Dell mismanaged its retirement plan, costing its workers hundreds of millions of dollars, according to five former employees who filed a proposed class-action lawsuit last week in U.S. District Court in Austin, Texas. The plaintiffs accuse Dell of committing multiple violations of the Employee Retirement Income Security Act (ERISA), such as keeping underperforming investments in its 401(k) plan, engaging in prohibited transactions, and failing to monitor and responsibly manage the plan, which potentially cost it more than $318 million.
The company's 401(k) plan covers about 63,000 participants and holds nearly $15 billion in assets, according to the complaint. Roughly one-third of these funds were in what plaintiffs termed "underperforming" products, including the Dell Pre-Mixed Portfolio Target Date Series and Dell Core Funds. The former employees argued that the company was involved in self-dealing and prohibited transactions under ERISA because it designed its own funds, picked the managers, decided how assets were allocated, and then collected related fees.
The plaintiffs are asking the court for recovery of alleged investment losses, the return of fees they say were collected through self-dealing, and structural changes to the plan, including increased transparency about investment choices and performance. The proposed class could involve thousands of current and former Dell employees.
This lawsuit is the latest in a growing number of legal actions nationwide challenging employers over plan fees, the use of in-house funds, and potential conflicts of interest. Courts have explored how far sponsors can go with custom benchmarks, private funds, and other controversial plan features without violating ERISA.
"ERISA litigation continues to expand in unprecedented fashion, reshaping the landscape for employers, plan sponsors, and service providers," according to the legal website JD Supra. "The central question is: Will alleged employer endorsement, administration, and discretionary control over voluntary benefits be sufficient to bring these coverages under ERISA's governance? If so, plan sponsors and benefit consultants should brace for continued litigation, as plaintiffs seek to up-end longstanding assumptions about voluntary benefits and expand the scope of fiduciary liability."
Meanwhile, the ERISA Litigation Reform Act, introduced in the U.S. Houe by Rep. Randy Fine, R-Fla., is intended to curb meritless class-action lawsuits by clarifying the pleading standard applicable to ERISA-prohibited transactions claims. The reform effort comes in response to recent litigation trends and a U.S. Supreme Court decision last year that effectively lowered the pleading standard for prohibited transaction claims under ERISA.
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From: BenefitsPRO
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