Allstate Workers Fight Insurer’s Bid To Ditch ERISA Suit

Posted May 13th, 2021.

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Law360 (May 13, 2021, 6:38 PM EDT) — A proposed class of current and former Allstate employees say the insurer can’t ditch their claims they lost more than $70 million in retirement savings due to plan mismanagement, arguing an “extensive body” of federal labor law protects their right to sue.

Seven past and present Allstate Corp. employees urged an Illinois federal court Wednesday to reject a motion for dismissal from the company and the committees tasked with administering and making investment decisions for its profit-sharing retirement plan. The plan participants said the company incorrectly claims they needed to exhaust all potential administrative remedies prior to launching the suit when the Employee Retirement Income Security Act imposes no such mandate.

The proposed class argued ERISA was created to provide a remedy for plan participants such as themselves. The statute is therefore uniquely flexible and lenient in what it requires of plaintiffs early on since the information needed to prove their employer breached its fiduciary duty is rarely accessible prior to litigation, the plan participants told the court.

The proposed class assured the court they have cleared the bar to bring the ERISA suit on behalf of tens of thousands of plan participants and urged the court to allow their claims that the insurer wrongfully failed to remove a suite of underperforming investment funds from its retirement plan to proceed to discovery.

The litigation was initiated by past employee Katherine Cutrone in March but the suit has since been amended and consolidated to include claims from fellow past plan participants Mary Ellen Morgan, Mary Beth Am Rhein and Valerie Reinecke as well as current plan participants Michael W. Smutz, Stan G. Smith and Eddie D. Yousif.

Together they claim that Allstate violated ERISA by loading the plan up with poorly performing target-date retirement funds and refusing to remove those funds “despite their abysmal performance.” Allstate’s decision to keep the funds on its menu of retirement investment options “despite a market flush with better-performing alternatives” violates the insurer’s and its committees’ fiduciary duties to plan participants under ERISA, the suit alleges.

The target-date funds, called the Northern Trust Focus Target Retirement Trusts, have performed worse than 70% to 90% of their peer funds for nearly a decade, according to the lawsuit. The funds have also consistently failed to meet their benchmark indexes since they were launched in 2010, the proposed class alleges.

The named plaintiffs seek to represent all participants and beneficiaries of Allstate’s retirement plan who invested in any of the Northern Trust funds from Oct. 30, 2014, through the end of the litigation. They are also seeking to represent a second investment advisory class of all participants and beneficiaries of the plan who were forced to pay for investment advisory services from January 4, 2015, through the date of judgment.

The suit alleges the compulsory services were a waste of plan money and not a prudent use of funds since fees were incurred whether or not the service was used.

They are asking a judge to order Allstate to make good on the losses it has caused plan participants, disgorge any profits the company made by allegedly breaching its fiduciary duties and reform the plan to include “only prudent investments,” among other requests.

Allstate’s plan provides retirement income for tens of thousands of current employees, former employees and beneficiaries, the suit says. It has more than $6 billion in assets under management, with more than $700 million being invested among 11 Northern Trust funds, according to the suit.

With the large amount of managed assets, the plan “has tremendous leverage to demand and receive superior investment products and services,” the amended complaint says. “Unfortunately, [Allstate and its committees] did not effectively use that leverage to identify and select prudent target date options for plan participants.”

The Northern Trust funds have target retirement dates ranging from 2010 to 2060, according to the suit. Allstate began offering them to plan participants in 2011, the suit said.

The funds are participants’ only option for investing in a target-date strategy under Allstate’s plan, the suit said. They’re also the retirement plan’s default investment option, so contributions and earnings automatically get invested in one of the funds if participants don’t make their own investment choices, according to the suit.

But the funds had a track record of poor performance even before Allstate decided to present them to its plan participants, the suit alleges.

Representatives for the parties didn’t immediately respond to requests for comment Thursday.

The proposed class is represented by Michael Mulder and Elena Liveris of The Law Offices of Michael M. Mulder, Garrett Wotkyns and Jing-Li Yu of Scott + Scott Attorneys at Law LLP, Alexandra Harwin, David Sanford, Kevin H. Sharp, Leigh Anne St. Charles and Charles Field of Sanford Heisler Sharp LLP and Ben Barnow and Anthony L. Parkhill of Barnow and Associates PC.

Allstate is represented by Leah R. Bruno, Jacqueline A. Giannini and Uchenna Ekuma-Nkama of Dentons US LLP.

The case is Katherine Cutrone v. The Allstate Corp. et al., case number 1:20-cv-06463, in the U.S. District Court for the Northern District of Illinois.

–Additional reporting by Lauraann Wood. Editing by Emily Kokoll.

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