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Wood v. Prudential Retirement Insurance and Annuity Co.

United States District Court, D. Connecticut

September 19, 2016

LEONARD D. WOOD II on behalf of the KeHE Distributors, Inc. 401k Retirement Savings Non-Union Plan, and MAYA SHAW on behalf of the EXCO Resources, Inc. 401k Plan and all other similarly situated ERISA-covered employee pension Benefit plans, Plaintiffs,
v.
PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY, Defendant.

          MEMORANDUM OF DECISION GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS [DKT. NO. 26]

          Vanessa L. Bryant, United States District Judge.

         I. Introduction

         The Plaintiffs, Leonard D. Wood and Maya Shaw bring this action, on behalf of their employers' 401(k) retirement plans, against Defendant Prudential Retirement Insurance and Annuity Company, alleging violations of the Employee Retirement Income Security Act of 1973 (“ERISA”), Sections 404 and 406, 29 U.S.C. §§ 1104, 1106. Currently pending before the Court is Defendant's Motion to Dismiss. For the reasons that follow, Defendant's Motion to Dismiss is GRANTED IN PART with respect to Plaintiffs' claims for non-fiduciary liability and DENIED IN PART with respect to all other claims.

         II. Background

         The following facts and allegations are taken from the Complaint [Dkt. No. 1] and undisputed exhibits to Defendant's Motion to Dismiss [Dkt. No. 26, Exhs. A-G.]

         Plaintiffs bring this action on behalf of their own 401(k) retirement plans and a class of similarly situated retirement plans (the “Plans”) that invested in “Guaranteed Income Accounts” (“GIA”) offered by the Defendant within six years of December 5, 2015. [Compl. ¶¶ 1-3.] Defendant offers and sells GIA to retirement plans as part of group annuity contracts. [Compl. ¶ 2; Def. Mot. to Dismiss, Exhs. B and C, “Guaranteed Income Fund Investment Addendum” (“Addenda”).] GIA assets are invested in Defendant's Guaranteed Income Fund (“GIF”), and GIF assets are in turn invested in Defendant's general account.[1][Compl. ¶ 2; Addenda § 1.1.] GIA are intended to provide investment income to Plan participants through a guarantee of principal invested and a minimum rate of interest on investments. [Compl. ¶¶ 12, 15.] The GIA applicable interest rate is announced semi-annually, and remains “guaranteed against change” for six months after each announcement. (Addenda § 1.3.) Although the Defendant sets this declared interest rate at its “sole and exclusive discretion” in advance of each semi-annual period, [Compl. ¶¶ 3-4; Addenda § 1.3], and each Plaintiff has the option not to reinvest, the investment agreement provides that the rate must always be greater than or equal to 1.5 percent. [Dkt. No. 26, Defendant's Memorandum of Law in Support of Motion to Dismiss (“Def. Memo.”) at 1, 6-7; Dkt. No. 41, Plaintiffs' Memorandum in Opposition to Defendant's Motion to Dismiss (“Pl. Opp.”) at 3; Def. Mot. to Dismiss, Exh. B, “KeHE Investment Agreement” §§ 2.1, 2.2.; Def. Mot. to Dismiss, Exh. C, “EXCO Investment Agreement” §§ 2.1, 2.2; Addenda §§ 1.3, 1.6, 1.8.]

         While the interest rate is “guaranteed” to be at least 1.5 percent, Plaintiffs allege that Defendant sets the crediting rate “well below its internal rate of return . . . on the invested capital it holds through the [GIA]” and therefore “guarantees a substantial profit for itself.” [Compl. ¶ 4.] Defendant does not disclose to its retirement plan clients and their participants the difference between the crediting rate and its internal rate of return. Id. Plaintiffs therefore allege that Defendant “collects tens of millions of dollars annually in undisclosed compensation from the retirement plans” in violation of its fiduciary duties under Section 502 of the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1132. Id.

         Primarily at issue in Defendant's Motion to Dismiss is whether Defendant is a fiduciary with respect to GIA under ERISA. The Defendant argues that GIA are “guaranteed benefit policies” under ERISA § 401(b)(2), 29 U.S.C. § 1101(b)(2), and therefore are not “plan assets” for the purpose of triggering fiduciary responsibility. [See Def. Memo. at 2, 11-13 (citing ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A)).] Defendants also argue that Plaintiffs' allegations relating to non-fiduciary liability should be dismissed because they do not seek appropriate equitable relief. See Id. at 25.

         Plaintiffs counter that pursuant to John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 510 U.S. 86 (1993) (“Harris Trust”), the GIA are not guaranteed benefit policies. [See Pl. Opp. at 10.] Plaintiffs claim that because GIA contributions accumulate interest at variable rates of return, and may be terminated at Defendant's discretion, the GIA do not provide a benefit “the amount of which is guaranteed.” Id. at 10-12. Plaintiffs also argue that Defendant exercises discretion over Plan assets, and that the GIF contract's terms are “so onerous that they effectively preclude Plans and participants from rejecting the Crediting Rate.” Id. at 24-27.

         III. Standard of Review

         “‘To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'” Sarmiento v. United States, 678 F.3d 147 (2d Cir. 2012) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). While Federal Rule of Civil Procedure 8 does not require detailed factual allegations, “[a] pleading that offers ‘labels and conclusions' or ‘formulaic recitation of the elements of a cause of action will not do.' Nor does a complaint suffice if it tenders ‘naked assertion[s]' devoid of ‘further factual enhancement.'” Iqbal, 556 U.S. at 678 (citations and internal quotations omitted). “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of ‘entitlement to relief.'” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (internal citations omitted).

         In considering a motion to dismiss for failure to state a claim, the Court should follow a “two-pronged approach” to evaluate the sufficiency of the complaint. Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010). “A court ‘can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.'” Id. (quoting Iqbal, 556 U.S. at 679). “At the second step, a court should determine whether the ‘well-pleaded factual allegations, ' assumed to be true, ‘plausibly give rise to an entitlement to relief.'” Id. “The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (internal quotations omitted).

         In general, the Court's review on a motion to dismiss pursuant to Rule 12(b)(6) “is limited to the facts as asserted within the four corners of the complaint, the documents attached to the complaint as exhibits, and any documents incorporated in the complaint by reference.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). The Court may also consider documents of which the Plaintiffs had knowledge and relied upon in bringing suit, Brass v. American Film Technologies, Inc., 987 F.2d 142, 150 (2d Cir. 1993), so long as these documents are “integral” to the complaint and the record is clear that no dispute exists regarding the documents' authenticity or accuracy. Faulkner v. Beer, 463 F.3d 130, 133-35 (2d Cir. 2006). While Plaintiffs did not attach the Plans' annuity contracts to the Complaint, the terms of these contracts' Guaranteed Income Fund Investment ...


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