Judge: 401(k) lawsuit can proceed

A federal judge plans to allow portions of an ERISA class-action lawsuit to proceed to trial against BB&T Corp. and managers of its 401(k) plan.

Judge Catherine Eagles, of the Middle District of N.C., also approved dismissing certain elements of the allegations. That decision could result in some of the potential 67,000 claimants being dropped in terms of eligibility.

The lawsuit claims participants are being charged excessive fees for often underperforming proprietary mutual funds. Eagles approved in August class-action lawsuit status for a complaint filed in May 2016.

Eagles disclosed her intentions in a brief text order. She said her plan is to submit an order and opinion updating the case by July 3.

She projects needing no more than a two-week trial on the remaining allegations, beginning either Oct. 1, Oct. 24 or Oct. 29.

Eagles’ decision granted summary judgment to the defendants as to acts or omissions occurring before Sept. 4, 2009. BB&T argued that any claims arising before Sept. 4, 2009, were time-barred.

She granted and denies summary judgment in part on three counts, and denied summary judgment on two counts as it affected acts or omissions occurring between September 2009 and September 2012.

The Employee Retirement Income Security Act, or ERISA, lawsuit was filed by 12 named plaintiffs, including current and former employees.

BB&T has declined comment on the lawsuit outside legal filings, citing pending litigation.

The number of potential class members could range from 30,000 to 67,000, according to the plaintiffs’ motion. The company had 36,484 employees as of March 31.

Also named as defendants are current and past board directors, the corporation’s employee-benefits plan committee and two subsidiaries associated with the mutual funds. Record keeping has been done by Branch Banking & Trust Co. as trustee.

The bank has said it “intends to vigorously defend against the claims.” The defendants have said a class-action lawsuit could prove harmful to 401(k) beneficiaries.

However, Eagles has written that defendants “have not provided any explanation of how a class member could possibly be harmed if damages were recovered on behalf of the plan, and the court does not see how this is a conflict.”

Eagles approved two law firms to serve as lead counsel, including Schlichter, Bogard & Denton of St. Louis, which gained a $32 million settlement in May 2016 in a similar lawsuit involving Novant Health Inc.

The plaintiffs accuse the defendants of overloading the 401(k) plan with BB&T’s proprietary mutual funds, including having no nonproprietary mutual funds until 2009.

They claim the actions of the plan and its fiduciaries cost participants “tens of millions of dollars in retirement savings.”

The complaint lists four counts of breach of duties of loyalty and prudence, and one count each of failure to monitor fiduciaries, prohibited transactions between plan and party in interest, and prohibited transactions between plan and fiduciary.

The plaintiffs want all defendants to be held “personally liable to make good to the plan all losses resulting from each breach of fiduciary duties or prohibited transaction,” as well as disgorge all money gained if it is determined excessive fees were charged. They want all fiduciaries accused of breach of duties to be removed from the plan.

BB&T has said the charges “are not novel” but have been used in several lawsuits “against large financial institutions related to the retirement plans those institutions sponsor for their employees.”

“The plan’s investment lineup is substantially similar to the lineups in other lawsuits where courts have dismissed” under ERISA rules, BB&T said.

The BB&T plan had more than $1 billion in assets at the end of 2014 within six proprietary Sterling Capital Management LLC funds. Altogether, 63 percent of the plan’s $2.93 billion in assets were invested in proprietary BB&T options as of Dec. 31, 2014.

“These defendants chose the BB&T funds not based on their merits as investments, or because doing so was in the interest of plan participants,” according to the complaint. “But because these products provided significant revenues and profits to BB&T Corp. and its subsidiaries.

“Defendants generated profits for BB&T Corp. and its subsidiaries, while the plan suffered losses due to excessive administrative and investment management fees and poor performance.”

BB&T said the plaintiffs’ claims should be dismissed “because it is based solely on a hindsight analysis of market performance. The courts have consistently held that the ultimate outcome of an investment is not proof of its imprudence.”

This article provided by NewsEdge.