Perhaps the tide is turning after all.
In a ruling last week, CheckSmart Financial won a two-year-old lawsuit for allegedly charging “astronomical” fees within its 401k plan.
The class action suit accused the payday lending company of breach of fiduciary duty associated with excessively high fees for poorly performing funds. The case was filed in 2016 in U.S. District Court for the Southern District of Ohio by CheckSmart employee Enrique Bernaola, one of 1,700 plan participants.
According to Bloomberg, past lawsuits of this nature have taken on big corporations with much larger plans, such as Verizon and American Airlines. CheckSmart’s $25 million plan was one of the first of its size to be challenged over fees.
The plaintiff’s filing noted that “the investment options made available to the Plan’s participants, at all pertinent times, have been focused upon expensive and unsuitable actively-managed mutual funds without an adequate or appropriate number of passively managed and less expensive mutual fund investment options.”
But in his ruling July 12, U.S. District Court Judge James L. Graham dismissed Bernaola’s claim based on ERISA’s statute of limitations. Graham pointed out that the defendants (all designated fiduciaries, including CheckSmart Financial LLC, its plan committee, sole committee member Pagle Helterbrand and Cetera Advisor Network) disclosed to Bernaola in various print and digital forms in 2012 a variety of investment options and the associated expenses for the plan.
What’s more, the plaintiff signed an acknowledgment of risk upon enrollment in the plan, and was mailed annual and quarterly statements regarding his account. These communications also pointed to a website with “detailed fee information and past performance data for each investment option, including the expense ratios for each investment option.”
Yet Bernaola didn’t file his suit until July 14, 2016—well past the statute of limitations per ERISA, that being “three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation.”
Bernaola argued back that his claim was not untimely and would not be considered so if categorized as “process-based,” defined in the ruling as “a claim that an ERISA fiduciary didn’t act prudently, which ‘requires consideration of both the substantive reasonableness of the fiduciary’s actions and the procedures by which the fiduciary made its decision.’”
Graham, however, rejected this, concluding, “The Court will not recognize Bernaola’s claim as a process-based claim. Doing so would essentially erase the statute of limitations for all breach-of-fiduciary-duty plaintiffs—none would be likely to have insider knowledge of their plan’s decision-making process.”
The plaintiff then contested that “he could not have actual knowledge of Defendants’ underlying conduct until 2016, when it became clear to him that certain funds had underperformed and overcharged. Put another way, Bernaola couldn’t predict the future in 2010,” the ruling reads.
To that, the judge responded, “Bernaola is right: he can’t be expected to predict the future. But the same goes for Defendants, and that’s why this argument fails.”
Jessa Claeys is a writer, editor and graphic designer.