Plaintiff Joanna P. Mattson filed a legal action, both individually and on behalf of the Milliman, Inc. Profit Sharing and Retirement Plan, along with a class of participants and beneficiaries affected by the alleged misconduct of the Milliman Defendants. The lawsuit is based on a claim of breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA). The named Defendants include Milliman, Inc., the Board of Directors of Milliman, Inc., “the Investment Committee” responsible for selecting investment options for the Plan and its members, as well as “the Administrative Committee” in charge of Plan administration and its members (collectively referred to as “Milliman” or “Milliman Defendants”).
The Plaintiff asserted that three Wealth Preservation Strategy Funds (the “WPS Funds” or “Funds”) should not have been used in the Milliman, Inc. Profit Sharing and Retirement Plan (the “Plan”). These funds, managed by Unified Trust Company (“Unified”), included the Milliman Managed Risk Strategy (MMRS), an equity risk management approach. Unified, as the investment manager, opted to invest the WPS Funds’ underlying assets in exchange-traded funds (ETFs) representing different segments of equity markets (i.e., small-cap, mid-cap and large-cap, international and emerging market) and various fixed-income products (i.e., bonds and government obligations). Subsequently, Unified engaged Financial Risk Manager (FRM) as a sub-advisor to implement MMRS, which aimed to manage volatility and preserve capital. MMRS comprised two distinct components: a volatility management component using futures contracts to adjust exposure to underlying equity investments and moderate volatility, and a capital protection component utilizing futures contracts to replicate a five-year rolling put option, creating a cash cushion to offset significant market losses.
To conclude, Plaintiff Joanna Mattson only worked at Milliman, Inc. (“Milliman”) from 2002 to 2004. She enrolled in the Milliman, Inc. Profit Sharing and Retirement Plan (the “Plan”), a 401(k) plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). Despite having
not worked for Milliman for nearly two decades, she commenced this action claiming that three Wealth Preservation Strategy Funds (“WPS Funds” or “Funds”) should have been removed from the Plan before 2016.
The Defendants sought to exclude the opinions and testimony provided by the Plaintiff’s experts, Horacio A. Valeiras and Arthur B. Laffer.
Finance Expert Witness
Horacio A. Valeiras is the CEO and Co-Founder of Frontier Global Partners LLC, an entity specializing in managing private funds and separate accounts, including multi-asset and retirement accounts. As an SEC-registered investment adviser, he holds a Master of Business Administration degree with a focus on Finance from the University of California, Berkeley, and a Master’s Degree in Chemical Engineering from the Massachusetts Institute of Technology. With a wealth of experience spanning 31 years, Valeiras has been actively engaged in the management of large investment portfolios for institutional money managers. His expertise includes the evaluation and selection of investment products for multi-asset accounts.
Economics Expert Witness
Arthur B. Laffer holds the position of Chairman and Chief Economist at Laffer Associates, an economic research and consulting firm he founded. Graduating from Yale University in 1963, he furthered his education by obtaining a Master of Business Administration and a Ph.D. in Economics from Stanford University. Laffer’s expertise in fiduciary responsibility stems from his advisory roles for governments, extensive service on various boards of trustees, boards of directors for both private and publicly traded companies, and his leadership as Chairman and Chief Economist of Laffer Investments.
Discussion by the Court
The Defendants contested the reliability of Horacio Valeiras’ damages opinions and anticipated testimony on two grounds.
The Defendants argued that Valeiras’ damages calculations and testimony regarding the Plan were not reliable, asserting that his damage models were not tailored to the only component of MMRS that he challenged, the capital protection component. They maintained that damages should be tailored to the accumulation phase of retirement savings. In response, the Plaintiff argued that Valeiras had incorporated both the capital protection and volatility management components into his calculations, as the Defendants had used both components of the overall overlay of MMRS simultaneously. The Plaintiff further contended that Valeiras’ damages calculations could be considered reliable, as he integrated the overlay into his calculations in a manner consistent with how the Defendants might have employed it in practice. Despite Valeiras expressing concerns about the volatility management component, the Plaintiff asserted that his testimony was not necessarily unreliable, as he contended that the overlay as a whole adversely affected the Plan. Valeiras stated that the overlay’s attempts to manage volatility were costly and ineffective. The Plaintiffs argued that Valeiras’ testimony remained reliable, as they contended that his inclusion of the volatility management component of the overlay in his damages calculations did not necessarily undermine its reliability.
The Defendants contested Valeiras’ inclusion of the Funds’ investors who were in the draw down phase in his damages calculations. In response, the Plaintiffs argued that Valeiras’ opinion was relevant as ERISA damages encompassed all damages incurred by the Plan. The Court determined that the “returns of the Plan as a whole” were a reasonable approximation of losses to the plan, asserting that the Defendants’ challenges to Valeiras’ testimony pertained to weight and not admissibility. The Court concluded that the amount of damages, if any, would be best determined after considering the evidence at trial.
The Defendants’ motion aimed to exclude the opinions and testimony of Arthur Laffer, focusing on four specific issues.
