In re Omnicom Group. Inc. ERISA Litigation

Background

Five current or former participants in Omnicom’s 401(k) Group Retirement Savings Plan filed a proposed class action under the Employee Retirement Income Security Act (ERISA). They sued Omnicom, its Board of Directors, its Administrative Committee, and unidentified committee members. The plaintiffs alleged three claims: breach of fiduciary duty, failure to monitor fiduciaries and co-fiduciaries, and, alternatively, knowing breach of trust.

The central allegations concerned Omnicom’s continued offering of Fidelity Freedom Active Suite target-date funds, including their use as the plan’s default investment option. Plaintiffs alleged that these funds were more expensive and generally performed worse than Fidelity Freedom Index Suite funds. They also alleged excessive recordkeeping and administrative fees, an overly expensive investment menu, and failure to consider lower-cost collective trusts.

The plan was participant-directed, meaning participants generally chose how to invest their contributions. In response to the motion to dismiss, Omnicom disclosed that the named plaintiffs had invested in five Fidelity Freedom Active Suite funds: the 2015 K, 2030 K, 2045 K, 2050 K, and 2055 K funds. None of the named plaintiffs had invested in the Neuberger Berman or Morgan Stanley funds challenged in the complaint.

Standing ruling

The court granted in part and denied in part Omnicom’s motion under Federal Rule of Civil Procedure 12(b)(1), which challenges the court’s subject-matter jurisdiction. The court held that the plaintiffs had Article III standing—a constitutional requirement that they show a concrete personal injury—to challenge alleged losses connected to the Fidelity Active Suite because their individual accounts had invested in that product line.

The court held that the plaintiffs lacked standing to challenge losses connected to the Neuberger Berman and Morgan Stanley funds. Because the named plaintiffs had not invested in those funds, alleged losses from those funds did not reduce the value of their individual accounts. The court therefore dismissed the allegations concerning the Plan’s investment in those two funds.

Fiduciary-duty claim

The court denied Omnicom’s motion under Rule 12(b)(6) to dismiss Count I, the breach-of-fiduciary-duty claim. At this stage, the court had to accept the complaint’s factual allegations as true and decide only whether they plausibly stated a claim.

The court concluded that the allegations about the Fidelity Active Suite were sufficient to proceed. Plaintiffs alleged that the Active Suite had underperformed the lower-cost Index Suite, that the two suites followed essentially the same investment strategy, that the Active Suite had experienced substantial outflows, and that Omnicom continued using it as the default option until 2019. Whether the Active and Index Suites were proper comparisons, and whether Omnicom’s decision-making process was prudent, were factual issues the court said should not be resolved on a motion to dismiss.

The court also held that the allegations about recordkeeping fees were sufficient. Plaintiffs alleged that the plan charged $34 per participant for recordkeeping and that its size should have given Omnicom bargaining power to obtain lower fees. Whether the fee was reasonable would be examined later in the case.

The allegations about an excessively expensive investment menu also survived. Plaintiffs alleged that the plan’s overall investment-management fees were higher than those of comparable plans and that Omnicom failed to include lower-cost collective trusts until 2019. The court found these allegations sufficient to support an inference of imprudent monitoring and management at the pleading stage.

Other claims

The court denied the motion to dismiss Count II, the failure-to-monitor claim. Because the plaintiffs adequately alleged an underlying breach of fiduciary duty and alleged that Omnicom was responsible for appointing, supervising, and removing Administrative Committee members, the court held that the monitoring claim could proceed.

The court also denied the motion to dismiss Count III, the alternative knowing-breach-of-trust claim. The court found that pleading this claim in the alternative was permitted and that the complaint supported an inference that the defendants knew, or at least should have known, about the alleged mismanagement.

Disposition

The court concluded that Omnicom’s motion to dismiss was granted in part and denied in part. The claims concerning the Plan’s investment in the Neuberger Berman and Morgan Stanley funds were dismissed; the remaining claims and allegations were not dismissed. Plaintiffs were given ten business days to file an amended complaint striking the dismissed allegations and adding the investment information concerning the Fidelity Active Suite that Omnicom had disclosed.