Perez v. Liberty Mutual Group

Background

Lester Anthony Perez participated in the Liberty Mutual 401K Plan, a defined-contribution employee pension plan governed by the Employee Retirement Income Security Act of 1974 (ERISA). Liberty Mutual Group, Inc. sponsored the Plan and administered it through the Liberty Mutual Retirement Committee. Perez alleged that both defendants were Plan fiduciaries.

The Plan provided that employee contributions vested immediately, while employer contributions did not fully vest until a participant completed two years of service. Unvested employer contributions were forfeited after a break in service. Perez alleged that, from 2020 through 2024, defendants used forfeited employer contributions to reduce their own future contributions instead of using the money for Plan participants or Plan expenses. He asserted claims for breach of fiduciary duty under 29 U.S.C. § 1104(a)(1), violation of ERISA’s anti-inurement provision under § 1103(c)(1), violation of ERISA’s prohibited-transactions provision under § 1106, and failure to monitor fiduciaries.

Motion to Dismiss

Defendants moved to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not allege enough facts to state a legally sufficient claim. The court incorporated the Plan into its review because the Plan formed the basis of Perez’s claims, and no party disputed its authenticity.

Breach of Fiduciary Duty

The court held that Perez did not plausibly allege that defendants performed a fiduciary function when they used the forfeited contributions. Under ERISA, a fiduciary function requires discretionary authority or control over the Plan or its assets. Section 5.1 of the Plan required forfeitures to be applied toward the company’s future contributions and did not give defendants discretion to use them for another purpose. The court rejected Perez’s argument that other Plan provisions giving defendants discretion over different matters made the forfeiture decision fiduciary in nature.

The court also held that the claim would fail even if the conduct involved a fiduciary function. Perez did not allege that defendants violated the Plan or that he received fewer benefits than the Plan promised. The court concluded that defendants’ use of the forfeitures complied with Section 5.1 and that ERISA did not require them to maximize participants’ financial benefits beyond the Plan’s terms. The court therefore granted the motion to dismiss the breach-of-fiduciary-duty claim.

Failure to Monitor Fiduciaries

The court granted the motion to dismiss the failure-to-monitor claim. The amended complaint did not identify any person or entity to whom defendants had delegated fiduciary responsibilities. The court also found that the claim was derivative, meaning it depended on the alleged breach of fiduciary duty, which the court had dismissed.

Anti-Inurement Provision

The court granted the motion to dismiss the anti-inurement claim. That provision generally prevents Plan assets from benefiting an employer and requires them to be held for participant benefits and reasonable administrative expenses. The court concluded that the forfeited contributions remained Plan assets before and after they were used to offset future employer contributions. Because the money remained in the Plan in the form of new employer contributions for participant benefits, any benefit to defendants from reducing their overall contributions was incidental and did not violate the anti-inurement provision.

Prohibited Transactions

The court granted the motion to dismiss the prohibited-transactions claim under 29 U.S.C. § 1106. The court held that using forfeited contributions to offset future employer contributions was not a prohibited “transaction” because Perez did not allege a commercial bargain that posed a special risk of underfunding or involved a potentially harmful use of Plan assets. The court found that the alleged use was for participant benefits and was required by Section 5.1 of the Plan.

Disposition

Judge Haywood S. Gilliam, Jr. granted defendants’ motion to dismiss all claims. The court was skeptical that Perez could cure the defects because his theory appeared to fail as a matter of law, but it could not definitively conclude that amendment would be futile. The dismissal was therefore with leave to amend. Perez may file an amended complaint within 21 days, may not add new defendants or claims, and must file a redline comparing the amended complaint with the existing amended complaint.