of cloud-based human capital
management (“HCM”) solutions for employers.2 ADP offers clients of all sizes a
comprehensive range of technology-based HCM solutions, including cloud-based
platforms, and other human resources outsourcing solutions.3
ADP TotalSource Group, Inc. (“TotalSource”), a wholly-owned subsidiary
of ADP, is a Professional Employer Organization (“PEO”) that provides clients
with comprehensive administration outsourcing solutions through a relationship in
which employees who work for a client (“worksite employees”) are co-employed
by TotalSource and the client.4 To do so, TotalSource enters into a client services
agreement with its client-employers (like the Plaintiffs’ former employer),
1 This background information is based on the factual allegations in Complaint, which are presumed true solely for purposes of this motion. The alleged facts referenced herein are also based on the documents “attached to or submitted with the complaint and any matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, and items appearing in the record in the case.” Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006) (citations and quotation marks omitted). 2 See Ex. B to Boyle Decl., ADP, Inc. Form 10-K (2019), cited in paragraphs 75 and 84 of the Complaint. Unless otherwise specified, all exhibit citations in this Memorandum refer to exhibits attached to the Declaration of Brian Boyle in Support of the ADP Defendants’ Motion to Dismiss (“Boyle Decl.”). 3 Id. 4 Id.
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whereby TotalSource assumes a co-employer relationship with the employees of
the client company.5 One of the solutions offered by TotalSource is the Plan,
which allows certain worksite employees the ability to participate in the Plan and
save for retirement on a tax-favorable basis.6 The administrator of the Plan is a
committee appointed by TotalSource, which is referred to in the Complaint as the
“ADP TotalSource Retirement Savings Plan Committee” or the “Committee.”
B. The Plan
The Plan is a “multiple employer plan pursuant to IRS Code § 413(c),”
sponsored by TotalSource, and administered by the Administrative Committee.
(Compl. ¶¶ 12, 17). The Plan is a defined contribution, individual account, pension
benefit plan under ERISA, 29 U.S.C. § 1002(2)(A) and § 1002(34). (Compl. ¶ 11).
As of December 31, 2018, the Plan had 114,254 participants with account
balances, and combined assets totaling over $4.44 billion. (Compl. ¶ 18).
The Plan is different from the single-employer 401(k) plans referenced for
comparison in Plaintiffs’ Complaint. (Compl. ¶¶ 68-71). From a plan
administration and design standpoint, each client-employer that adopts the Plan
elects its own plan terms and conditions from a large menu of plan design options.
5 Id.; Ex. C to Boyle Decl. (Retirement Savings Plan Adoption Agreement); Ex. H to Boyle Decl. (ADP TotalSource Retirement Savings Plan, Amended and Restated January 1, 2017). 6 Ex. H to Boyle Decl.
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Each client-employee has at least seventeen top-level elections to make, such as
Plan effective date, whether to include collectively bargained employees, eligibility
and entry dates, whether to include bonuses and commissions in compensation,
whether to include automatic enrollment, and how to treat highly compensated
employees.7 Depending on its top-level decisions, a client-employer has a
multitude of additional decisions to make regarding the adoption of the Plan for its
employees, such as whether highly compensated employees will receive certain
employer contributions, the type and amount of employer and employee
contributions, and when employer contributions vest.8 This is substantially
different from the single-employer plans that Plaintiffs rely on in their Complaint;
those plans have one set of participation, vesting, and contribution provisions.9
Moreover, because the Plan is a multiple employer plan, it is “treated as”
thousands of separate plans for many purposes, including the very detailed and
complex rules imposed by the Internal Revenue Code and the regulations
7 Ex. C to Boyle Decl. (Retirement Savings Plan Adoption Agreement); see also Ex. H to Boyle Decl. (ADP TotalSource Retirement Savings Plan, Amended and Restated January 1, 2017). 8 Id.9 The Nike Plan and the Columbia University Plan referenced on pages 34 (n. 20) and 35 (n. 21) of Plaintiffs’ Complaint are single-employer plans. See Ex. D to Boyle Decl., Nike, Inc. 401(k) Plan, Form 5500 for the fiscal year ending May 31, 2019, Part I (A) (single-employer plan); Ex. E to Boyle Decl., Columbia University Voluntary Retirement Savings Plan, Form 5500 for the fiscal year ending Dec. 31, 2018, Part I (A) (single-employer plan)).
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thereunder.10 For example, administration and recordkeeping of the Plan require
the collection of records for numerous detailed and complex mathematical tests for
each of the thousands of individual client-employers on an annual basis, including
(i) a test for nondiscrimination in the amount of employee salary deferral
contributions;11 (ii) a test for nondiscrimination in the amount of employer
matching contributions;12 (iii) a test for nondiscrimination in the amount of
employer non-matching contributions;13 and (iv) a test for compliance with
minimum coverage requirements.14
In addition, the Plan’s administrator must annually determine whether the
Plan is “top-heavy” under complex IRS rules on a client-by-client basis for each of
the over 5,000 clients, and, if so, engage in communications with the client-
employer and provide additional contributions with unique vesting provisions just
to the employees of that individual client employer.15 The Plan’s administrator
must also determine annually for each of the thousands of client-employers
whether its employees should be classified as “highly compensated” under IRS
10 See Ex. F to Boyle Decl., Plan Form 5500 (2018), referenced in ¶¶ 75 and 84 of the Complaint. See also IRS Rev. Proc. 2002-21 (May 13, 2002); Rev. Proc. 2003-86 (December 15, 2003). 11 See 26 U.S.C. § 401(k)(3).12 See 26 U.S.C. § 401(m)(2). 13 See 26 C.F.R. § 1.401(a)(4)-2(c). 14 See 26 U.S.C. § 410(b). 15 See 26 U.S.C. § 416; 26 C.F.R § 1.416-1.
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rules.16 Further, the Plan’s administrator must determine, annually, the
deductibility of contributions for income tax purposes for each of the thousands of
individual client-employers.17
This requires the collection of detailed data, including age, years of service,
contributions, accumulated balances (including in other plans), compensation,
hours worked, bargaining status, and other demographic data, for all of the
employees of each of the individual client-employers in and outside the Plan.
Collecting this data and performing the complex IRS-required tests and analyses
related to thousands of individual client-employers with thousands of employees
moving into and out of the Plan every year, makes the administration and
recordkeeping for this Plan extremely more detailed and complicated than the
administration of a single-employer plan.
