October 16, 2021

Volume XI, Number 289

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District Court Dismisses Investment and Recordkeeping Claims Against 401(k) Plan Fiduciaries

A Kentucky federal district court ruled that a participant in CommonSpirit Health’s 401(k) plan failed to state plausible claims for breach of fiduciary duty related to the fees and performance of actively managed target date funds and recordkeeping fees.

The court first rejected plaintiff’s claim that the plan fiduciaries should have offered a passively managed target date suite in lieu of a more expensive and underperforming actively managed target date suite because “actively managed funds and passively managed funds are not ideal comparators.”  The court also concluded that, even if the index funds were a viable comparator, there was no reason to infer a breach on account of the fact that:  (i) the actively managed funds underperformed by less than 1%; and (ii) plaintiff’s reliance on a five-year “snapshot” of the actively managed funds’ underperformance was “relatively short” and excluded the funds’ later outperformance of the chosen benchmark.  Similarly, the court dismissed plaintiff’s claims that two other actively managed funds underperformed for failure to provide meaningful benchmarks.  Lastly, the court also disposed of plaintiff’s claims that, as a whole, the plan’s investment options were too expensive and that the plan’s recordkeeping fees were too high.  In so ruling, the court explained that the plaintiff failed to provide an accurate calculation of the expenses and failed to identify another recordkeeper that would have been willing to conduct the same services for a lesser amount.

Before addressing the plaintiff’s allegations, the court rejected defendant’s argument that the plaintiff lacked Article III standing to bring claims related to investment options in which she did not invest because, in the court’s view, the claims were brought on behalf of the plan participants and alleged similar misconduct.

The case is Smith v. CommonSpirit Health, No. 20-cv-95, 2021 WL 4097052 (E.D. Ky. Sept. 8, 2021).

© 2021 Proskauer Rose LLP. National Law Review, Volume XI, Number 265
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About this Author

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
Associate

Jessica Guarracino is an associate in the Labor Department and a member of the Employment Litigation & Arbitration Group.

Jessica graduated from Seton Hall University School of Law magna cum laude and Order of the Coif, where she was a Comments Editor of the Seton Hall Law Review and a member of the Interscholastic Moot Court Board.  During law school, Jessica worked as a student attorney in the Impact Litigation Clinic, where she represented indigent clients in the United States Court of Appeals for the Second Circuit, and as an intern to the Honorable Michael...

212-969-3414
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