The U.S. Supreme Court refused on Monday to consider two appeals in a case weighing the ability of tens of millions of Americans to bring lawsuits over their retirement plans.
Without comment, the court let stand an April ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia that revived part of a case accusing John Hancock Life Insurance Co., a unit of Canada’s Manulife Financial Corp., of charging excessive fees on annuity insurance contracts in 401(k) plans.
In its appeal, Hancock had warned that letting the lawsuit go forward could discourage employers from setting up retirement plans governed by the Employee Retirement Income Security Act of 1974 by driving up costs to account for litigation.
It said plans under that law in recent years have held more than $5 trillion of assets covering in excess of 86 million workers.
Gregory Ash, a partner specializing in employee benefits at Spencer Fane Britt & Browne in Overland Park, Kansas, said the decision helps 401(k) participants by letting them sue plan providers directly, rather than be forced to sue individual employers in many lawsuits.
“It is important – for this case, in particular, because it makes it a lot harder for John Hancock to make it go away,” said Ash, who is not involved in the John Hancock case. “The settlement value (can be) a lot higher than if it were just the employees of one company.”
In its decision, the 3rd Circuit partially reversed a lower court decision in finding that former plan beneficiaries could pursue ERISA claims without first demanding that fund trustees take action and adding the trustees as parties.
But it agreed with the lower court that beneficiaries could not sue under the Investment Company Act of 1940 because they did not invest in the funds throughout their lawsuit and therefore could not adequately represent similar plaintiffs.
The plan participants appealed that part of the decision to the Supreme Court, saying that failing to allow a private cause of action conflicted with the ICA’s provision for “rescission at the instance of any party” and recovery for “unjust enrichment.”
Co-lead plaintiff Danielle Santomenno was an investor in the relevant funds until June 2010 and co-lead plaintiffs Barbara Poley and Karen Poley until January 2010. The 3rd Circuit said they all lacked standing to sue under the ICA because the second amended complaint was filed in October 2010.
The cases are John Hancock Life Insurance Co. et al v. Santomenno et al, U.S. Supreme Court, No. 12-202; and Santomenno et al v. John Hancock Life Insurance Co. et al, U.S. Supreme Court, No. 12-208.
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