By Jeremy Root
ERISA Plan Participant must plead meaningful benchmarks to establish a claim for breach of fiduciary duty.
Meiners vs. Wells Fargo & Co., No. 17-2397 (8th Cir., 8/3/18).
A Challenging Burden
Plaintiff John Meiners claimed that Wells Fargo entities and individuals responsible for administering the company’s ERISA plans breached their fiduciary duties. During the relevant time period, the ERISA Plan offered more than two dozen investment options, twelve of which were Wells Fargo Dow Jones Target Date Funds (“Wells Fargo TDFs”). The complaint alleged breach of fiduciary duties under ERISA by: (1) failing to remove the Wells Fargo TDFs as investment options and (2) setting the Wells Fargo TDFs as default investment options. The complaint claimed that the Wells Fargo TDFs were inordinately expensive compared to comparable Vanguard and Fidelity funds, and underperforming compared to the Vanguard Funds. After the district court granted a motion to dismiss for failure to state a claim, this appeal followed.
The Eighth Circuit affirms. ERISA plaintiffs claiming a breach of fiduciary duty have a challenging pleading burden. They generally know what investment choices a plan fiduciary made, but they know much less about how a plan fiduciary made those choices. In order to create a plausible inference that “a prudent fiduciary in like circumstances” would have made a different decision, a Plaintiff must allege a meaningful benchmark for comparison. A claim is not stated, however, by “a bare allegation that cheaper alternative investments existed in the marketplace.” The Plaintiff must provide specific allegations that establish a meaningful benchmark by which to determine that the fiduciary’s investments were imprudent.
Here, Meiners only identified one Vanguard fund that performed better than the Wells Fargo TDFs. The Court strongly rejects this as a meaningful benchmark: “The fact that one fund with a different investment strategy ultimately performed better does not establish anything about whether the Wells Fargo TDFs were an imprudent choice at the outset.” ERISA fiduciaries are not required to pick the best performing funds. The District Court’s decision to consider prospectuses not attached to the complaint as part of the meaningful benchmark analysis was not improper, as those matters are “necessarily embraced by the pleadings.” Unlike in Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 595 (8th Cir. 2009), where different shares of the same fund constituted a meaningful benchmark, cheaper alternative investments “with some similarities” are not. Plaintiffs cannot state a claim by finding “a less expensive alternative fund or two with some similarity.” Although some district court opinions have found a meaningful benchmark in these circumstances, the Eighth Circuit expressly disapproves of them. “[T]he existence of a cheaper fund does not mean that a particular fund is too expensive in the market generally or that it is otherwise an imprudent choice.” A plaintiff must identify and plead meaningful benchmarks for the funds or plead specific facts about the internal process for selecting the funds to state a claim for breach of fiduciary duty under ERISA.
As the Plaintiff failed to plausibly plead that the funds were underperforming or inordinately expensive, the complaint does not support a plausible inference that the funds were selected and retained based on improper motives. The plaintiff must establish facts that would support an inference that the fund is an imprudent choice before they are entitled to an inference supporting their allegations of unlawful reasons for retaining it. The District Court correctly dismissed the complaint.
(J. Root: This case may well become the leading Eighth Circuit case on pleading standards for ERISA breach of fiduciary duty cases. The Court re-enforces the limits of its 2009 holding in Braden, disapproves of district court opinions that have allowed ERISA breach cases to proceed, and expressly approves considering prospectuses outside the complaint when considering a 12(b)(6) motion. This should provide a strong basis for defendants to challenge these complaints at the pleading stage.)
(SOLA Ref. No. 2018-34-04)
NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.
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