C. The Plan’s Investment Options
The Plan allows participants to direct the investment of their individual
accounts. (Compl. ¶ 44). Because the Plan’s over 100,000 participants have
different levels of contributions, retirement goals and horizons, and different risk
tolerances, the Plan offers participants a wide range of investment options. The
options include a series of “target” retirement date funds. Each of these funds is a
16 See 26 U.S.C. § 414(q). 17 See 26 U.S.C. § 413(c)(6)(A).
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broadly diversified portfolio of investments with varying risk and return
characteristics selected to correspond with an investment objective based on when
it is assumed that a participant would retire (e.g., Voya Target Solution 2025; Voya
Target Solution 2030, etc.).18
For participants who want to actively manage their investments, the Plan
offers ten mutual fund options with different investment strategies offered by
Fidelity Investments, Vanguard, John Hancock, T. Rowe Price, Federated
Investors, American Funds, Voya Investment Management, and BlackRock.19 The
Plan also offers a self-directed brokerage window, which provides participants an
even broader array of investment products, including individual equities, options,
and bonds.20 The Plan also offers a stable value collective fund from Global Trust
Company, and three BlackRock collective trusts.21
D. The Plan’s Managed Account Services
To help Plan participants plan for their retirement, the Plan’s fiduciaries
contracted with Voya Retirement Advisors LLC (“Voya Retirement Advisors”) to
provide managed account services. (Compl. ¶ 214). Plaintiffs allege that Financial
Engines acts as the sub-advisor for the Plan’s managed accounts. (Compl. ¶ 216).
18 See Ex. F to Boyle Decl., Plan 5500 (2018). 19 Id. 20 Id. 21 Id.
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For participants who choose to use these optional services, Voya Retirement
Advisors helps participants make investment decisions by allocating their Plan
account balances across a mix of investment options available under the Plan.
(Compl. ¶ 218). The participants who elect to use these services pay a fee from
their respective accounts, based on a percentage of assets. (Compl. ¶ 219).
STANDARD OF REVIEW
Plaintiffs are required to allege “sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’” Sweda v. Univ. Pa., 923 F.3d
320, 325 (3d Cir. 2019) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)), cert. denied, Univ. Pa. v.
Sweda, 140 S. Ct. 2565 (2020). Disregarding “rote recitals of the elements of a
cause of action, legal conclusions, and mere conclusory statements,” to state a
claim, a Complaint must plead “factual content” that “allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.”
Sweda, 923 F.3d at 325-26 (citing James v. City of Wilkes-Barre, 700 F.3d 675,
679 (3d Cir. 2012); Thompson v. Real Estate Mortg. Network, 748 F.3d 142, 147
(3d Cir. 2014) (internal quotations omitted)).
For any remaining well-pleaded allegations, i.e., allegations that are not
formulaic or conclusory and are sufficient to show substantive plausibility,
Plaintiffs must establish “more than a sheer possibility that a defendant has acted
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unlawfully.” Iqbal, 556 U.S. at 678; see, e.g., Davis v. Abington Mem’l Hosp., 765
F.3d 236, 241 (3d Cir. 2014) (“Though ‘detailed factual allegations’ are not
required, a complaint must do more than simply provide ‘labels and conclusions’
or ‘a formulaic recitation of the elements of a cause of action.’” (quoting Twombly,
550 U.S. at 555)); Marroquin v. 7-Eleven, Inc., No. 14 Civ. 1609 (SRC), 2014 WL
6611511, at *1 (D.N.J. Nov. 20, 2014) (“Factual allegations must be well-pleaded
to give rise to an entitlement to relief: A court considering a motion to dismiss can
choose to begin by identifying pleadings that, because they are no more than
conclusions, are not entitled to the assumption of truth.”).
ERISA’s fiduciaries are held to the “prudent man” standard of care, which
requires fiduciaries to exercise “the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character with like aims.” Sweda, 923 F.3d at 328 (quoting ERISA section
404(a)(1)(B) (internal quotations omitted)). As the Third Circuit has instructed, “a
court assesses a fiduciary’s performance by looking at process rather than results,
‘focusing on a fiduciary’s conduct in arriving at a decision and asking whether a
fiduciary employed the appropriate methods to investigate and determine the
merits of a particular investment.” Sweda, 923 F.3d at 329 (emphasis added)
(quoting In re Unisys Sav. Plan Litig., 74 F.3d 420, 434 (3d Cir. 1996)). Thus, to
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state a claim for breach of fiduciary duty, Plaintiffs must allege well-pleaded and
nonconclusory facts from which the court could “infer . . . that the fiduciary’s
process was flawed.” Id. (quoting Renfro v. Unisys Corp., 671 F.3d 314, 327 (3d
Cir. 2011)).
ARGUMENT
I. All of The Prudence Claims Should Be Dismissed.
A. Count I Should Be Dismissed Because Plaintiffs Fail to Plausibly Allege a Breach of the Duty of Prudence Regarding the Plan’s Recordkeeping Expenses.
Plaintiffs’ allegation that ADP Defendants breached the duty of prudence
because the Plan should have charged fees on a flat-fee per participant basis has
been expressly rejected by the Third Circuit. See Renfro, 671 F.3d at 327-28
(affirming dismissal of the claim that participants “should have paid per-participant
fees rather than fees based on a percentage of assets in the plan”); see also Hecker
v. Deere & Co., 556 F.3d 575, 585 (7th Cir. 2009) (holding that a percentage of
assets fee arrangement “violates no statute or regulation”); Divane v. Nw. Univ,
953 F.3d 980, 990 (7th Cir. 2020) (“[P]laintiffs fail to support their claim that a
flat-fee structure is required by ERISA or would even benefit plan participants.”
(citation omitted)); Loomis v. Exelon Corp., 658 F.3d 667, 672-73 (7th Cir. 2011)
(“[F]lat payments per participant may help some participants but hurt others,
depending on the size of each participant’s account.”).
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Plaintiffs’ recordkeeping fee claim is based on the fundamental
misconception that the Plan is comparable to and requires the same services as a
traditional, single-employer plan. Plaintiffs admit that “[t]he cost of recordkeeping
depends on the number of participants” so that the cost of providing recordkeeping
services to smaller, individual plans is greater than for large plans. (Compl. ¶ 57).
Yet Plaintiffs’ claim implausibly ignores that the Plan (1) allows each of the
thousands of adopting employers to design unique plan terms that apply only to its
employees, (2) is required by the IRS to be operated and administered like a
collection of thousands of small, individual plans, and (3) has thousands of
employers and hundreds of thousands of worksite employees and Plan participants
moving in and out of the Plan each year.
