Ramos v. Health
| Decision Date | 23 April 2019 |
| Docket Number | Civil Action No. 15-cv-2556-WJM-NRN |
| Parties | LORRAINE M. RAMOS, et al., Plaintiffs, v. BANNER HEALTH, et al., Defendants. |
| Court | U.S. District Court — District of Colorado |
This case arises out of alleged mismanagement of Defendant Banner Health's ("Banner") employee 401(k) plan (the "Plan"). Plaintiff Lorraine Ramos and others (together, "Plaintiffs") bring this lawsuit against Banner Health and certain current and former employees (together, "Banner Defendants") and Jeffrey Slocum & Associates, Inc. ("Slocum") (collectively, "Defendants") alleging that Defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1101 et seq. (ECF No. 118.) Plaintiffs earlier moved for class certification, which the Court granted as to the Banner Defendants and denied as to Slocum. (ECF Nos. 296 & 345.)
Currently before the Court is Slocum's Motion for Summary Judgment (the "Motion"). (ECF Nos. 306 (restricted) & 307 (public).) For the reasons discussed below, the Court grants in part and denies in part the Motion.
The following facts are undisputed unless otherwise noted.1
Banner offers employees an opportunity to invest and save for retirement through the Plan, a defined contribution plan under ERISA and a 401(k) plan under the Internal Revenue Code. Plan participants may invest their voluntary and company-matching contributions in a "choice of investment options that allow [participants] to create a diversified portfolio to help [them] meet [their] individual needs." (ECF No. 322-3 at 6; ECF No. 306 at 11, ¶ 5.)2 Until August 2014, the Plan offered three "levels" of funds to participants: (1) "Level 1: Ready-mixed Investment Options" or target-date funds that allowed a participant to invest in a single fund based on a desired retirement date; (2) "Level 2: Core Investment Options" described as "8 core investment options to help you create and manage a diversified portfolio"; and (3) "Level 3: Expanded Investment Options" intended as "[a]dditional investment opportunities formore sophisticated investors." (ECF No. 322-4 at 10, 16, 20.) Changes to the investment options in any of these three levels required a letter of direction by Banner sent to the Plan recordkeeper.
Level 3 Funds in the form of the "mutual fund window" were eliminated in August 2014, though participants could still access options beyond Levels 1 & 2 Funds through the Plan's "brokerage-account window." (ECF No. 306 at 11, ¶ 7.) Participants were specifically informed that the Plan fiduciaries did not monitor investments available through the brokerage link.
Slocum refers to Levels 1 & 2 Funds collectively as the "Core Funds" and Level 3 Funds as the "Mutual Fund Window" (ECF No. 306 at 11, ¶¶ 5-6). Plaintiffs refer to the Level 1 Funds as the "Freedom Funds" and the Level 3 Funds by the level number. (ECF No. 322 at 8-9, ¶ 5; id. at 33-40; see ECF No. 322-33 at 14, ¶ 63.) For the sake of clarity, the Court will use the level number, unless referring to a specific fund within a particular level.
The Plan delegates responsibility "for all investment and administrative functions related to the Plan" to the Retirement Plan Advisory Committee (the "RPAC"). (ECF No. 306-2 at 44; ECF No. 306 at 10, ¶ 2.) In addition to the RPAC, Banner Health, its Board of Directors, and the Chief Executive Officer of Banner Health have responsibilities regarding the operation and administration of the Plan. (ECF No. 306-2 at 43; ECF No. 322 at 8, ¶ 2.)
Banner hired Fidelity Management Trust Company ("Fidelity") to serve as thePlan's recordkeeper in 1999. The Plan's recordkeeping services were never put out for competitive bidding. Until the end of 2016, Fidelity was compensated for its services through a revenue-sharing arrangement, which was a percentage of the retirement savings that participants invested in the Plan and was sent to Fidelity in uncapped asset-based fees. Banner also retained Drinker Biddle as outside ERISA counsel to attend quarterly meetings, provide training to RPAC members, and advise the RPAC on ERISA issues.
The RPAC was tasked with "advis[ing] the Company on Plan investments and administrative functions." (ECF No. 306-2 at 43; ECF No. 322 at 8, ¶ 2.) The RPAC's investment responsibilities included, among other things, selecting investment options; reviewing and evaluating the performance of investment options; taking "prudent and appropriate" corrective action regarding investment options, including adding, removing, or replacing options; and "appoint[ing] investment managers to oversee the investment options" and "an independent investment consultant to (I) act as a fiduciary of the Plan, (II) evaluate investment options, and (III) make recommendations regarding appropriate investment funds." (ECF No. 306-2 at 44; ECF No. 306 at 10, ¶ 3; ECF No. 322 at 8, ¶ 3.) On the administrative side, the RPAC was responsible for serving as the Plan Administrator, reviewing the reasonableness of administrative fees, and monitoring the recordkeeper. (ECF No. 306-2 at 44-45.)
