CHICAGO (CN) – A federal judge ordered Kraft Foods and the employees who sued it in an ERISA class action to “re-evaluate their settlement positions … and to exhaust all efforts to settle this case.”
Lead plaintiff Gerald George sued Kraft Foods Global, claiming it had mismanaged its employees’ defined contribution plan under ERISA.
In 1999, the plan’s designated Investment Committee, a fiduciary with the power to establish guidelines and monitor the performance of investments, considered using index management within the equity segments of the benefit plan. Kraft eventually converted various sub-funds of the actively managed portion of the plan to the S&P Index.
In 2008, employees and former employees sued, claiming that Kraft and its investment arms had violated their fiduciary duties under ERISA.
When Kraft decided to invest in two indexed funds, “both were expected to underperform relative to comparable investment alternatives,” according to the complaint as recounted in the opinion.
The workers said that Kraft also concealed decision-making information and failed to properly monitor the funds. The class claims this mismanagement “caused plaintiffs’ plans to suffer millions of dollars in losses from underperformance and high investment management fees.”
Having pruned the complaint significantly in past rulings, U.S. District Judge Ruben Castillo rejected the plaintiffs’ motion for summary judgment on whether Kraft had breached its duties by allowing poor performing, overly expensive funds to remain in the ERISA plans.
“ERISA’s fiduciary duty was meant to hold plan administrators to a duty of loyalty akin to that of a common-law trustee,” Castillo wrote, citing 7th Circuit precedent. But after recounting of plaintiffs’ allegations, Castillo dismissed them.
“Nothing they have presented in support of their motion establishes that the retention of the funds in the plan after 1999 was imprudent as a matter of law,” Castillo wrote. “Given, inter alia, the differences between defined contribution plans and defined benefits plans, a reasonable jury could find that a businessperson with the interests of the beneficiaries at heart could have acted prudently in retaining the funds.”
The 7th Circuit revivedthe class action in April.
Kraft sought summary judgment in July, unsuccessfully.
Judge Castillo ordered Kraft and the “to re-evaluate their settlement positions in light of this opinion and to exhaust all efforts to settle this case” before trial, which has been set for Aug. 9.