The Plan is therefore far more difficult and expensive to administer and
recordkeep than the single-employer plans that Plaintiffs use as comparisons.
Consequently, Plaintiffs’ claim regarding recordkeeping fees is implausible
because, unlike in Sweda, Plaintiffs fail to provide any “examples of similarly
situated fiduciaries who acted prudently.” 923 F.3d at 330-31 (emphasis added).
Notably—and conclusively with respect to Plaintiffs’ recordkeeping fee claims—
the Complaint fails to provide any recordkeeping fee comparison to any other
multiple employer plan.
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Plaintiffs’ lone allegation about the administration of the Plan—that it has
some “uniform features” that all participating employers cannot alter that
“provide[] for eligibility and vesting procedures that are generally the same”—is
false and insufficiently vague to support a plausible inference of imprudence.
(Compl. ¶ 88). Contrary to this lone allegation, there are dozens of elections
regarding the administration and operation of the Plan that each adopting employer
must make, including eligibility and vesting procedures. (Id.).
For these reasons, Plaintiffs’ allegation that a reasonable recordkeeping fee
for the Plan was “an average of $30 per-participant from 2014 to 2015 and $25
per-participant from 2016 to 2018” is an unsupported conclusory allegation that
should be ignored. (Compl. ¶ 83); Sweda, 923 F.3d 326 (conclusory allegations
are “not assumed to be true”).
As alleged in the Complaint, Plaintiffs’ counsel has been “appointed as class
counsel in over 30 other ERISA class actions regarding excessive fees in large
defined contribution plans.” (Compl. ¶ 264). ADP Defendants’ counsel are aware
of only one other case involving a multiple employer plan, Pledger, et al. v.
Reliance Trust Company, et al., pending in the United States District Court for the
Northern District of Georgia, Civ. Action No. 1:15-cv-04444. In that case,
Plaintiffs’ counsel made a similar claim that the Insperity 401(k) Plan, a multiple
employer plan, could have obtained the same $30 flat per-participant
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15
recordkeeping fees similar to those allegedly obtained by large, single-employer
401(k) Plans.22 Plaintiffs’ claims in that case were dismissed on summary
judgment, however, because plaintiffs could not muster any evidence to support
the allegation that a multiple employer plan could negotiate and obtain similar
recordkeeping fees as a large, single-employer 401(k) plan. See Ex. A to Boyle
Decl., Pledger v. Reliance Trust Co., Mar. 28, 2019 Order and Opinion at 82-84
(dismissing claim because Plaintiffs’ counsel could not provide any evidence that a
multiple employer plan could have obtained the recordkeeping rates alleged).
Plaintiffs’ claim that “[a]ny differences can be easily automated” (Compl. ¶
88) is a conclusory allegation that the Third Circuit instructs should be ignored on
a motion to dismiss. Sweda, 923 F.3d at 326 (Courts should “identify allegations
that are conclusory and therefore not assumed to be true.”). Plaintiffs offer no
facts describing why they believe the myriad of differences in the administration of
a multiple employer plan that is required by the IRS to be operated like a
collection of thousands of small, individual plans, can be “easily automated.”
(Compl. ¶ 88).
Finally, Plaintiffs’ allegations regarding an alleged failure to solicit bids do
not plausibly support the inference that the ADP Defendants’ process was
22 See Ex. G to Boyle Decl., Amended Complaint, Pledger, et al. v. Reliance Trust Co., 1:15-cv-04444, N.D. Ga. (April 15, 2016); see also Pledger, et al. v. Reliance Tr. Co., 240 F. Supp. 3d 1314, 1329 (N.D. Ga. 2017) (denying motion to dismiss).
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imprudent. To begin with, Plaintiffs’ Complaint implicitly recognizes that there
was competitive bidding. (Compl. ¶ 77). Plaintiffs concede that there was a
competitive bidding process that concluded in 2018, and only otherwise allege that
there also may have been a competitive bidding process “prior to 2014.” (Id.).
Regardless, competitive bidding is not required under ERISA, and many courts
have held that “the allegation that the Plan fiduciaries were required to solicit
competitive bids on a regular basis has no legal foundation.” White v. Chevron
Corp., No. 16 Civ. 793 (PJH), 2016 WL 4502808, at *14 (N.D. Cal. Aug. 29,
2016) (“White I”); see also Marks v. Trader Joe’s Co., No. 19 Civ. 10942 (JEMx),
2020 WL 2504333, at *7 (C.D. Cal. Apr. 24, 2020) (same); Ferguson v. Ruane
Cunniff & Goldfarb, Inc., No. 17 Civ. 6685 (ALC), 2019 WL 4466714, at *8
(S.D.N.Y. Sept. 18, 2019) (“ERISA does not require plan fiduciaries to obtain
competitive bids from plan service providers.”); Marshall v. Northrop Grumman
Corp, No. 16 Civ. 6794 (AB) (JCx), 2019 WL 4058583, at *10 (C.D. Cal. Aug. 14,
2019) (“Nothing in ERISA compels periodic competitive bidding.” (citation
omitted)).
B. Count VII Should Be Dismissed Because the Allegations Regarding Managed Account Services Do Not Support a Claim for Breach of Fiduciary Duty.
To help participants plan for their retirement, the Plan offers managed
account services that allow individuals to tailor their investment strategy to their
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17
personal financial situation. Participants who choose to use this completely
optional service pay a fee, but nothing requires them to use the service or precludes
them from using an outside financial advisor if they choose. Plaintiffs’ assertion
that other managed account providers charge a lower fee than Voya for similar
services (Compl. ¶¶ 220-22) fails to support an inference of a breach because
“nothing in ERISA requires every fiduciary to scour the market to find and offer
the cheapest possible” option “(which might, of course, be plagued by other
problems).” Hecker, 556 F.3d at 586. Moreover, Plaintiffs’ allegation that
“similar” services are provided by other vendors is a bare conclusion that this
Court is not required to accept. Twombly, 550 U.S. at 555 (factual allegations must
be sufficient to raise a plaintiff’s right to relief above a speculative level, such that
it is “plausible on its face.”).
Plaintiffs further allege that “[t]he only way for a plan sponsor to accurately
compare fees of managed account providers accurately is to perform competitive
bidding through a request for proposal” which should be conducted “every three to
five years” and that the ADP Defendants “failed to solicit bids from competing
providers” of managed account services. (Compl. ¶¶ 209, 213, 316). Again, these
“allegations that the Plan fiduciaries were required to solicit competitive bids on a
regular basis has no legal foundation.” White I, 2016 WL 4502808, at *14.
