Labor & Employment Law Daily Wrap Up, PENSION AND BENEFIT PLANS—2d Cir.: Former employees lacked standing to assert claims 401(k) plan mismanaged retirement savings, (Aug 19, 2025)

By Ronald Miller, J.D.

The employees lacked both Article III and class standing to assert several of their claims because they did not plead they suffered any individual harm arising from the defendants’ allegedly imprudent investment options in which they did not personally invest or any plan-wide harm affecting their individual accounts.

A district court correctly dismissed on Article III standing grounds the claims of participants in a 401(k) plan alleging that the plan sponsor and administrator mismanaged participants’ retirement savings by failing to follow a prudent process for administering the plan and by failing to act in the exclusive interest of plan participants, ruled the Second Circuit. The appeals court agreed with the district court that the employees did not allege that they suffered any financial loss affecting their individual retirement accounts arising from the defendants’ allegedly imprudent share class selection and failure to investigate the availability of alternative funds, or from the defendants’ alleged breach of fiduciary duty in providing indirect compensation to the plan’s recordkeeper (Collins v. Northeast Grocery, Inc., No. 24-2339-cv (2d Cir. Aug. 18, 2025)).

401(k) pension plan. The plaintiffs are four former employees of a grocery store chain who participated in a 401(k) employee pension plan covered by ERISA. They asserted that the plan’s fiduciaries mismanaged the plan and violated ERISA. They brought a class action on behalf of themselves and a proposed class of participants, seeking disgorgement and injunctive relief, including the replacement of some of the plan’s fiduciaries.

The defendants in this action are fiduciaries of the plan—the plan’s sponsor, the plan’s administrator, and the plan’s administrative committee.

Participants in such a plan “maintain individual investment accounts,” for which the accounts’ value “is determined by the market performance of employee and employer contributions, less expenses.” The plan’s administrators select for plan participants a menu of investment options, from which the participants themselves choose where to invest their retirement contributions.

Imprudent investments. Here, the plan provided participants with a menu of 28 pre-selected investment options. The employees sought relief for the defendants’ allegedly imprudent and disloyal management of the Plan under 29 U.S.C. §§ 1132(a)(2) and (a)(3). They alleged that the defendants failed to establish a prudent process to select and monitor the plan’s investments, performance, and fees by failing to investigate the availability of lower-cost, equally or better performing share classes and alternative funds; monitor the performance of fund managers; monitor and control the performance and related trust costs of the plan’s investment adviser; and monitor and control recordkeeper fees. They also asserted that the defendants failed to act in the exclusive interest of plan participants by seeking “open-ended investment company revenue-sharing dollars” for their own benefit.

Lower court rulings. The district court granted the defendants’ motion to dismiss the complaint. It held that the employees failed to establish that they had Article III standing to bring claims alleging fiduciary breaches arising from the defendants’ share class selection, failure to investigate the availability of alternative funds, and revenue sharing. In particular, the court found that the employees had not alleged any constitutionally cognizable injury in connection with the specific investment options criticized in the complaint in which they did not invest.

By contrast, the district court held that the employees had standing to allege fiduciary breaches arising from the defendants’ failure to monitor the performance of the portfolio managers of three funds, the plan’s investment manager’s performance and costs, and the plan’s direct compensation of its recordkeeper. The district court dismissed the claims for which the employees had standing for failure to state a claim.

Standing. There was no dispute that ERISA gave the employees a cause of action to sue the defendants. To achieve its goal of “protect[ing]... individual pension rights,” ERISA imposes “standards of conduct, responsibility, and obligation[s]” on plan fiduciaries. ERISA creates a private right of action for plan participants such as the employees to sue for relief for an alleged ERISA violation. However, the fact that the employees alleged various ERISA violations did not necessarily provide constitutional standing, or class standing.

Individual harm. Here, the employees lacked both Article III and class standing to assert several of their claims because they did not plead that they suffered any individual harm arising from the defendants’ allegedly imprudent and/or disloyal management of investment options in which they did not personally invest or any plan-wide harm affecting their individual accounts. Similarly, they failed to plead any individual harm arising from the defendants’ compensation of the plan’s recordkeeper via revenue sharing fees for funds in which the employees did not personally invest.

