Kohari v. MetLife Grp.

• Decision Date: 01 August 2022
• Docket Number: 21 Civ. 6146 (JPC)
• Parties: RITA KOHARI et al., Plaintiffs, v. METLIFE GROUP, INC. et al., Defendants.
• Court: U.S. District Court — Southern District of New York

RITA KOHARI et al., Plaintiffs,
v.
METLIFE GROUP, INC. et al., Defendants.

No. 21 Civ. 6146 (JPC)

United States District Court, S.D. New York

August 1, 2022

OPINION AND ORDER

JOHN P. CRONAN, UNITED STATES DISTRICT JUDGE:

Plaintiffs Rita Kohari, John Radolec, and Mohani Jaikaran, who are current and former participants in the MetLife 401(k) Plan, bring this putative class action pursuant to the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001, et seq. (“ERISA”), against Defendants MetLife Group, Inc., Metropolitan Life Insurance Company, the Benefit Plans Investment Advisory Committee, and John and Jane Does 1-20. Plaintiffs allege that Defendants breached their fiduciary duties to the plan and its participants and beneficiaries in violation of ERISA by applying an imprudent and disloyal preference for selecting and retaining MetLife proprietary index fund products to offer to plan participants despite their poor performance and high costs in comparison to similar investment products in the marketplace. Plaintiffs allege that Defendants' imprudence and disloyalty have cost plan participants millions of dollars in excessive fees and lost investment returns. Plaintiffs also allege that MetLife Group, Inc. and Metropolitan Life Insurance Company breached their fiduciary duties by failing to monitor the investments. Defendants have moved to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons discussed below, Defendants' motion to dismiss is denied.

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I. Background

A. Facts

The following facts, which are assumed true for purposes of this Opinion and Order, are taken from the Complaint, Dkt. 1 (“Compl.”), and the documents incorporated therein by reference, see Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002) (noting that at the motion to dismiss stage, a court may consider “any written instrument attached to [the complaint] as an exhibit or any statements or documents incorporated in it by reference” as well as any documents “integral” to the complaint, i.e., “where the complaint ‘relies heavily upon [the document's] terms and effects'” (quoting Int'l Audiotext Network, Inc. v. Am. Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995))).

Plaintiffs are former and current participants in the MetLife 401(k) Plan (the “Plan”).^[1] Compl. ¶¶ 14-16, 18. Defendant MetLife Group, Inc. (“MetLife Group”) is the current Plan sponsor. Id. ¶¶ 17, 23. Defendant Metropolitan Life Insurance Company (“Metropolitan Life”) previously served as the Plan sponsor.^[2] Id. ¶¶ 17, 27. As the Plan sponsor, MetLife Group and Metropolitan Life have or previously had “ultimate decision-making authority with respect to the Plan and the management and administration of the Plan and the Plan's investments.” Id. ¶¶ 23,

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27. They are also identified as “the Administrator of the Plan in the Plan's Form 5500s filed with the United States Department of Labor,”^[3] which renders them “a fiduciary of the Plan for purposes of ERISA.” Id. ¶¶ 24, 28. Because MetLife Group and Metropolitan Life currently exercise or previously exercised “discretionary authority or discretionary control with respect to management and administration of the Plan and disposition of Plan assets,” each likewise qualifies as a “functional fiduciary under 29 U.S.C. § 10002(21)(A).” Id. ¶ 23. “[T]he responsibility for appointing and removing other fiduciaries carries with it an accompanying duty to monitor the appointed fiduciaries, and to ensure that they are complying with the terms of the Plan and ERISA's statutory standards.” Id. ¶ 25.

Defendant Benefit Plans Investment Advisory Committee (the “Committee”) assists MetLife Group with the administration of the Plan, including by “select[ing] the funds for the Plan's investment menu.” Id. ¶ 30. The Complaint alleges that “[t]o the extent that MetLife Group has delegated any of its fiduciary functions to others, such as the Committee, it maintained fiduciary responsibilities with respect to the Plan.” Id. ¶ 25. The Complaint also names as Defendants “John and Jane Does 1-20,” who “are or were members of the Committee during the statutory period.” Id. ¶ 31. Plaintiffs allege that “[t]he identities of the Doe Defendants are not currently known to Plaintiffs.” Id.

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1. The Plan

The Plan covers eligible employees of Metropolitan Life, MetLife Group, Metropolitan Property and Casualty Insurance Company, MetLife Funding, Inc., MetLife Credit Corp., and SafeGuard Health Plans, Inc. Id. ¶ 19. The Plan is a “defined contribution plan,”^[4] which permits eligible employees saving for retirement to “contribute a percentage of their earnings on a pre-tax basis to the Plan.” Id. ¶¶ 18-19. In a defined contribution plan, a participant's benefits “are limited to the value of their own investment accounts, which is determined by the market performance of employee and employer contributions, less expenses.” Id. ¶ 3 (quoting Tibble v. Edison Int'l, 575 U.S. 523, 525 (2015)).

