The U.S. District Court for the Northern District of California has given final approval to a $6.75 million settlement of a class action lawsuit filed by current and former LinkedIn employees regarding their investment options in the company 401(k) plan. The settlement covers more than 17,000 people participating in the company's retirement plan from August 14, 2014, to July 1, 2020.
The employees alleged that LinkedIn had breached its fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA) when it included some target date funds that performed poorly, were riskier, and charged higher fees than comparable funds. LinkedIn responded that the employees had no standing to file the lawsuit because they had failed to prove that they had suffered material harm from investing in the funds.
ERISA requires plan sponsors to prudently manage plan investments to avoid large losses for plan participants. Sponsors also must limit fees charged to reasonable fees. Under ERISA, sponsors have an ongoing duty to monitor investments and fees and remove any investments that become imprudent. Investors can sue plan sponsors for the alleged breach of the continuing duty of prudence within a six-year timeframe.
Large companies sponsoring retirement plans with extensive assets and thousands of participants will likely find these breach of fiduciary duty cases, which have increased in recent years, expensive to defend.
Generally, plan sponsors should have a well-trained, diverse committee that approves investment options for the plan. This committee should monitor the options continuously, periodically review and compare fees, and gather proposals from multiple service providers. Furthermore, the committee should document their efforts to compile information and make reasonable decisions based on the information and solid reasoning. While target date funds are not a negative option, per se, plan sponsors must be mindful of their potential costs.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
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