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Volume XII, Number 145

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District Court Declines to Dismiss 401(k) Fee Litigation Case in First Decision Post-Hughes

In the first decision since the Supreme Court’s ruling in Hughes v. Northwestern Univ., No. 19-1401, 595 U.S. ___ (U.S. Jan. 24, 2022) (discussed further here), a Georgia federal district court held in favor of plaintiffs and declined to dismiss allegations that defendant’s 401(k) plan included costly and underperforming funds and charged excessive recordkeeping fees. Specifically, plaintiffs alleged that defendants breached ERISA’s fiduciary duty of prudence by: (1) offering retail share class mutual funds despite the availability of identical lower-cost institutional share classes of these same funds; (2) including actively managed mutual funds which were more expensive than available passively managed funds; (3) selecting and maintaining underperforming funds; and (4) overpaying for recordkeeping services.

In declining to dismiss plaintiffs’ investment management fee claims, the district court relied heavily on Hughes. The court expressed its view that Hughes “suggested” that a defined contribution plan participant may state a prudence claim by merely alleging that the plan offered higher priced retail class mutual funds instead of available identical lower-cost institutional class funds. The district court also rejected defendant’s argument that plaintiffs’ claims should be dismissed in part because the plan offered a variety of investment options that participants could select, including lower-cost passive investment options. The district court explained that Hughes rejected this exact argument in holding that a fiduciary’s decisions are not insulated merely by giving participants choice over their investments and that fiduciaries have a continuing duty to monitor plan investments.

The court declined to dismiss plaintiffs’ recordkeeping claims because plaintiffs plausibly alleged that the plan paid nearly double the fees charged by similarly sized plans and that defendant failed to monitor those costs. In regards to plaintiffs’ underperformance claims, the court held that the existence and extent of the alleged underperformance was better left for summary judgment given the parties’ differing views on the issue.

Proskauer’s Perspective

While plaintiffs seemingly scored a victory in the first decision since Hughes, the decision does not indicate that this will (or should be) the trend. First, the district court issued its decision one day after Hughes was decided without the benefit of additional briefing, which would have likely included briefing on the Supreme Court’s direction that district courts give “due regard” to the reasons why a fiduciary made the challenged decisions. Second, the district court appears to have, at a minimum, over-emphasized the Supreme Court’s holding as to the plausibility of mutual fund retail share class claims; the Supreme Court did not hold directly or in dicta that a plaintiff may survive dismissal merely by alleging the availability of identical lower-cost mutual fund share classes.

The case is Goodman v. Columbus Reg’l Healthcare Sys., 2022 U.S. Dist. LEXIS 13489 (M.D. Ga. Jan. 25, 2022).

© 2022 Proskauer Rose LLP. National Law Review, Volume XII, Number 28
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About this Author

Kyle Hansen Employment lawyer Proskauer
Associate

Kyle Hansen is an associate in the Labor & Employment Law Department and a member of the ERISA Litigation Group.

Kyle graduated summa cum laude from the University of Mississippi School of Law, earning his J.D. and two honors diplomas in the areas of Space & Aviation Law and Business Law. During law school, he won the North American Championship at the 2017 International Manfred Lachs Space Law Moot Court Competition, also winning “best brief.” He went on to represent North America at the world competition and was runner-up. Kyle also served as the senior editor for the ...

+1.504.310.4090
Tulio D. Chirinos, Labor, Employment, Attorney, Proskauer, Law firm
Associate

Tulio D. Chirinos is an Associate in the Labor & Employment Department, and a member of the Employee Benefits, Executive Compensation, and ERISA Litigation Practice Center, resident in the New Orleans office.

Tulio works on a wide variety of employment law and benefit matters, including Title VII of the Civil Rights Act, the Fair Labor Standards Act, ERISA breach of fiduciary duty claims, and ERISA benefits claims. He is also a contributing author to Chapter 20 of the fifth edition of BNA’s ERISA Litigation treatise, which will be published in 2014. Prior to joining...

504-310-2048
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