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Just two weeks after the Supreme Court took a worker-friendly approach on behalf of Cornell University’s 28,000 employees in an excessive fees lawsuit, the high court, on Monday, rejected to hear AT&T’s bid for review of a lower court decision on its class action lawsuit alleging mismanagement of its 401(k) suit, thus allowing a pro-participant ruling by a federal appeals court to prevail.
In a unanimous decision in the Cornell case, the justices gave the employees another chance to challenge their employer, handing retirement plan participants a major win, making it easier to sue over mismanaged plans under Employee Retirement Income Security Act. The decision resolved a split among circuit courts over ERISA standards – and ultimately dictates how easy or difficult it is for workers to argue that retirement plans violate ERISA rules.
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However, on Monday, in the AT&T case, Bugielski et al. v. AT&T Services Inc. et al., the Justices declined to hear AT&T’s challenge to an appeals court ruling of a prohibited transaction in a 401(k), sending the case back to the district court level. The case, which has been in litigation since 2017, centered on prohibited transactions under ERISA.
Plaintiffs Robert Bugielski and Chad Simecek brought the initial complaint, alleging that AT&T breached its fiduciary duty when it added brokerage and advisory services from Fidelity in 2012 and 2014 without evaluating or disclosing the compensation paid to Fidelity after adding the services. Plaintiffs alleged these were “prohibited transactions.”
Related: Supreme Court’s ruling in Cornell’s 403(b) ‘high fees’ case could bring a ‘tsunami’ of lawsuits
The case was initially decided in favor of AT&T by the district judge, who wrote that Fidelity received third-party compensation, which meant that AT&T was not required to evaluate and disclose it. The appeals court, however, sent the case back to the lower court in 2023, ruling that the compensation was, in fact, a prohibited transaction because AT&T added optional services that were paid by participants.
Earlier in the month, AT&T filed a motion for dismissal of another 401(k) lawsuit in the U.S. District Court for the Central District of California. AT&T claimed that the plaintiff in Hernandez v. AT&T Services Inc. et al, was “jumping on a bandwagon of cookie-cutter plan forfeiture challenges recently brought against dozens of large plans," according to the firm.
This reversal in the Supreme Court action “will likely result in more cases surviving motions to dismiss,” said Eric Smith, J.D., Chairman & CEO, Trustee Empowerment & Protection. “With that being the key test of whether plaintiffs will likely see a settlement offer / money being paid, this can be expected to encourage more class-action lawsuits. It also appears that ‘deals’ (revenue sharing relationships) between service providers are becoming increasingly risky, the subject of heightened scrutiny … and likely should be avoided.”
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
