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Lawsuit alleges fiduciary breaches under ERISA

The Employee Retirement Income Security Act may be one of the most complex federal statutes that affects the rights of everyday workers. The Act was passed in 1985 to protect the contributions and benefits that workers make to retirement plans offered by employers and to ensure that the workers' benefits are not wasted by improper management.

A lawsuit recently filed in the Western District of New York demonstrates the complexities of the statute and the duties imposed upon managers of employee retirement plans.

The case was filed as a proposed class action, which means that the class will not be defined or allowed to proceed until the federal judge to whom the case has been assigned issues an order that either denies or certifies the status of the class. The defendants are Sutherland Global Services, Inc. and CVGAS, LLC d/b/a Clearwater Group. The complaint also names individuals who are fiduciaries of the plans and 20 John and Jane Doe defendants. The plaintiffs are members in the plans issued by the defendants. If the class is certified, a number of New Jersey residents may become class members.

The complaint alleges that the defendants failed to properly carry out their fiduciary duties under ERISA in their management of the plans. The first breach is the defendants' failure to avoid excessive and unnecessary expenses by investing plan funds in investment vehicles that charged very low or no fees at all. Instead, the plan managers chose plans whose fees were comparatively very high when compared to similar plans available on the market. The second breach was the failure of plan managers to offer a reasonable mix of investment vehicles from which plan members could choose the plan that best fit their investment objectives. Many of the plans selected by defendants charged a fee known as a 12b-1 fee, a fee that offered no benefits to plan participants.

None of the defendants has filed an answer to the allegations of the complaint, and the lawsuit is far from being resolved. Nevertheless, the issues raised in the complaint could affect management of employee benefits plans in numerous states, including New Jersey.

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  • New York City Bar
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