LinkedIn Settles ERISA Lawsuit for $6.75 Million

Former and current LinkedIn employees won a $6.75 million settlement in a class-action lawsuit over the company’s investment options in its 401(k) plan.

The U.S. District Court for the Northern District of California granted the plaintiffs’ motion for preliminary approval of the settlement on July 13. The court granted final approval on Dec. 13.

The plaintiffs alleged a breach of fiduciary duties under the federal Employee Retirement Income Security Act of 1974 (ERISA). The lawsuit said LinkedIn’s plan acted imprudently by including certain target date funds when those funds underperformed, were riskier and charged higher fees compared to others. The company argued that the plaintiffs didn’t have standing to bring the claim because they failed to show they suffered material harm from investing in the funds.

“We work to provide our employees with access to opportunities to build the future they want, and while we don't agree with the claims made in this matter, we decided to settle,” said LinkedIn spokesperson Brionna Ruff.

LinkedIn, a Sunnyvale, Calif.-based social media platform, has about 19,400 employees worldwide. The settlement pertains to more than 17,000 people who participated in LinkedIn’s retirement plan from Aug. 14, 2014, to July 1, 2020.

Fiduciary Duties

Retirement plan fiduciaries must act prudently and diversify the plan's investments in order to minimize the risk of large losses and avoid conflicts of interest, according to the U.S. Department of Labor (DOL). ERISA does not specify an exact amount for permissible fees from service providers, but it does require that fees charged to the plan be reasonable, the DOL noted.

Under ERISA, plan sponsors have a continuing duty to monitor investments and to remove imprudent ones, according to a 2015 U.S. Supreme Court ruling in Tibble v. Edison International. Plan participants can file a lawsuit within six years of the alleged breach of the continuing duty.

“There’s been a flurry of these cases over the last four or five years” challenging target date funds and plan fees, said Todd Wozniak, an attorney with Holland & Knight in Atlanta. “These are just very expensive cases to defend. If you’ve got a big plan, the alleged damages can add up quick.”

Usually, employers have a committee that approves the investment options for the retirement plan. The committee can benchmark fees and gather proposals from multiple service providers.

“They need to make sure they’ve been trained and they know what they are doing,” Wozniak said. “Make sure the committee is properly filled with people who are knowledgeable and serious about what they are doing.”

To comply with ERISA, the committee should document that it considered relevant information, came to a reasonable decision and noted the reasons why it came to that decision, Wozniak said.

Originally at issue in LinkedIn’s plan were target date funds from Fidelity Management and Research Company in Boston and the AMCAP Fund from American Funds, owned by Capital Group Companies in Los Angeles. The plaintiffs later removed the allegations regarding the AMCAP Fund.

Over time, target date funds automatically change participants’ asset mix to get less risky as they age, and sometimes having that feature can be more costly than if participants adjust the asset mix on their own, Wozniak said.

For retirement plan sponsors, “I would not stay away from target date funds, but the committee needs to be mindful of the cost associated with them,” he said.