In November 2021, a California federal court dismissed a suit claiming that LinkedIn Corp. kept underperforming funds in its $817 million retirement fund. The judge in the case, in re: LinkedIn ERISA Litigation, (5:20-cv-05704), U.S. District Court (N.D. Cal.), U.S. District Judge Edward J. Davila, dismissed the proposed class action but with leave to amend and add additional facts.
Plan participants Douglas G. Bailey, Jason J. Hayes, and Marianne Robinson filed suit in August 2020, claiming that LinkedIn, its board, and its retirement fund committee members breached their fiduciary duties, in violation of the Employee Retirement Income Security Act (“ERISA”). The plaintiffs claimed that the breach occurred when they made high-cost investments on behalf of the workers’ 401(k) plan although lower-cost, higher-yielding options were available.
LinkedIn asked the court to dismiss the proposed class action in January 2021, arguing that the plan participants’ dislike of the investment options did not implicate LinkedIn with any violation of federal labor law.
According to the suit, the plan fiduciaries invested the 401(k) in multiple mutual funds that were overly expensive that brought little value to the plan. The suit also alleged that fiduciaries failed to implement a system to ensure that participants were charged reasonable fees. Further allegations of the LinkedIn employees stated that the plan failed to use the plan’s size to the participants’ benefit.
Judge Davila indicated that plaintiffs had incorrectly argued its’ allegations against LinkedIn and plan administrators for breach of fiduciary duty in violation of ERISA. “As currently pled, the complaint does not provide facts demonstrating that plaintiffs have suffered a concrete injury to their accounts that would provide standing to pursue a plan-wide mismanagement theory based on excessive management fees,” Judge Davila stated.
Specifically, the court’s order said that the plaintiffs failed to adequately show that they personally had invested in the Freedom Fund Active Suite and the American Beacon Small Cap Value Fund. The LinkedIn employees claimed these funds carried too many risks and underperformed, indicating that plan managers had breached their fiduciary duties.
While the plan participants were not required to show that they had invested in specific funds to claim that the plan management fees were excessive, Judge Davila held that the complaint still lacked crucial specificity, which caused the failure of their attempt to show standing to sue.
However, Judge Davila found that the plan participants did make a plausible claim for breach of prudence and loyalty under ERISA regarding the Freedom Fund Active Suite and denied LinkedIn’s motion to dismiss part of this claim.
The court also found that the plan participants’ reference to a strategy change in the Active Suite that they claimed caused a loss of over $20 billion in intervening years was sufficient to show that LinkedIn’s decision to maintain the Active Suite as an option instead of the Index Suite was potentially a violation of federal benefits law.
However, the court dismissed the remaining “sparse” and “barebones” allegations regarding any alleged breach of prudence for offering the American Beacon Small Cap Value Fund and also dismissed the allegations claiming excessive management fees for the American Beacon fund.
Judge Davila also tossed the plan participants’ allegation that the company disregarded ERISA by offering an institutional share class of the American Beacon fund instead of the investor share class in 2018. The judge found that just simply stating that the plan should have offered only retail classes was insufficient to sustain the claim citing the Ninth Circuit’s prohibition against this kind of rule.
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