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Finally, no inference of imprudent process can result from Plaintiffs’ claim
that “[c]ustomized and personalized managed accounts often offer little to no
advantage over lower-cost funds, such as target-date funds, risk-based funds, and
balanced funds” (Compl. ¶ 199). While that may be Plaintiffs’ opinion, here, the
Plan made both personalized managed accounts and target date funds available to
Plan participants. Plan participants need not choose to use the managed account
services, and thus need not pay for them. (Compl. ¶ 219).
C. Plaintiffs’ Allegations Regarding the Plan’s Investment Alternatives Fail to State a Claim for Breach of the Duty of Prudence.
1. Plaintiffs’ Allegations that the Plan Did Not Always Offer the Cheapest Share Class of Certain Funds Does Not Support a Plausible Inference that ADP’s Process was Imprudent.
Plaintiffs’ claim that the Plan did not always offer the cheapest share class
fails to support a plausible inference of imprudence because Plaintiffs’ allegations
do not account for the use of revenue sharing from investment options to offset the
cost of recordkeeping and other administrative services provided to the Plan.
Recordkeeping—administering the participants’ accounts—is a necessary service
for which participants must pay. See Santomenno v. John Hancock Life Ins. Co.,
No. 10 Civ. 1655 (WJM), 2013 WL 3864395, at *1-2 (D.N.J. July 24, 2013), aff’d,
768 F.3d 284 (3d Cir. 2014); Leimkuehler v. Am. United Life Ins. Co., 713 F.3d
905, 907-09 (7th Cir. 2013). “There are also two common recordkeeping fee
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19
models. In a flat fee model, recordkeeping fees are a set amount per participant,
whereas in a revenue sharing model, part of an option’s expense ratio is diverted to
administrative service providers.” Sweda, 923 F.3d at 324–25; Leimkuehler, 713
F.3d at 907-08 (explaining that revenue sharing is a “commonplace” “arrangement
allowing mutual funds to share a portion of the fees that they collect from investors
with entities that provide services to the mutual funds, the investors, or both”);
Santomenno, 2013 WL 3864395, at *2. Each fund may have several different
“expense-ratio/revenue sharing levels available” for revenue sharing, referred to as
share classes. Leimkuehler, 713 F.3d at 909.
Plaintiffs’ allegation that “the only difference between the share classes is
cost” (Compl. ¶ 184) is false. See Leimkuehler, 713 F.3d at 909 (“The share
classes typically made available to 401(k) investors vary primarily (and possibly
exclusively) in terms of expense ratio and revenue sharing (if any).”) Moreover,
here, just as in Hecker and Divane, the Plan offers lower-cost index funds, and
participants “were free to direct their dollars to lower-cost funds if that was what
they wished to do.” Hecker, 556 F.3d at 585; Divane, 930 F.3d at 990.
Courts have uniformly recognized that there is “nothing wrong—for ERISA
purposes—with plan participants paying recordkeeping costs through expense
ratios.” Divane, 953 F.3d at 990; see also Tussey v. ABB, Inc., 746 F.3d 327, 336
(8th Cir. 2014) (“revenue sharing” is a “common” and “acceptable” industry
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practice that “frequently inure[s] to the benefit of ERISA plans”). Thus, “merely
alleging that a Plan offers retail-class rather than institutional-class funds is
insufficient to state a claim for breach of the duty of prudence.” White v. Chevron
Corp., No. 16 Civ. 793 (PJH), 2017 WL2352137, at *14 (N.D. Cal. May 13, 2017)
(“White II”), aff’d, 752 F. App’x 453 (9th Cir. 2018).
2. The Inclusion of Actively-Managed Funds Does Not Plausibly Support an Inference of Imprudence.
Plaintiffs’ allegation that Defendants imprudently included actively-
managed funds has been rejected by numerous courts. See, e.g., Divane, 953 F.3d
at 991 (rejecting claim that actively managed funds are imprudent); Taylor v.
United Techs. Corp., No. 06 Civ. 1494 (WWE), 2009 WL 535779, at *10 (D.
Conn. Mar. 3, 2009) (rejecting the argument that defendants breached their
fiduciary duties “by offering actively managed investment options”), aff’d, 354 F.
App’x 525 (2d Cir. 2009); Davis v. Wash. Univ. in St. Louis, 960 F.3d 478, 486
(8th Cir. 2020) (rejecting argument that including active investment options was
imprudent); Rosen v. Prudential Ret. Ins. & Annuity Co., No. 15 Civ. 1839 (VAB),
2016 WL 7494320, at *15 (D. Conn. Dec. 30, 2016) (same); see also Hecker, 556
F.3d at 586 (There is “nothing in . . . [ERISA] requires plan fiduciaries to include
any particular mix of investment vehicles in their plan.”).
Here, the Plan offered participants both passively and actively managed
funds. Plaintiffs’ preference for passively managed index funds does not mean that
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21
the offering of actively managed funds supports a plausible inference of
imprudence. See Martin v. CareerBuilder, LLC, No. 19 Civ. 6463, 2020 WL
3578022, at *6 (N.D. Ill. July 1, 2020) (“Defendants’ failure to offer every index
fund under the sun is not, in and of itself, imprudent”); Wildman v. Am. Century
Servs., LLC, 362 F. Supp. 3d 685, 704 (W.D. Mo. 2019) (“ERISA does not require
a retirement plan to offer an index fund,” and the failure to do so, “standing alone,
does not violate the duty of prudence.”); Divane, 953 F.3d at 991 (same).
3. Plaintiffs’ Hindsight Allegations Regarding the Performance of a Handful of Investment Alternatives Do Not Support a Plausible Inference of Imprudence.
Plaintiffs’ 20/20 hindsight allegations of modest underperformance by three
of the Plans investment funds is insufficient to indicate a flawed fiduciary process.
While Plaintiffs complain about performance of these investments over a rolling
five-year period, “three to five years . . . are still considered relatively short periods
of underperformance.” Dorman v. Charles Schwab Corp., No. 17 Civ. 285 (CW),
2019 WL 580785, at *3, 6 (N.D. Cal. Feb. 8, 2019) (partially dismissing
allegations that a particular fund “persistently and/or materially underperformed”
for three to five years did not support an inference of imprudence). Moreover,
these funds performed well and the so-called “underperformance” was modest,
even based on Plaintiffs’ cherry picking of returns with the benefit of 20/20
hindsight:
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The Voya Large Cap Value fund had positive 3-year return of
15.88%, compared to the Russell 1000 Value Index’s 16.29% return.
