Evidence of a prudent process has regularly proven to be “enough” to win at trial—but a new case found it wasn’t enough to forestall going to trial—and this from a federal judge who called the entire summary judgment exercise a “monumental waste of time.”
“Here, where there are qualified experts on both sides and granting summary judgment to a party who bears the burden of proof is well-nigh impossible, counsel should understand that a summary judgment motion displays what one of my colleagues calls ‘an instinct for the capillaries’—a money waster—not the true trial lawyer's ‘instinct for the jugular.’” That was the observation of Judge William G. Young in the U.S. District Court for the District of Massachusetts in the case of Sellers v. Trs. of Bos. Coll. (2024 BL 124524, D. Mass., No. 1:22-cv-10912, 4/11/24).
Beyond those observations, and in contrast to other recent decisions, Judge Young said while there “is no genuine dispute of material fact regarding whether the Committee had a prudent process in place to evaluate investments: it met regularly to review and discuss investments, generally devoted more time to items placed on ‘Watch,’ and made changes to its investment lineups”—“this prudent process, however, is not enough for Boston College to prevail on its motion for summary judgment.”
In fact, in an extraordinary epilogue to this ruling, Judge Young noted that “Summary judgment is not fact finding—it is most closely akin to a declaratory judgment and is, of course, properly subject to de novo review. In the summary judgment analysis, the trial judge must lean against the movant and draw all reasonable inferences against that party. Fact finding is entirely different and requires an utterly distinct mind set. It is fact finding that requires the utmost fairness and impartiality.”
However, he said restricting parties from filing summary judgment motions is “not the answer.”
Judgment ‘Summary’
At the outset, one might have thought that the fiduciary defendants here had made their case for summary judgment—as Judge Young acknowledged that there “is no genuine dispute of material fact regarding whether the Committee had a prudent process in place to evaluate investments: it met regularly to review and discuss investments, generally devoted more time to items placed on ‘Watch,’ and made changes to its investment lineups…” But then concluded that “this prudent process, however, is not enough for Boston College to prevail on its motion for summary judgment.”
In fact, while acknowledging that “there is evidence that the Committee generally had a process in place to review and monitor investments,” and that “while evidence of these procedures serves as some evidence of prudence, it is not dispositive, as this Court must inquire more specifically into the decision-making process behind retaining the challenged investments.”
Focusing on the time period after a 2018 RFP (2019 to present), Judge Young determined that “there are genuine disputes of material fact as to (1) whether it was prudent for the Committee to not consolidate the Plans to a single recordkeeper; (2) whether the Committee was aware of the distinction between the unique participant fee and the per participant fee; and (3) whether some Committee members had conflicts of interest that warranted recusal during the 2018 RFP vote.”
However, he acknowledged that there was no genuine dispute of material fact as to whether the Committee monitored the Plans' fees through regular review of benchmarking and negotiations, nor as to whether the Committee engaged in negotiations throughout the Class Period to lower recordkeeper fees.
What This Means
While I normally conclude these posts with a conclusion, the length and breadth of the issues here may be more than even a significantly compressed post (the ruling is some 126-pages) can make readable. Suffice it to say that there are many issues here—most, though not all, of which the judge in this case deemed needed a full airing at trial to resolve, rather than a simple dismissal on the conflicting issues presented.
That has NOT been the case in every suit or jurisdiction thus far. It does, however, serve as a reminder that the path litigation takes often depends not only on the parties involved or the facts presented, but the perspective of the judge taking those into account.
And now—the detailed findings in the case.
The Suit
The excessive fee suit—brought by participant-plaintiff Connie Sellers in June 2022, “individually and as the representative of a class of similarly situated persons,” and on behalf of The Boston College 401(k) Retirement Plan I and The Boston College 401(k) Retirement Plan II, as well as Sean Cooper—alleged that the Trustees of Boston College and the Plan Investment Committee failed to: (1) prudently administer the Retirement Plans with respect to the Plans' recordkeeping fees and certain investments; (2)comply with the Plans' investment policy statement; and (3) monitor fiduciaries and service providers to the Plans.”
For its part, the Boston College defendants moved for a declaration of summary judgment (basically a judge’s ruling in their favor without having to go through a formal trial), arguing that Boston College "followed a robust fiduciary process to monitor [its] two 401(k) plans consistent with industry standards," and that the Participants cannot demonstrate a genuine dispute of material fact on breach or loss. They further argued that “even if the Participants do show a genuine dispute of material fact on breach or loss, Boston College shows, as matter of law, that the Plans' fees and the challenged investments were objectively prudent.”