The Defendants sought to exclude Laffer’s testimony regarding the removal of the three Wealth Preservation Strategy Funds from the Milliman, Inc. Profit Sharing and Retirement Plan before January 2016, arguing that the performance history was not sufficiently long for him to opine on such a decision. The evaluation of ERISA breach of fiduciary duty claims is fact intensive. Despite other Courts rejecting ERISA claims based on only three years of performance data, the Court stated that this challenge addressed the weight of Laffer’s testimony rather than its admissibility, as the factual nature of the inquiry warranted consideration of the evidence at trial.
The Defendants sought to exclude Laffer’s testimony on any conduct predating January 2016, including the alleged “seeding” of the Funds with Plan money in 2012, citing ERISA’s statute of repose which barred it. The Plaintiff argued that such testimony should be admissible, contending that the Defendants’ conduct constituted a singular, ongoing breach. According to 29 U.S.C. § 1113(1), any ERISA action brought more than six years after “the date of the last action which constituted a part of the breach or violation” is barred. The Court acknowledged that the duty to exercise prudence in selecting investments at the outset of the Plan exists “separate and apart from” from the duty to prudently monitor Plan investments and remove underperforming investments, as established in Tibble v. Edison Int’l, 575 U.S. 523, 529, 135 S. Ct. 1823, 191 L. Ed. 2d 795 (2015). While recognizing that the selection and retention are not a continuous breach, the Court decided not to exclude Laffer’s testimony about the Defendants’ selection of the Funds. Defendants’ selection of the Funds, regardless of whether such selection was prudent or not, is distinct from the Plan’s retention of the Funds. ERISA fiduciaries were obligated to continually monitor their plan’s investments, with the specific requirements dependent on various factors such as the plan’s nature, investments, and the plan sponsor. In the present case, the process employed by the Plan in selecting the Funds could shed light on whether the subsequent decision to retain the Funds was prudent. Consequently, Laffer’s testimony regarding the initial investment in the Funds was deemed relevant, and the Plaintiff was permitted to present it to support the claim that the Defendants acted imprudently in retaining the Funds.
The Defendants argued that Laffer’s opinions on the Plan’s investment policy statement (IPS) were legally unsound. Laffer was presented as an expert to assess whether the Defendants demonstrated an appropriate level of prudence and fiduciary responsibility toward managing the Plan and its participants. The Court acknowledged that Laffer’s testimony regarding the Plan’s IPS could be beneficial in assessing whether the Defendants fulfilled their fiduciary duties. Furthermore, since the case would be a bench trial, the Court reasoned that there was no prejudice risk as there was no jury to potentially give undue weight to Laffer’s testimony.
The Defendants contended that Laffer’s remaining opinions lacked proper support and were characterized as mere ipse dixit. They argued that Daubert and the Federal Rules of Evidence do not mandate a district court to admit opinion evidence solely supported by the expert’s assertion without a connection to existing data.The Court, exercising its discretion in assessing the analytical gap between data and opinions, noted that for non-scientific testimony, reliability rested heavily on the expert’s knowledge and experience rather than a specific methodology or theory. Given Laffer’s substantial expertise in evaluating investments and advising retirement plans and their fiduciaries, as well as other trusts, the Court deemed his knowledge and experience appropriate to provide a sufficiently reliable basis for his expert testimony. The Defendants argued that Laffer’s opinions lacked reliability as he did not cite specific surveys, studies, or documentation supporting his views. The Court deemed this argument as pertaining to the weight of his testimony rather than its admissibility. Similarly, the Defendants’ claim that Laffer’s experience with other types of retirement plans and fiduciary investors was insufficient went to the weight of his testimony. As Laffer based his opinions on extensive experience in the investment industry and as a fiduciary advisor, the Court concluded that these opinions could not be excluded before trial.
Held
The Court denied both of the Defendants’ motions to exclude the opinions and testimony of Plaintiffs’ experts Horacio A. Valeiras and Arthur B. Laffer.
Key Takeaways
In the legal proceedings involving Plaintiff Joanna P. Mattson and the Milliman Defendants, the Court addressed key issues related to the expert testimonies of Horacio A. Valeiras and Arthur B. Laffer. The Plaintiff’s claims were centered around the contention that three Wealth Preservation Strategy Funds should have been removed from the Milliman, Inc. Profit Sharing and Retirement Plan before January 2016. The Court considered challenges to the reliability of Valeiras’ damages opinions, with the Defendants arguing that his calculations did not address the capital protection component of MMRS adequately. The Court ruled that these challenges pertained to the weight of the testimony, not its admissibility. Similarly, the Court addressed Laffer’s opinions on the Plan’s investment policy statement (IPS) and other issues, ruling that the objections raised by the Defendants went to the weight of his testimony rather than its admissibility. The Court highlighted Laffer’s extensive experience and knowledge in the investment industry as a basis for deeming his expert testimony sufficiently reliable. Ultimately, the Court denied the Defendants’ motions to exclude the expert testimonies, allowing them to be presented at trial.
Case Details
| Case Caption | Mattson v. Milliman, Inc. |
| Docket Number | 2:22cv37 |
| Court | United States District Court, Washington Western |
| Citation | 2024 U.S. Dist. LEXIS 16413 |
| Order Date | January 30, 2024 |
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