(Compl. ¶ 133).
The Voya Large Cap Growth fund had a 10-year return of 12.37%,
compared to the Russell 1000 Growth Index’s 10-year return of
12.97%, and the US Fund Large Growth Index’s returns of 10.52%.
(Compl. ¶ 143).
The Washington Mutual Fund had a 6.45% return over 10 years,
compared to the S&P 500 Index return of 6.95%. (Compl. ¶ 159).
Second, Plaintiffs’ repeated comparisons to index funds do not plausibly
support a claim for breach of the duty of prudence. Actively-managed funds are
not comparable to index funds in any meaningful way. See Davis v. Wash. Univ.,
960 F.3d at 485 (“[Index funds and actively-managed funds] have different aims,
different risks, and different potential rewards that cater to different investors.
Comparing apples and oranges is not a way to show that one is better or worse than
the other.”); Patterson v. Morgan Stanley, No. 16 Civ. 6568 (RJS), 2019 WL
4934834, at *12 (S.D.N.Y. Oct. 7, 2019) (Fees of an actively managed fund cannot
be “meaningfully compared” to fees of a passively managed fund.). Further, “[t]he
fact that one fund with a different investment strategy ultimately performed better
does not establish anything about whether the [other fund] w[as] an imprudent
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choice at the outset.” Meiners v. Wells Fargo & Co., 898 F.3d 820, 823 (8th Cir.
2018) (footnote omitted).
Finally, alleging that a fund has higher management fees is not a sufficient
allegation from which one could reasonably infer a breach of the duty of prudence.
Renfro v. Unisys Corp., No. 07 Civ. 2098, 2010 WL 1688540, at *5 (E.D. Pa. Apr.
26, 2010), aff’d, 671 F.3d 314 (3d Cir. 2011) (explaining that “a plan fiduciary
need not select the cheapest fund available”); Divane, 953 F.3d at 991 (same);
Hecker, 556 F.3d at 586 (same). While cost is a factor in selecting investment
options, it is not the only one, nor need it be dispositive. See Dep’t of Labor,
401(k) Fiduciary Education Campaign, http://www.dol.gov/ebsa/pdf/401kfefm.pdf
(“The service provider offering the lowest cost services is not necessarily the best
choice for [a 401(k)] plan.”). Because a prudent fiduciary can make decisions
based on factors beyond cost, the assertion that cheaper investment options were
available does not plausibly support a claim for breach of the duty of prudence.
D. Plaintiffs’ Participant Data Claim (Count IX) Should Be Dismissed.
1. Plaintiffs Lack Standing to Assert Count IX.
Count IX should be dismissed because Plaintiffs have not alleged that they
suffered any cognizable “injury in fact.”23 Spokeo v. Robbins, 136 S. Ct. 1540,
23 For the same reason, as noted infra, Count X (the related prohibited transaction claim) should also be dismissed.
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1547 (2016) In Count IX, Plaintiffs allege that ADP Defendants allowed Voya and
its affiliates to use alleged “Confidential Plan Participant Data” to market Voya
affiliated non-Plan services and products. (Compl. ¶¶ 236-256). The Complaint
does not allege, however, that either of the Plaintiffs suffered any injuries as a
result of this conduct.
It is Plaintiffs’ burden to establish standing for each claim. Berg v. Obama,
586 F.3d 234, 238 (3d Cir. 2009) (citing FOCUS v. Allegheny Cty. Ct. of Common
Pleas, 75 F.3d 834, 838 (3d Cir. 1996)). In a class action, the named plaintiffs
must demonstrate that they have Article III standing for every claim alleged.
O’Shea v. Littleton, 414 U.S. 488, 494 (1974). To do so, Plaintiffs must plead
facts sufficient to establish that they “(1) suffered an injury in fact, (2) that is fairly
traceable to the challenged conduct of the defendant, and (3) that is likely to be
redressed by a favorable judicial decision.” Spokeo, 136 S. Ct. at 1547 (citing
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). “There is no ERISA
exception to Article III.” Thole v. U.S. Bank N.A., 140 S. Ct. 1615, 1622 (2020).
Plaintiffs cannot satisfy Article III by merely “assert[ing] standing as
representatives of the plan.” Id. at 1620. Plaintiffs must establish that they
suffered an injury, not that the Plan may have. Id. The Supreme Court “has
rejected the argument that ‘a plaintiff automatically satisfies the injury-in-fact
requirement whenever a statute grants a person a statutory right and purports to
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authorize that person to sue to vindicate that right.’” Id. (quoting Spokeo, 136 S.
Ct. at 1549).
Plaintiffs must also demonstrate that they suffered an injury that is “concrete
and particularized,” and “actual or imminent, not conjectural or hypothetical.”
Spokeo, 136 S. Ct. at 1548. The Complaint contains no allegations that either
Plaintiff suffered any injury regarding their data. Although the Complaint contains
numerous paragraphs alleging that Plan participants might buy allegedly inferior
products following a marketing pitch, Plaintiffs do not allege that they were
subjected to any marketing pitches or that they succumbed to and purchased any
such products. (Compl. ¶¶ 81-82, 236-259). Plaintiffs’ general allegations are
insufficient to establish their individualized “concrete stake” in each claim. Thole,
140 S. Ct. at 1620.
2. Count IX Fails to State a Claim.
Count IX should also be dismissed for failure to state a claim that the ADP
Defendants breached any fiduciary duty regarding the use of participant data.
First, Plaintiffs do not plausibly allege that any of the ADP Defendants acted as a
fiduciary for the purpose of this claim. Because a person is a fiduciary only “to the
extent” he or she acts in such a capacity, the first question in any ERISA breach of
fiduciary duty claim is whether the defendant was in fact a fiduciary for the
purposes of the alleged breach. Pegram v. Herdrich, 530 U.S. 211, 225-26 (2000)
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(quoting ERISA § 3(21)(A)). Plaintiffs’ failure to plausibly allege that any ADP
Defendant acted as a fiduciary for the purpose of Voya’s use of participant data
annuls Count IX.
