In Matousek v. MidAmerican Energy Co., 2022 WL 6880771, __ F.4th __ (8th Cir. 2022), the Eighth Circuit joined the Sixth and Seventh Circuits in affirming dismissal of ERISA breach of fiduciary duty claims alleging that the plan fiduciaries allowed the plan to pay excessive recordkeeping and administrative fees and offered imprudent investment options.

Background

Plaintiffs, participants in the MidAmerican 401(k) plan, made a now typical series of allegations against their plan fiduciaries: recordkeeping and administrative expenses were excessive, some investment options were too costly and some investments performed poorly.  In furtherance of their claims and in an effort to support an inference of imprudence, plaintiffs offered various comparators, such as other plans’ recordkeeping arrangements and investment options.  They claimed that cheaper and better-performing comparators showed that defendants must have acted imprudently when managing the plan.

The Court’s Decision

In affirming the dismissal of all claims, the Court found that plaintiffs failed to plead “meaningful benchmarks” to support an inference of breach of ERISA’s duty of prudence.  Bolstering its analysis of the requirement for valid comparators, the court cited a recent Seventh Circuit decision upholding the full dismissal of similar claims, which we wrote about here.

Regarding the plan’s recordkeeping expenses, the Court found that plaintiffs’ comparisons created a mismatch.  The plan, in addition to offering a basic suite of recordkeeping services, received and paid for additional services such as individualized investment advice for participants; commissions for individual trades; and trading, loan-origination, returned-payment, and check-service fees.  By contrast, plaintiffs’ comparators included industry averages for recordkeeping services that reflected only basic recordkeeping services.  In other instances, the Court could not ascertain from the complaint what services plaintiffs’ comparators received.  Therefore, the Court was unable to conclude that the services the plan received were the same as the services that plaintiffs’ comparators received.  Accordingly, the court concluded that plaintiffs failed to provide meaningful benchmarks for recordkeeping fees and did not create a plausible inference that the fiduciaries breached their duties.

Regarding the investment options challenged for being too expensive, the Court similarly found that plaintiffs did not provide meaningful benchmarks for comparison.  Plaintiffs identified “peer groups” of funds with lower costs than the plan’s challenged investments, but did not explain what types of funds were in the peer groups, what criteria were used to sort them, and whether they are similar to the plan’s investment options in terms of securities held, investment strategy and risk profile.

Similarly, regarding allegations that some funds performed poorly, the Court found that the benchmarks offered to prove the point were not meaningful because they pursued strategies explicitly at odds with the strategies of the funds challenged.  For example, while a plan investment option pursued a “value” strategy, plaintiffs’ comparator pursued a “growth” strategy.  Due to the contrasting investment styles, the investments had different aims, different risks, and different potential rewards.  Therefore, the Court concluded that plaintiffs’ attempted comparison was neither sound nor meaningful.

Due to plaintiffs’ failure to plead facts supporting the conclusion that their comparators were meaningful benchmarks, the Court held that the complaint did not state create a plausible inference that the plan fiduciaries breached their duties.  The Court also agreed with the defendants that the district court correctly dismissed the complaint with prejudice where plaintiffs failed to affirmatively file a motion to amend the complaint.

Proskauer’s Perspective

The decision is notable because it is yet another indication that, notwithstanding the Supreme Court’s failure to provide helpful guidance in Northwestern v. Hughes, the circuit courts are prepared to lead the way in setting the standard for what type of fee and investment claims can survive dismissal.  And, at least for now, the trend at the circuit court level appears to be very helpful to plan sponsors and fiduciaries seeking to reduce the risks and costs associated with this wave of litigation.

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Photo of Myron Rumeld Myron Rumeld

Myron D. Rumeld has over thirty-five years of experience handling all aspects of ERISA litigation at both the trial and appellate level. His broad experience includes numerous representations of 401(k) plan fiduciaries defending class action employer stock and excessive fee claims, and representations…

Myron D. Rumeld has over thirty-five years of experience handling all aspects of ERISA litigation at both the trial and appellate level. His broad experience includes numerous representations of 401(k) plan fiduciaries defending class action employer stock and excessive fee claims, and representations of large multiemployer pension and health fund trustees in the defense of a large assortment of fiduciary breach lawsuits. He has defended class action suits against Charles Schwab, Barnabas Health, Inc., Neuberger Berman, and the American Federation of Musicians Pension Fund, among many other clients; and he has tried cases for The Renco Group and Foot Locker, Inc., among others.

Chambers USA cites Myron as a “brilliant” and “sensational litigator,” who is “sharp, articulate, clever, and deeply committed to the work he does.” Similarly, The Legal 500 United States has called Myron an “outstanding ERISA lawyer.”

Myron is presently co-chair of Proskauer’s ERISA Litigation Group.  He previously served as co-chair of Proskauer’s nationally renowned Employee Benefits & Executive Compensation Group. He also served as the past co-chairman of the Board of Editors for the American Bar Association publication, Employee Benefits Law (BBNA).

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.

Photo of Tulio Chirinos Tulio Chirinos

Tulio D. Chirinos is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group and the Workplace Investigations Practice Group.

Tulio works on a wide variety of ERISA and non-ERISA plan litigation matters…

Tulio D. Chirinos is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group and the Workplace Investigations Practice Group.

Tulio works on a wide variety of ERISA and non-ERISA plan litigation matters, including fee and investment litigation cases, breach of fiduciary duty claims and benefits claims. He also represents management in workplace investigations and litigation of employment-related matters, including claims of unlawful discrimination, harassment and retaliation. Tulio focuses his pro bono efforts on immigration matters where he has represented several juveniles from Central America in their asylum petitions and special immigrant juvenile status (SIJ) petitions.

Tulio is the author of several ERISA-related articles, including several focusing on ERISA fee and investment litigation that appeared in the Benefits Law Journal (2016-2023), Bloomberg BNA, and Law360. He is a contributing author to Chapter 10 (Fiduciary Responsibility) of BNA’s Employee Benefits Law treatise. He is also the co-editor and a frequent contributor to Proskauer’s Employee Benefits & Executive Compensation Blog.

Prior to joining Proskauer, Tulio clerked for the Federal Public Defender’s office for the Middle District of Florida. Tulio is a retired Lieutenant Colonel in the Army National Guard and served three tours of duty in Iraq, Kuwait, and Jordan.

Photo of Daniel Wesson Daniel Wesson

Daniel Wesson is an associate in the Labor Department and a member of the ERISA Litigation Group.