By: Ryan Tikker
2022 has seen an increase in putative class actions brought under the Employee Retirement Income Security Act (ERISA) (29 U.S.C. §§ 1109 and 1132) against plan fiduciaries. Plaintiffs typically allege that plan fiduciaries breached the duties that ERISA imposes of employee retirement plans, namely, that the fiduciaries breached their duties of loyalty and prudence by including subpar investment options in employee 401(k) plans. These suits are seemingly driven by Monday-morning quarterbacking, where disillusioned plan participants with the benefit of hindsight contend that investment decisions were imprudent. In fact, since 2019, over 200 lawsuits challenging retirement plan fees have been filed against employers in every industry.1
A 401(k) fee case involving such a dispute, Matney v. Barrick Gold of N. Am., Inc., 2022 WL 1186532 (D.Ut. Apr. 21, 2022), and the corresponding appeal filed to the Tenth Circuit Court of Appeals, is garnering significant attention from the U.S. Chamber of Commerce and several other business groups. The Chamber of Commerce, the American Benefits Counsel, the ERISA Industry Committee, and the National Mining Association recently filed an amicus brief in November 2022 urging the Tenth Circuit Court of Appeals to affirm the district court’s decision to dismiss the ERISA lawsuit against Barrick Gold of North America, Inc.
The Matney Decision
The plaintiffs in Matney alleged that the plan fiduciaries violated ERISA when it failed to monitor, investigate, and ensure plan participants paid reasonable investment management fees and recordkeeping fees during a period of time. The plaintiffs alleged that each plan participant’s retirement assets covered expenses incurred by the plan, including individual investment fund management fees and recordkeeping fees, which were allegedly excessive, costing the proposed class millions of dollars in direct losses and lost investment opportunities. In support of their claims, the plaintiffs provided example of fees (measured as expense ratios) charged by a select group of funds in the plan, compared to fees charged by other funds in the marketplace. Id. at *5.
In April 2022, U.S. District Judge Tena Campbell dismissed the suit, finding that the plaintiff participants had failed to state a claim. Judge Campbell found that the plaintiffs made “apples to oranges” comparisons that did not plausibly infer a flawed monitoring decision making process.” Id. at *10. The court ultimately found that ERISA does not require plan fiduciaries to offer a particular mix of investment options, whether that be ones that favor institutional over retail share classes, ones that favor collective investment trusts (CITs) to mutual funds, or ones that choose passively-managed over actively-managed investments. Id.
As to the plaintiff participants’ concerns over allegedly improper recordkeeping fee arrangement with Fidelity, Judge Campbell dismissed this claim as well, finding that the court could not infer that the process was flawed, or that a prudent fiduciary in the same circumstances would have acted differently.
Finally, Judge Campbell found that in the context of the participants’ allegations of violations of ERISA’s duty of loyalty, they did not allege facts creating a reasonable inference that the plan fiduciaries were disloyal to the plan participants. On the contrary, Judge Campbell concluded that their allegations of disloyalty were conclusions of law or altogether conclusory and unsupported statements. Id. at *14.
The Matney Amicus
The Amicus Brief filed in support of the Defendants-Appellees noted that in many ERISA fee cases like the plaintiff participants in Matney, the complaint contains no allegations about the fiduciaries’ decision-making process, which is a key element in an ERISA fiduciary-breach claim Instead, complaints including the one in Matney typically contain allegations with the benefit of 20/20 hindsight that plan fiduciaries failed to select the cheapest or best-performing funds, or the cheapest recordkeeping option, often using inapt comparisons to further the point. Then, the plaintiffs ask the court to make a logical leap from the circumstantial allegations that the plan’s fiduciaries must have failed to prudently manage and monitor the plan’s investment line-up.
The Amicus Brief further averred that allowing suits to proceed like the 401(k) fee dispute case in Matney risks having the effect of severely harming employees’ retirement savings. Indeed, failing to dismiss meritless cases at the pleading stage would invite costly discovery and pressure plan sponsors into a narrow range of options available to participants, like passively-managed, low cost index funds.
We are closely watching the pending Matney appeal in front of the Tenth Circuit. Following the United States Supreme Court’s decision in Hughes v. Northwestern Univ., 142 S.Ct. 737 (2022), we have been monitoring how courts have interpreted this ruling and its impact on the 401(k) excessive fee space. The Hughes case requires a context-specific inquiry to assess the fiduciaries’ duties to monitor all plan investments and remove any imprudent ones and ultimately reaffirmed the need for courts to evaluate the plausibility pleading requirement established by Rule 8(a), Twombly, and Iqbal. It remains to be seen how other Circuit Courts interpret Hughes and how they will respond to this recent flurry of 401(k) fee cases.
1 See Jacklyn Willie, Suits Over 401(k) Fees Nab $150 Million in Accords Big and Small, Bloomberg Law (Aug. 23, 2022), https://bit.ly/3Uel7y5.