Second, there is no statutory, regulatory, or case law support for Plaintiffs’
claim that the failure to prohibit a recordkeeper from using Plan participant data is
a breach of fiduciary duty. In fact, no court has ever allowed this claim to proceed
past a motion to dismiss. As the District Court in Divane v. Northwestern
University explained and the Seventh Circuit affirmed on appeal: “Plaintiff has not
. . . cited a single case in which a court has held that releasing confidential
information or allowing someone to use confidential information constitutes a
breach of fiduciary duty under ERISA. This Court will not be the first [.]” No. 16
Civ. 8157, 2018 WL 2388118, at *12 (N.D. Ill. May 25, 2018), aff’d, 953 F.3d 980
(7th Cir. 2020). Plaintiffs offer no reason why this Court should be the first.
Third, even if using Plan participant data could support a claim for breach of
fiduciary duty, Plaintiffs plead no facts to support their conclusory allegations.
Plaintiffs plead no facts in the Complaint regarding how ADP Defendants’
allegedly “allow[ed]” Voya to use participant data (Compl. ¶ 236), or gave Voya
“access” to participant data to market additional services (Compl. ¶¶ 82, 247).
Fourth, Count IX should be dismissed because Plaintiffs fail to allege that
they (or any participant) suffered any loss. To establish a breach of fiduciary duty
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under ERISA a plaintiff must, at a minimum, establish a breach that causes “a
loss.” Sweda, 923 F.3d at 327-28 (quoting Leckey v. Stefano, 501 F.3d 212, 225-
26 (3d Cir. 2007)). Plaintiffs do not allege any such loss. They do not allege that
they purchased any non-Plan product, or that they or anyone else ever suffered any
harm regarding alleged marketing of non-Plan products.
II. Plaintiffs Fail to State a Claim for Breach of the Duty of Loyalty.
To state a claim for breach of the duty of loyalty, Plaintiffs must allege facts
that plausibly show that the ADP Defendants failed to act “with an eye single to
the interests of the participants and beneficiaries of the plan.” Bussian v. RJR
Nabisco, Inc., 223 F.3d 286, 296 (5th Cir. 2000). These allegations “must do more
than simply recast purported breaches of the duty of prudence as disloyal acts.”
Sacerdote v. New York Univ., No. 16 Civ. 6284 (KBF), 2017 WL 3701482, at *5
(S.D.N.Y. Aug. 25, 2017). “[A] plaintiff does not adequately plead a claim simply
by making a conclusory assertion that a defendant failed to act ‘for the exclusive
purpose of’ providing benefits to participants and defraying reasonable
administrative expenses; instead, to implicate the concept of ‘loyalty,’ a plaintiff
must allege plausible facts supporting an inference that the defendant acted for the
purpose of providing benefits to itself or someone else.” Id. (emphasis in
original). In other words, “an act which has the effect of furthering the interests of
a third party is fundamentally different from an act taken with that as a goal”—
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“[t]he former may well not be a violation of the duty of loyalty.” Id. at *6
(emphasis added).
All of Plaintiffs’ allegations are speculative and unsupported and merely
“piggyback off of the prudence claims, without any independent factual predicate.”
Nicolas v. Trs. of Princeton Univ., No. 17 Civ. 3695, 2017 WL 4455897, at *3
(D.N.J. Sept. 22, 2017) (dismissing duty of loyalty claims where complaint did not
suggest defendant benefitted, financially or otherwise, from any decisions related
to the plans or engaged in disloyal conduct to benefit itself or someone other than
the plan’s beneficiaries). Plaintiffs’ allegations in Counts I (recordkeeping fees), V
(investments), VII (managed account fees), and IX (participant data) are
insufficient to allege a breach of the duty of loyalty. The Complaint contains no
plausible allegations that ADP Defendants acted for the benefit of anyone other
than the Plan’s participants. Plaintiffs’ conclusory allegations—offered on
information and belief and without explanation as to why they should be
believed—are insufficient to support a plausible inference of disloyalty.
Plaintiffs’ allegations in Count I regarding the existence of a contractual
arrangement between ADP Defendants and Voya to provide recordkeeping
services for the Plan is grossly inadequate to state a claim of disloyalty. The
Complaint offers no indication that Defendants ever failed to act “solely in the
interest of participants and beneficiaries.” 29 U.S.C. § 1104(a)(1)(A). Plaintiffs’
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claim in paragraph 81 that “ADP Defendants stood to gain financially and were
incentivized to retain Voya” is belied by the very next sentence, which explains
that Voya markets services that do not create any conflict for ADP Defendants.
(Compl. ¶ 81).
Moreover, the press release related to this claim referenced in Plaintiffs’
Complaint (page 40, n. 25) does not indicate any financial advantage or incentive
to ADP Defendants. 24 Plaintiffs’ only complaint is the outrageous and
unsubstantiated allegation made “upon information and belief” that ADP received
a kickback from Voya “in exchange for paying Voya excessive recordkeeping
fees.” (Compl. ¶ 82). Plaintiffs do not allege what “information” they have or
allege a single fact that supports their “belief,” which is insufficient to support a
claim for breach of the duty of loyalty. See, e.g., White II, 2017 WL 2352137, at
*8 (dismissing claim based on “information and belief” as “pure conjecture”).
Likewise, Plaintiffs’ conclusory allegations in Count V merely piggyback
off of the prudence claims and are insufficient to state a claim for breach of the
duty of loyalty. Plaintiffs’ only allegations are that the ADP Defendants allowed
the Plan to offer (1) the Voya Large Cap Value Portfolio “with no reason other
than to benefit the recordkeeper and themselves” (Compl. ¶ 128); (2) the Voya
24 See Ex. I to Boyle Decl. (Press Release).
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Large Cap Growth Fund “to benefit Voya and themselves” (Compl. ¶ 145); and (3)
the “Voya target date funds to benefit Voya and themselves” (Compl. ¶ 168).
Plaintiffs’ bald claims of disloyalty regarding the Plan’s investment options
are insufficient. Plaintiffs only allege that because the ADP Defendants retained
these funds, they must have acted to benefit Voya rather than the participants.
According to Plaintiffs, the ADP Defendants could not have conducted “an
independent investigation of the merits of the investment” simply because they
retained these funds during times of alleged underperformance. (Compl. ¶ 138).
Courts have repeatedly rejected such claims because the duty of loyalty is distinct
from the duty of prudence and requires separate proof. See, e.g., Nicolas, 2017
WL 4455897, at *3; Sacerdote, 2017 WL 3701482, at *5; Ferguson, 2019 WL
4466714, at *4; Cassell v. Vanderbilt Univ., 285 F. Supp. 3d 1056, 1062-63 (M.D.