In contrast, in a defined benefit plan, “the participant is entitled to a fixed monthly pension payment, while the employer is responsible for making sure the plan is sufficiently capitalized, and thus the employer bears all risks related to excessive fees and investment underperformance.” Id. Consequently, as alleged, “[i]n a defined benefit plan, the employer and the plan's fiduciaries have every incentive to keep costs low and to remove imprudent investments,” whereas an employer in a defined contribution plan “has no incentive to closely monitor the plan to ensure that every investment remains prudent, because all risks related to high fees and poorly performing investments are borne by the employee.” Id.

2. Alleged Breaches of Fiduciary Duties

As a “mega” or “jumbo” plan, the Plan had “between 36,000 and 42,000 participants and approximately $6.4 billion to $7.3 billion in assets” throughout the statutory period. Id. ¶ 20. “As

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of 2019, the Plan was the 111^th largest defined contribution plan in the country out of a total of 718,632 defined contribution plans.” Id. The Plan's investment menu, which has remained the same throughout the statutory period, consists of nine investment options and a self-directed brokerage account “selected and retained” by Defendants. Id. ¶¶ 5, 21. Eight of those investment options are MetLife proprietary investments, and seven of those are proprietary index funds that are at issue here: the MetLife Bond Index Fund, Balanced Index Fund, Large Cap Equity Index Fund, Large Cap Value Index Fund, Large Cap Growth Index Fund, Mid Cap Equity Index Fund, and Small Cap Equity Index Fund (collectively, the “MetLife Index Funds”).^[5] Id.

As with other index funds, each MetLife Index Fund is “a passively managed, pooled-investment product designed to mirror the performance of a particular benchmark index.” Id. ¶ 37. The marketplace for index funds is “highly competitive,” and for any given benchmark index, there typically are “dozens of different products” offered by different companies that track benchmark indices with varying degrees of precision and charge varying amounts of fees. Id. ¶¶ 38-39. Higher fees, however, do not “in any way correspond to a higher quality product or higher level of services” and, in fact, “the least expensive offerings often have the lowest level of tracking error.” Id. ¶ 40. Indeed, as alleged, companies such as BlackRock, Northern Trust, State Street, Vanguard, and Fidelity “have captured a very large percentage of market share” of index funds “based on several competitive advantages: lower investment management fees than competing firms, a high degree of institutional expertise, sophisticated trading platforms that minimize trading costs, and a large asset base that provides economies of scale.” Id. ¶ 39.

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Plaintiffs allege that Defendants breached their fiduciary duties by “us[ing] the Plan to promote MetLife's proprietary financial products and earn profits for MetLife,” id. ¶ 5, and by failing “to prudently and objectively evaluate index fund options for the Plan,” id. ¶ 6. Specifically, the Complaint alleges that Defendants failed to adequately investigate identical marketplace alternatives “in selecting and retaining index funds for the Plan, choosing instead to further MetLife's interests by using the MetLife Index Funds,” even though the MetLife Index Funds “charged fees that were significantly higher than the fees charged by more competitive options that were identical (other than their lower cost).” Id. ¶ 46. Plaintiffs contend that “[h]ad Defendants been monitoring the expenses of these index funds and performed a reasonable investigation of marketplace alternatives consistent with the practice of other fiduciaries of 401(k) plans, they would have replaced the MetLife Index Funds with one of the more competitive alternatives in the marketplace.” Id.

The Complaint also alleges that the MetLife Index Funds were “of lower quality than other options when it came to their sole function-tracking the underlying index.” Id. ¶ 48. For example, “[f]or the 5-year period ending in 2019, two of the [MetLife Index Funds] performed as expected, meaning equal to the benchmark minus expenses, five index funds performed worse than expected, and no index fund[] performed better than expected.” Id. The MetLife Index Funds also “underperformed the alternatives . . . by roughly the difference in costs.” Id. ¶ 47. The Complaint further alleges that Defendants failed to account for “[i]nstitutional factors, such as assets under management,” which demonstrate the superiority of index funds managed by companies such as Vanguard, State Street, Northern Trust, Fidelity, and BlackRock, each of which “manages over $300 billion in indexed assets (with BlackRock, State Street, and Vanguard managing over $ 1

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trillion in passive investments).” Id. ¶ 49. By comparison, MetLife manages “under...