To assist the RPAC in carrying out its investment responsibilities under the Plan, Banner hired Slocum to serve as an independent investment consultant. Banner and Slocum signed the 2010 and 2014 Contracts for investment consulting services, andSlocum served as an independent investment consultant until October 24, 2016, when it was purchased by Pavilion Financial Corporation. The 2010 and 2014 Contracts state that the investment-related responsibilities of the RPAC and Plan service providers, including Slocum, would be defined in the Plan's "Statement of Investment Objectives and Policies" (referred to by the parties as the "Investment Policy Statements" or "IPSs"). These contracts also outlined other contractual obligations of Slocum, including reviewing investment performance of current investment options in (among other things) the Plan, helping to evaluate and select additional or replacement investment managers, providing written investment performance evaluations on a quarterly basis, and giving asset allocation and asset liability advice. (ECF No. 306-11 at 2-3; ECF No. 306-12 at 2-3.)
Under the 2010 Contract, Slocum was paid fixed a percentage on Banner's Consolidated Investment Portfolio for services on "the Consolidated Investment Pool, defined benefit, supplemental executive retirement plans, insurance, Foundation and Planned Giving assets." (ECF No. 306-11 at 4.) It also received an annual fee of $50,000 for services to the Plan. (Id.) Under the 2014 Contract, Slocum received a variable percentage fee for non-Plan investments based on the total value of assets, as well as an annual fee of $75,000 for services to the Plan. (ECF No. 306-12 at 4.)
The 2010 Contract also contemplated Slocum's involvement with "large-scale special projects outside the scope of services" on a negotiated basis. (ECF No. 306-11 at 2-3.) The parties dispute whether Slocum was assigned or took on special projects. Slocum argues that it "was never assigned any special projects and was not paid beyond its contractual fee." (ECF No. 306 at 15, ¶ 22.) Plaintiffs contend that Slocumdid take on or perform additional work or projects, and cite the Plan Reviews that Slocum provided. (ECF No. 322 at 10, ¶ 22.) Plaintiffs do not address or present any evidence that Slocum was paid beyond its contractual fee for the Plan Reviews. In reply, Slocum cites the testimony of Kyle Schmit, a former Slocum investment advisor, who testified that Slocum's retention fee for services to the Plan would include a Plan Review. (ECF No. 334 at 3, ¶ 22; ECF No. 306-16 at 12.)
The 2010 Contract described Slocum as a "fiduciary within the meaning of section (3)(21)(A)(ii) of ERISA with respect to the Defined Benefit and 401(k) Plans."3 (ECF No. 306-11 at 4.) The 2014 Contract provided that the "sole standard of care imposed on us [Slocum] by this Agreement is to act with the care, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims." (ECF No. 306-12 at 5.)
The 2011 & 2014 IPSs outlined the responsibilities of, among other entities, Banner, Banner's Board of Directors, Banner's CEO, the RPAC, and Slocum. The 2011 and 2014 IPSs separately outlined the duties of the RPAC (referred to in the IPSs as the "Advisory Committee") for investment functions and plan administration functions.
The RPAC was responsible for "overseeing and reviewing the investment of thePlan's assets" and required to "act prudently and solely in the interest of the Plan's participants and beneficiaries" when carrying out its "management, investment, and review of the Plan's assets." (ECF No. 306-13 at 7; ECF No. 306-14 at 7.) Am ong other duties, the RPAC was responsible for "[e]valuating and selecting firms for consideration as . . . [r]ecordkeeper" reviewing the performance of the recordkeeper, taking prudent and appropriate corrective action as necessary, and "[r]eviewing the reasonableness of investment related fees paid by the Plan." (ECF No. 306-13 at 8; ECF No. 306-14 at 8.) As Tom Koelbl, a former RPAC board member, testified, Slocum did not have final decision-making authority over which recordkeeper would provide services to the Plan and RPAC was responsible for insuring the reasonableness of recordkeeping and investment fees. (ECF No. 306-6 at 6.) RPAC chair Brenda Schaefer testified that RPAC had a fiduciary responsibility to ensure...
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