Tenn. 2018); White I, 2016 WL 4502808, at *4–5; Vellali v. Yale Univ., 308 F.
Supp. 3d 673, 688 (D. Conn. 2018); Disselkamp v. Norton Healthcare, Inc., No. 18
Civ. 48 (GNS), 2019 WL 3536038, at *10 (W.D. Ky. Aug. 8 2019).
Plaintiffs’ allegations in Count VII regarding the Plan’s managed account
services likewise fail to sufficiently allege any disloyal conduct. The single
allegation to support Plaintiffs’ claim that ADP Defendants breached ERISA’s
duty of loyalty by offering managed account services is the conclusory statement
that ADP Defendants “allowed Voya to decide the Plan’s managed account
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provider not based on merit, but because Voya requested” the provider. (Compl. ¶
217). There is not a single fact to support that conclusory statement, which should
be disregarded on a motion to dismiss. Sweda, 923 F.3d at 326 (conclusory
allegations are not assumed to be true).
Finally, in Count IX, Plaintiffs allege that ADP Defendants acted “[c]ontrary
to their fiduciary obligations of acting for the sole benefit of Plan participants”
(Compl. ¶ 236), and “actively participated in Voya’s efforts to disclose and profit
from” Plan participant data (Compl. ¶ 256). Plaintiffs’ Complaint, however, does
not allege a single fact to support these claims. Moreover, and fatal to Plaintiffs’
disloyalty claims, Plaintiffs do not plausibly allege that ADP Defendants acted for
their own interests, or for the interests of Voya with regard to the use of participant
data. Accordingly, all of Plaintiffs’ loyalty claims should be dismissed.
III. Plaintiffs Fail to State a Prohibited Transaction Claim.
In Counts II, III, IV, VIII, and X, Plaintiffs attempt to repackage their
Prudence and Loyalty Claims as ERISA prohibited transactions. These claims
have been consistently rejected by courts, including the Third Circuit in Sweda,
and should be dismissed here as well. 923 F.3d at 338-340.
After ignoring Plaintiffs’ conclusory allegations (e.g., claims that the ADP
Defendants acted “for the benefit of Voya,” (Compl. ¶ 138)), Plaintiffs do not
allege any facts to plausibly support a basic element of a prohibited transaction
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claim under Third Circuit precedent: that any ADP Defendant intended to benefit
Voya or TotalSource. Sweda, 923 F. 3d at 339 (citing Reich v. Compton, 57 F.3d
270, 279 (3d Cir. 1995). As the Third Circuit emphasized in Sweda, plan
fiduciaries do not engage in prohibited transactions under Section 406(a)(1)(D) of
ERISA unless the fiduciaries specifically intend to benefit the alleged party in
interest. 923 F.3d at 337-38. The purpose of 406(a)(1) is to “rout out transactions
that benefit such parties at the expense of participants;” it is “not meant to impede
necessary service transactions.” Id. at 338. Accordingly, a plaintiff cannot state a
prohibited transaction claim by simply alleging that there was a transaction
between a party in interest and the Plan as that “would expose fiduciaries to
liability for every transaction whereby services are rendered to the plan.” Id. at
337 (citing Renfro, 671 F.3d at 321).
Interpreting ERISA 406 to “prohibit necessary services would be absurd.”
Id. at 337. Accordingly, because there are numerous statutory and administrative
exemptions to the prohibited transaction rules, a plaintiff can simply allege there
was a transaction between a party in interest and the plan regarding a service
provided to the plan and then “require a fiduciary to plead reasonableness as an
affirmative defense under [the exemptions provided by ERISA § 408].” Id. at 336.
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A. Plaintiffs Fail to Plead a Prohibited Transaction Claim Regarding Recordkeeping Fees Paid to Voya.
Plaintiffs’ allegations in Count II that “causing the Plan to use Voya as the
Plan’s recordkeeper” and paying for recordkeeping services was a prohibited
transaction under ERISA are insufficient to state a claim for relief. (Compl. ¶
277). Plaintiffs do not allege any facts to plausibly support the conclusion that the
ADP Defendants sought to benefit Voya, or that the payment of fees for
recordkeeping services was anything other than the payment of necessary services
for the Plan. Rather, Plaintiffs merely allege that the payment of recordkeeping
services was a transaction with a party in interest that is per se prohibited by
ERISA even though an exemption is provided for necessary services rendered to
the Plan. (Compl. ¶¶ 276, 277). As the court held in Sweda, these allegations are
insufficient. 923 F.3d at 339.
B. Plaintiffs Fail to Plead Any Plausible Claim for Prohibited Transaction Regarding Amounts Paid to TotalSource.
For the same reasons, Plaintiffs’ allegations in Count III and Count IV that
reimbursement of TotalSource for the cost of administrative services is a per se
prohibited transaction under ERISA must be dismissed. (Compl. ¶¶ 283-85, 289-
92); 29 U.S.C. § 1106(b)(1)-(3). Although Plaintiffs claim that the reimbursement
for administrative services provided by TotalSource “increased the fees paid by
[Plan] participants” (Compl. ¶ 108 (emphasis added)), Plaintiffs admit that what
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TotalSource actually received was “reimbursement of administrative costs” it
actually incurred on behalf of the Plan. (Compl. ¶ 107 (emphasis added)). And
although Plaintiffs allege that this was prohibited by ERISA section 406(b),
ERISA section 408(c), “Fiduciary Benefits and Compensation Not Prohibited by
Section 1106,” provides that nothing in Section 406 of ERISA “shall be construed
to prohibit any fiduciary from . . . receiving any reasonable compensation for
services rendered, or for the reimbursement of expenses properly and actually
incurred, in the performance of his duties with the plan.” 29 U.S.C. § 1108(c)(2).
Further, the DOL’s regulations provide that there is no prohibited self-dealing
transaction when a fiduciary receives “reimbursement of direct expenses properly
and actually incurred in the performance of such services.” 29 C.F.R. §
2550.408b-2(e)(3).
Plaintiffs’ Complaint recognizes that reimbursing a fiduciary for necessary
plan services is not a prohibited transaction, but alleges on “information and
belief” that the ADP Defendants did not have “a reasonable contract or
arrangement for reimbursement of proper Plan expenses” (Compl. ¶ 111), which
parrots the language of the DOL’s regulations regarding compensation for services.
