Kohari v. MetLife Group, Inc.

Background

Rita Kohari, John Radolec, and Mohani Jaikaran, current and former participants in the MetLife 401(k) Plan, filed a proposed class action under the Employee Retirement Income Security Act of 1974, or ERISA. The defendants are MetLife Group, Inc.; Metropolitan Life Insurance Company; the Benefit Plans Investment Advisory Committee; and unidentified individuals referred to as John and Jane Does 1-20.

The complaint alleges that the defendants breached ERISA fiduciary duties by selecting and retaining seven MetLife proprietary index funds despite allegedly available alternatives that tracked the same benchmark indices, charged lower fees, and performed better. The plaintiffs also allege that the defendants favored the MetLife funds because MetLife received investment-management fees and claimed a tax deduction involving dividends on assets held for the Plan. The plaintiffs further allege that MetLife Group and Metropolitan Life failed to monitor the Committee and failed to remove Committee members who allegedly allowed imprudent and costly investments to remain in the Plan.

Defendants’ Arguments

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. They argued that the plaintiffs had not pleaded enough facts to support claims for breach of the duty of prudence, breach of the duty of loyalty, or failure to monitor. They challenged the comparisons between the MetLife funds and other investment products, as well as the plaintiffs’ allegations about fees, performance, and the Dividend Received Deduction.

The defendants also argued that the claims were barred by ERISA’s three-year limitations period for claims brought after a plaintiff has actual knowledge of an alleged fiduciary breach. The court explained that actual knowledge requires knowledge of the material facts necessary to understand the breach; merely receiving disclosures is not enough.

Statute of Limitations

The court declined to dismiss the claims as time-barred. The complaint alleged that the plaintiffs did not learn all material facts necessary to understand the alleged breaches until shortly before filing suit and did not know the details of the defendants’ investment decision-making because that information was within the defendants’ possession before discovery.

The court stated that the disclosures identified by the defendants provided fee and performance information but did not, on the face of the complaint, establish that the plaintiffs knew the underlying decision-making process or whether the fees were reasonable. The court therefore found no factual basis at the motion-to-dismiss stage to conclude that the claims were barred by the three-year period. The court did not decide whether the claims were timely under ERISA’s six-year limitations period.

Duty of Prudence and Duty of Loyalty

The court held that the complaint plausibly alleged a breach of the duty of prudence. That duty requires an ERISA fiduciary to use the care, skill, prudence, and diligence that a prudent person would use in similar circumstances. The court focuses on the fiduciary’s decision-making process rather than judging the decision only by its outcome.

The complaint alleged that the MetLife funds had higher fees and underperformed comparable alternatives, that five of the seven funds performed worse than expected over the five-year period ending in 2019, and that the alternatives tracked the same benchmark indices. The complaint also included a chart comparing the funds’ expense ratios. The court concluded that these allegations plausibly suggested that the defendants selected and maintained the MetLife funds despite their higher costs and poorer performance. Arguments about whether the proposed alternatives were truly comparable raised factual issues that were not suitable for resolution at this stage.

The court also held that the complaint plausibly alleged a breach of the duty of loyalty. That duty requires a fiduciary to act solely for the benefit of plan participants and beneficiaries. The court found that the plaintiffs alleged more than the mere inclusion of proprietary funds: they alleged that the defendants selected and retained the funds to benefit MetLife through fees and tax benefits, while participants bore the resulting costs. The court also rejected the argument that the plaintiffs had failed to identify which MetLife entity received the tax benefit, stating that the issue raised factual questions.

Failure to Monitor

The court denied the motion to dismiss the failure-to-monitor claim in Count II. A failure-to-monitor claim requires an underlying breach of ERISA duties. Because the court found that the plaintiffs plausibly alleged underlying breaches, that prerequisite was satisfied.

The complaint alleged that MetLife Group and Metropolitan Life failed to monitor and evaluate the Committee, failed to establish a monitoring system, failed to monitor the Committee’s fiduciary processes, and failed to remove Committee members whose performance was allegedly inadequate. The court concluded that the precise monitoring procedures required depended on facts about the Plan and therefore could not be resolved at the pleading stage.

Disposition

The court denied the defendants’ motion to dismiss. It specifically denied the motion as to the breach-of-fiduciary-duty claim in Count I and denied it as to the failure-to-monitor claim in Count II. The parties were ordered to submit a proposed case-management plan and scheduling order within two weeks. Judge John P. Cronan issued the Opinion and Order.