Larson v. Allina Health System

Background

Three former Allina employees and retirement-plan participants brought proposed class claims under the Employee Retirement Income Security Act (ERISA), the federal law governing employee benefit plans. They sued Allina Health System and numerous related committees, officers, and individuals. The complaint concerned Allina’s 403(b) and 401(k) plans, including investment options, investment fees, recordkeeping fees, revenue sharing, fiduciary oversight, and participant disclosures.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that the court lacked subject-matter jurisdiction, and Rule 12(b)(6), arguing that the complaint failed to state legally sufficient claims.

Standing

The court rejected the defendants’ argument that the plaintiffs lacked standing because they had invested in the core options but not in the ProManage option or mutual fund window. The court held that the plaintiffs alleged an injury from the defendants’ decisions concerning the core options, including allegedly high-cost investments and excessive or poorly monitored fees. Because the claims under ERISA § 1132(a)(2) were brought in a representative capacity for the plans, the court held that the plaintiffs could seek relief for both plans even though they had not invested in every option.

Count I: Prudence and Loyalty

The plaintiffs alleged that the defendants breached ERISA fiduciary duties of prudence and loyalty. The duty of prudence requires fiduciaries to use appropriate care and diligence in managing a plan. The duty of loyalty requires them to act solely for participants’ and beneficiaries’ interests and for reasonable plan expenses.

The court granted the motion to dismiss the claims based on the ProManage option. It held that the plaintiffs could not challenge automatic enrollment in a qualified default investment alternative and had not adequately alleged that selecting or offering ProManage was imprudent because they provided no meaningful benchmark showing that another option offered an inferior service at a lower cost.

The court granted the motion to dismiss the claim that the defendants acted imprudently by offering mutual funds rather than collective trusts or separate accounts. The court also granted the motion to dismiss the claim based solely on allowing Fidelity’s own funds in the plans, because the complaint did not allege that the process for choosing or analyzing those funds was flawed.

As to high-cost investment options, the court found that the general allegations about retail funds and the allegations concerning the Fidelity Contrafund and Fidelity Diversified International Fund did not state a claim because the proposed alternatives were not identical to the funds included in the plans. But the court held that the allegations concerning identical, lower-cost Fidelity K asset class funds were sufficient. The motion to dismiss this portion was therefore granted in part and denied in part.

The court denied the motion to dismiss the recordkeeping-fee claim. The plaintiffs plausibly alleged that the defendants could have obtained lower-cost services and had not renegotiated Fidelity’s recordkeeping contract for twenty-two years. The court stated that factual disputes about the defendants’ negotiations and fee arrangements could not be resolved at the motion-to-dismiss stage.

The court granted the motion to dismiss claims based on the mutual fund window’s number of options, duplicative investments, and money market funds. The plaintiffs had not adequately alleged that simply offering more than three hundred options, offering overlapping options, or including money market funds breached the fiduciary duty of prudence.

The court denied the motion to dismiss the revenue-sharing claim. The plaintiffs adequately alleged that payments to Fidelity operated as kickbacks for including certain funds and resulted in unreasonable compensation. The court treated the defendants’ argument that rebates reduced plan expenses as a factual issue not properly resolved on a motion to dismiss.

The court granted the motion to dismiss the duty-of-loyalty claims. It found that those claims repeated the prudence allegations and did not allege facts showing that the defendants acted to benefit themselves or Fidelity as a goal.

Count II: Monitoring and Co-Fiduciary Liability

The court denied the motion to dismiss the claims that the defendants failed to monitor other fiduciaries and were liable for co-fiduciary breaches. Those claims could proceed to the extent they were based on the fiduciary breaches that the plaintiffs had plausibly alleged, including the claims involving identical lower-cost funds, recordkeeping fees, and revenue sharing.

Count III: Disclosures

The plaintiffs alleged that the defendants failed to give adequate information about fees charged to individual plan accounts. The court held that labeling expenses simply as “Fees” was not enough to satisfy ERISA’s explanation requirements, so the motion to dismiss that part of the claim was denied. The court granted the motion as to the “Investment Adv. Fee” disclosure because the defendants had provided a brief explanation of that fee. The court also held that ERISA did not require the defendants to disclose the source of the fees.

Disposition

The order states that the defendants’ motion to dismiss was GRANTED IN PART AND DENIED IN PART. The surviving claims were not finally decided on their merits in this order.