During U.S. market volatility and pandemic-related losses, retirement plan participants are increasingly turning to the courts for judicial relief from economic harms they allegedly incurred under some employer-sponsored defined contribution plans. 401(k) and 403(b) plans are a significant source of retirement savings and qualify as tax-deferred vehicles. A recent complaint, Clark v. Beth Israel Deaconess Medical Center, et al (D. Mass. 1-22-CV-10068), typifies the upward trend in ERISA fiduciary class actions. https://dockets.justia.com/docket/massachusetts/madce/1:2022cv10068/241518
The complaint alleges that BIDMC fiduciaries failed to inform plan participants of costs and risk factors and left unchecked “unreasonable expenses” paid to a service provider under a recordkeeping and administrative service agreement. In general, “prudent” fiduciaries leverage plan count, e.g., the number of participants, and quantity of investment assets, to obtain a reduced dollar-per-participant basis. But this did not occur, according to the complaint, and resulted in fees that “far exceeded the reasonable market rate.” In addition, the complaint alleges that the fiduciaries did not remove other high-cost or poorly performing investments under actively managed funds. For example, the plan offers target date retirement funds (TDFs) with asset allocations that adjust over time as a participant ages. Although fiduciaries could have selected investments from a diverse group of TDFs, including index-only funds, allegedly fiduciaries chose “actively managed” TDFs, which are riskier and more costly. Fiduciaries are obligated to monitor plan options and performance under ERISA § 404(a)(1). “[A] fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones.” Tibble v. Edison Int’l, 575 U.S. 523 (2015).
In response, BIDMC’s motion to dismiss states that plan “underperformance does not equal [fiduciary] imprudence” and that the complaint fails to establish sufficient facts to show plan fees were “excessive.” Amici curiae filed on behalf of BIDMC state that hospital fiduciaries accommodate the needs of “broad employee populations that encompass varying income levels and degrees of financial flexibility” by offering participants an array of fees, investment products of various risk tolerance levels, and potential performance value. ERISA §1104(a) requires fiduciaries to act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man [individual] acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” See also Fifth Third Bancorp v. Dudenhoeffer, 573 U. S. 409 (2014) (an employer stock case, stating that a standard practice is for plan fiduciaries to spread investment risks across multiple investments). ERISA analysis under a Rule 8(a) filing requires a careful examination of “‘the circumstances … prevailing’ at the time the fiduciary acts” and a “careful, context-sensitive scrutiny of a complaint’s allegations.” Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 at 425 (2014).
While this commentary takes no position on the scope of ERISA fiduciary duties, a robust range of investment options alone does not necessarily immunize plan fiduciaries. ERISA requires a prudent review and a decision-making process that continually monitors investments. An ERISA analysis, however, should also consider the totality of all investment performances, service providers, and fee levels, not just the ones in dispute. And, there is no one 'prudent' fund or fee that fits all participant needs. In general, participants choose to allocate retirement contributions into an array of investment options -- and not every investment option is ‘prudent’ or suitable for each participant. Department of Labor guidance could mitigate gaps in the statute and regulations. Until then, the uptick in ERISA fiduciary class actions will be timely subjected to defense motions to dismiss.
Lorianne Maria Sainsbury-Wong, Esq., CPCO, CHPC
Massachusetts Bar Association, Civil Litigation Section Council Member | Health Law Section Chairperson 2013-2016