See 29 U.S.C. § 2550.408c-2; 29 U.S.C. § 2550.408b-2. Such allegations on
“information and belief” with no requisite foundation do not plausibly support a
claim. White II, 2017 WL 2352137, at *2. Moreover, a party cannot allege a
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prohibited transaction claim merely by alleging a transaction of “self-dealing” and
“require a fiduciary to plead reasonableness as an affirmative defense under § 1108
to avoid suit.” Sweda, 923 F.3d at 336.
To support the claim that ADP Defendants were self-dealing, Plaintiffs make
the conclusory assertion that any amounts remaining in a Plan account after the
payment for Plan services are paid to TotalSource, even though those amounts are
“wholly unconnected to any services that [TotalSource] provides to the Plan.”
(Compl. ¶¶ 104, 105). Plaintiffs offer no plausible factual allegations to support
the salacious claim that TotalSource is allegedly absconding with Plan assets, other
than the allegation that, in Plaintiffs’ opinion, the amount paid to TotalSource
allegedly has “no discernable relationship” to the number of Plan participants.
(Compl. ¶ 105). Beyond the fact that Plaintiffs’ allegations are inconsistent with
the Plan’s Independent Auditors Report,25 Plaintiffs’ alleged inability to discern
any relationship between the number of Plan participants and the amount of
expense reimbursement TotalSource receives is hardly sufficient to support this
allegation.
25 See Ex. F to Boyle Decl. (Plan Form 5500 (2018), at Independent Auditor’s Report).
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C. Plaintiffs Fail to Plead a Prohibited Transaction Claim Regarding Payment of Investment Expenses.
Just like Plaintiffs’ reimbursement of expenses claim, the Court in Sweda
rejected a claim almost identical to Plaintiffs’ claim, in Count VIII, that paying
investment expenses constitutes a prohibited transaction under ERISA. In Sweda,
like Plaintiffs’ Complaint here, the complaint alleged that the defendants
participated in a prohibited transaction because the plan’s fiduciaries caused the
plan to pay investment fees to plan service providers. 923 F.3d at 340; (Compl. ¶¶
321-24). As in Sweda, this claim should be dismissed because Plaintiffs ignore
ERISA’s statutory mutual fund exemption which provides that mutual funds are
not parties in interest with respect to the Plan. Sweda, 923 F.3d at 339-40.
Further, as in Sweda, this claim must be dismissed because Plaintiffs fail to allege
a transfer of plan assets or that the payment of investment management fees was
intended to benefit a party in interest. Id. at 340.
D. Plaintiffs Fail to Plead a Prohibited Transaction Claim Regarding Plan Participant Data.
Finally, Count X should be dismissed. For the reasons described supra,
Plaintiffs lack standing to assert Count X. Further, Plaintiffs’ allegations regarding
the alleged use of Plan participant data cannot support a prohibited transaction
claim because participant data is not a plan asset. Plaintiffs allege that Defendants
violated ERISA § 406(a)(1)(D) by “allowing Voya” to use Plan participant data “to
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market their and Voya’s non-plan products to Plan participants.” (Compl. ¶ 341).
Section 406(a)(1)(D) prohibits a “transfer to, or use by or for the benefit of a party
in interest, of any assets of the plan.” 29 U.S.C. § 406(a)(1)(D) (emphasis added).
Participant data, however, is not an “asset” of the Plan.26
ERISA does not define plan assets to include participant data. To the
contrary, ERISA defines “plan assets” by reference to its regulations, see 29 U.S.C.
§ 1002(42), which state that “plan assets” refers only to money and investments.
See 29 C.F.R. § 2510.3-101 (“Definition of ‘plan assets’ – plan investments”); 29
C.F.R. § 2510.3-102 (“Definition of ‘plan assets’ – participant contributions”).27
There is no statutory or regulatory support for Plaintiffs’ attempt to extend ERISA
§ 406 to alleged “transactions” involving plan assets. For that reason, no court has
held that participant data is a “plan asset.” Divane, 2018 WL 2388118, at *12.
This Court should not be the first.
26 As an initial matter, Plaintiffs’ claim that participant data is a Plan asset is a legal conclusion, not a factual assertion, and so it cannot be credited even at the pleading stage. See In Re Fidelity ERISA Float Litig., 829 F.3d 55, 59 (1st Cir. 2016) (allegation that float is a “plan asset” is “a legal conclusion” and not a factual assertion); Iqbal, 556 U.S. at 680-81. 27 These definitions apply to subchapters C, D, E, F, G, and L of ERISA, which include the subchapters governing “fiduciary responsibility” (subchapter F) and “administration and enforcement” (subchapter G).
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IV. Plaintiffs’ Derivative Claims Should be Dismissed.
Plaintiffs’ failure to monitor claim (Count XI) and claim for equitable relief
(XII) are derivative of an underlying breach and therefore should likewise be
dismissed. See, e.g., Rinehart v. Akers, 722 F.3d 137, 154 (2d Cir. 2013)
(dismissing duty to monitor claim as derivative), abrogated on other grounds by
Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014); Dorman v. Charles
Schwab Corp., No. 17-cv-00285-CW, 2018 WL 6803738, at *7-8 (N.D. Cal. Sept.
20, 2018). Even if Plaintiffs had plausibly alleged a breach of fiduciary duty, both
of these claims would still fail to state a claim. Further, Plaintiffs have alleged no
basis to obtain other equitable relief. In seeking equitable relief under section
502(a)(3) of ERISA, a plaintiff may not simply “repackage” the claims they have
already asserted under other provisions of ERISA. See, e.g., Rochow v. Life Ins.
Co. of N. Am., 780 F.3d 364, 372 (6th Cir. 2015).
CONCLUSION
For the foregoing reasons, the ADP Defendants move the Court to dismiss
with prejudice all claims asserted against them in the Complaint.
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Dated: July 31, 2020 Respectfully submitted,
DLA PIPER LLP (US) By: /s/ Brian J. Boyle
Brian J. Boyle (No. 077422013) 1650 Market St., Suite 5000 Philadelphia, PA 19103 T: (215) 656-2424 F: (215) 606-2048 [email protected]
Mark Muedeking (pro hac vice) 500 8th Street, NW Washington, DC 20004 T: (202) 799-4000 F: (202) 799-5000 [email protected]
Ian C. Taylor (pro hac vice) Jennifer K. Squillario (pro hac vice) Julie Ben-Zev (pro hac vice) Emily M. Steiner (pro hac vice) 6225 Smith Avenue Baltimore, MD 21209 [email protected] [email protected] [email protected] [email protected]
Attorneys for ADP Defendants
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