In a win for Northrop Grumman workers and retirees, who are represented by AARP Foundation Litigation attorneys, the 9th Circuit overturned a trial court’s failure to make requisite findings and subsequent decision to deny class certification for plaintiffs. Calling the dispute a “classic example” of one for which class action is proper, the court reassigned the case to a different judge – an unusual move that speaks to the appeals court’s strong reaction to the trial court’s handling of the matter.
AARP Foundation Litigation attorneys are co-counsel for the plaintiffs in Grabek v. Northrop Grumman Corp., a case that challenges the administration of a 401(k) plan.
At issue is a confusing mix of fees and expenses that plan fiduciaries approved, which plaintiff contributors argue were unreasonable, unfair, and undisclosed. The plaintiffs also argue that the fiduciaries did not adequately understand the fees, monitor the performance of the plan, or otherwise discharge their strict fiduciary duties imposed by the federal Employee Retirement Income Security Act (ERISA).
Contributors to the company’s 401(k) plan sought to challenge the imposition of fees and charges in a class action lawsuit, which would allow the contributors to address a corporate-wide issue that affected thousands of employees in a single lawsuit. The alternative would be to require contributors to litigate their cases one by one, which few employees would have the financial wherewithal or time to do, even assuming they could find legal counsel willing to take on such a complicated case against a large employer.
A trial court denied the plaintiffs’ request to litigate as a class action, and this appeal followed. In a short, unpublished opinion the appeals court ruled that this case was a “classic example” of one that should be litigated as a class action, as it charged “a breach of trust by an indenture trustee or other fiduciary similarly affecting the members of a large class of beneficiaries.” The failure of the lower court to recognize this led the appeals court to order that another trial judge handle the case on remand.
What’s at stake
Defined contribution plan sponsors and administrators are accountable for and required to fully disclose the extent of fees assessed against plans such as 401(k) plans. Over the working lifetime of a contributor, a half percentage point difference in annual fees could literally accumulate to tens of thousands of dollars.
The problem with accountability today is so acute that Congress, the U.S. Department of Labor, and the Government Accountability Office have all identified 401(k) plan account fees as meriting heightened scrutiny, and Grabek is similar to a half dozen cases brought against large employers around the country.