Individual standing. To establish that they had the requisite “personal stake” in each of their claims, the employees had to allege that they suffered an injury that: (1) is “concrete, particularized, and actual or imminent”; (2) was likely caused by the acts or omissions of the defendant; and (3) will likely be redressed by the requested judicial relief.

Second Circuit precedent demonstrates that defined contribution plan participants seeking to obtain monetary relief for alleged ERISA violations must allege a non-speculative financial loss actually affecting, or imminently threatening to affect, their individual retirement accounts.

For some of their claims, the employees satisfactorily alleged that all plan participants were harmed by the defendants’ purported fiduciary breaches or that specific employees were harmed in a manner that also injured other plan participants. For others, however, the employees failed to allege that their benefits were or would imminently be affected by the performance of, or by fees associated with, investment options in which they did not personally invest. Further, they failed to allege individual harm from the allegedly flawed processes resulting in the retention of the criticized investment options or the retention of committee members who retained the criticized funds.

Accordingly, the district court correctly dismissed on Article III standing grounds the employees’ claims for (1) breach of the duty of prudence based on a failure to investigate the availability of alternative share classes; (2) breach of the duty of prudence based on a failure to investigate the availability of alternative funds; (3) breach of the duty of prudence based on the defendants’ failure to monitor indirect recordkeeper costs; and (4) breach of the duty of loyalty regarding funds with revenue sharing.

Failure to investigate alternative share classes. The existence of less expensive and equal and/or better performing share classes for a particular fund may support an inference that a fiduciary acted in violation of ERISA by imprudently selecting and/or failing to properly monitor and remove the more expensive share class. However, the employees did not allege that they suffered any individual injury arising from the defendants’ failure to investigate the availability of lower-cost and equally or better performing share classes. Their complaint did not allege that any employee invested in any of these imprudent funds.

Failure to investigate lower cost, better performing funds. Next, the complaint asserted that the committee imprudently failed to investigate the availability of lower cost, better performing alternative funds. Again, because the employees did not allege any personal injury arising from the committee’s allegedly imprudent retention of the two lower-performing, higher-cost funds Article III standing was not conferred.

Failure to monitor recordkeeping fees. The complaint further alleged that the committee acted imprudently by permitting the plan’s recordkeeper to receive excessive compensation through funds with a revenue sharing scheme that indirectly compensated it. While allegations of excessive fees in relation to the services rendered may raise an inference of imprudence, again, the employees’ statutory standing did not establish that they also had Article III standing to press their revenue sharing-based imprudence claim.

Breach of duty of loyalty. The complaint also alleged that the committee breached its duty of loyalty by including certain excessively costly funds with revenue sharing that benefited the committee at the expense of plan participants. Because the employees did not allege that they invested in any specific high-cost fund with revenue sharing, they did not allege any injury to themselves arising from the allegedly disloyally selected investment options.

Class standing. The employees also did not plausibly allege that they had “class standing” to proceed with the claims for which they lacked Article III standing. To establish “class standing,” a showing of individual injury is required.

Members of a defined contribution plan who chose certain investment options may in certain circumstances bring claims on behalf of other participants that chose entirely different investment options. However, the employees may only challenge, on behalf of the class, the defendants’ “general practices which affect all participants.”

The class standing test permits plaintiffs to assert claims on behalf of absent class members only if they plausibly alleged “(1) that [they] personally ha[ve] suffered some actual injury as a result of the [purportedly] illegal conduct of the defendant, and (2) that such conduct implicates the same set of concerns as the conduct alleged to have caused injury to other members of the putative class by the same defendants.”

Here, the employees failed the first step of the class standing test because they did not plausibly plead that they suffered any individual injury in connection with the identified claims.

Accordingly, the appeals court affirmed in part and vacated in part the judgment of the district court and remanded for further proceedings.

The case is No. 24-2339-cv.

Judge: Per curiam

Attorneys: Paul J. Sharman (The Sharman Law Firm) for Gail Collins, Dean DeVito, Michael Lamoureux, and Scott Lobdell. Erika N. D. Stanat (Harter Secrest & Emery) for Northeast Grocery, Inc., and The Administrative Committee of the Northeast Grocery, Inc. 401(k) Savings.

Companies: Northeast Grocery, Inc.; The Administrative Committee of the Northeast Grocery, Inc. 401(k) Savings

Cases: PensionBenefitPlans ClassActions Procedure ConnecticutNews NewYorkNews VermontNews