A federal district court in California granted defendants’ motion to dismiss claims asserted by Chevron 401(k) plan participants that the plan fiduciaries breached their ERISA fiduciary duties by selecting underperforming investment options and permitting the plan to pay excessive fees.

As a preliminary matter, the court dismissed plaintiffs’ duty of loyalty claims because they failed to provide any authority in support of the proposition that causing an ERISA plan to incur unreasonable expenses is a breach of the duty of loyalty, distinct from a breach of the duty of prudence.

Next, the court rejected the four prudence claims advanced by Plaintiffs.  First, the court rejected plaintiffs’ argument that defendants imprudently selected a money market fund instead of a stable value fund (SVF).  Plaintiffs argued that the SVF could have provided a higher return over the past six years, and “strongly suggest[ed]” that defined contribution plans are required to offer SVFs as a capital preservation option.  The court concluded that it was prudent to offer a money market fund among an array of mainstream investment options, and plaintiffs failed to allege that defendants did not undertake a prudent evaluation process.  The court also characterized plaintiffs’ focus on the recent performance of money market funds and SVFs as an improper hindsight challenge of defendants’ investment decisions.

Second, the court rejected plaintiffs’ argument that defendants imprudently offered  investment options that charged unreasonable management fees relative to available alternatives.  Among other things, plaintiffs alleged that it was imprudent to select retail-class shares of mutual funds instead of institutional-class shares, and mutual funds instead of separate accounts or collective trusts.  The court explained that fiduciaries are permitted to value investment features other than price (e.g., potential for higher return, liquidity, lower financial risk, more services offered, or greater management flexibility) and that plans are not obligated to offer institutional-class shares instead of retail-class shares.  The court also stated that where a plan offers a diversified investment lineup, the fact that other funds may offer lower expense ratios is “not relevant” and, in any event, the range of investments and fees offered by the plan here was reasonable.

Third, the court rejected plaintiffs’ argument that defendants caused the plan to pay excessive recordkeeping fees to Vanguard by operating under an asset-based revenue sharing arrangement and that defendants failed to monitor the increase in fees when the plan’s assets grew.  The court found this to be nothing more than a conclusory assertion that fees under a revenue-sharing arrangement are necessarily excessive and unreasonable.  Furthermore, defendants ultimately renegotiated the fee arrangement with Vanguard to a per-participant basis, which demonstrated that defendants had monitored the fees.

Fourth, the court rejected plaintiffs’ argument that defendants acted imprudently by offering the ARTVX Fund until 2014 despite its excessive fees and underperformance.  In so ruling, the court stated that “poor performance, standing alone, is not sufficient to create a reasonable inference that plan administrators failed to conduct an adequate investigation,” and plaintiffs’ allegations actually demonstrated that defendants were monitoring the investment, since they removed it in 2014.

The case is White v. Chevron Corp., 2016 WL 4502808 (N.D. Cal. Aug. 29, 2016).

Photo of Joseph Clark Joseph Clark

Joseph E. Clark is a senior counsel in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group where he focuses on complex employee benefits litigation.

Joe represents a diverse range of clients from the time…

Joseph E. Clark is a senior counsel in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group where he focuses on complex employee benefits litigation.

Joe represents a diverse range of clients from the time a claim is asserted through trial or arbitration, whether it is defending plan fiduciaries against class action claims of fiduciary breach or prohibited transactions or in connection with government investigations, or defending employers against multiemployer pension plan claims for withdrawal liability.  These clients include financial service providers, investment managers, Fortune 500 corporations, and benefit plan committees.

Outside of the context of litigation, Joe also advises fiduciary clients regarding their fiduciary responsibilities and employers regarding various withdrawal liability issues.

A co-editor of Proskauer’s Employee Benefits & Executive Compensation blog, Joe has authored pieces on employee stock ownership plans, excessive fee claims, fiduciary breach, investigation and determination of benefits claims, and best practices for plan drafting. He has also published several articles regarding these issues in BNA Insights.