In considering the arguments, Judge William G. Young noted that from 2015 to 2021, Plan I had 3,538 to 3,697 participants and approximately $447,000,000 to $731,000,000 in assets, and Plan II had 2,760 to 3,221 participants and assets between $239,000,000 and $516,000,000. He further noted that Plan I offers various investment options, such as international and domestic equity funds, annuity products (real estate account and target-date funds), bond funds, and money market funds, and that its investment options include fixed annuities (TIAA Traditional), as well as variable annuity products, including—and at issue here—the CREF Stock Account and TIAA Real Estate Account.
Review Standards
He explained that summary judgment is required when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law,” and that an issue of material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." As is routinely cited in such cases, he acknowledged that in reviewing the evidence, this Court must "draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence."
Moreover, that the party making the motion for summary judgment “bears the initial burden of demonstrating that ‘the nonmoving party has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof.’” He further noted that “when the moving party also bears the burden at trial, its burden of proof includes ‘producing incontrovertible prima facie evidence of its claims.’” He further commented, citing Brotherston, that congressional intent in enacting ERISA, “coupled with the fact that duty-of-prudence inquiries involve reasonableness determinations, which are more appropriately decided at trial, is telling: it is difficult for a fiduciary to show that as matter of law it did not violate its duty-of-prudence.”
Recordkeeper Review
As for the conclusions noted above, Judge Young noted that “Boston College provides evidence that the Committee engaged in negotiations to lower recordkeeper fees,” and that while “the Participants attempt to rebut this with testimony from Smith indicating that he could not recall the most recent fee negotiation but that the Committee does ‘go through an annual exercise’ (at least for TIAA) to negotiate fees,” it was confirmed that fee negotiations are conducted annually. “Thus, the Participants fail to show a factual dispute as to whether the Committee negotiated with recordkeepers.” As for the factual dispute as to whether the Committee's negotiations caused fee decreases, Judge Young concluded that the dispute was not material—“holding otherwise would improperly focus on the results of the fiduciary's conduct (success of the negotiations), instead of the fiduciary's conduct itself (act of engaging in negotiations). Thus, whether the negotiations successfully caused the fee decrease would have no bearing on whether the Committee acted imprudently.”
Judge Young further determined that the Participants do not genuinely dispute that the Committee monitored the Plans' fees through Fiducient's regular benchmarking, which showed that the fees were comparable to its benchmarks. He noted that Fiducient prepared benchmarking of fees and Committee members discussed these reports at meetings at least annually, and that while the Participants attempted to dispute whether the Committee reviewed and discussed these reports by showing that some Committee members did not know what plans were included in Fiducient's benchmarking, “this is insufficient to cast doubt on whether the Committee reviewed the benchmarking—the Participants admit that the Committee went through annual exercises to review and discuss these benchmarking reports and the Plans' fees.” He went on to note that “no reasonable factfinder could find to the contrary, even when faced with evidence showing that some Committee members could not recall what plans were included in benchmarking prepared by its consultant.”
Benchmarking
Judge Young also concluded that the participant-plaintiffs did not “genuinely dispute” that the Committee's benchmarking practices did not follow industry protocol. He noted that the fiduciary defense expert opined that “Fiducient's benchmarking—reviewed by the Committee regularly—showed that both Plans' fees were ‘comparable to the recordkeeping fees paid by similarly-sized plans’ and that Fiducient ‘appropriately monitored recordkeeping fees paid to TIAA and Fidelity in accordance with industry practice.’” While the participant-plaintiffs sought to dispute this benchmarking process through their expert, Judge Young concluded that “the Participants fail to dispute the appropriateness of Fiducient's actual benchmarks, which showed that Plan I's fees were lower than comparable plans (in all but one benchmark in 2019)”—and, perhaps more significantly, that their expert admitted that he was not offering an opinion on the process. “Thus, this Court rules that there is no genuine dispute of material fact as to whether the Committee reviewed and discussed Fiducient's benchmarking or whether Fiducient's benchmarking reports followed industry protocols,” he wrote.
RFPs
“To the extent the Participants are suggesting that Boston College should have conducted an RFP from the 2019 to present, this Court rejects those arguments,” Judge Young wrote. He noted that the Committee “conducted an RFP in 2018, benchmarked its fees (which showed its fees were reasonable), and negotiated a moderate fee decrease in fees in 2021 for both Plans.” He noted that while the participant-plaintiffs dispute the amount of the fees, they did NOT dispute that the Plans' fees declined throughout the Class Period (nor did they “address the cases cited by Boston College demonstrating that conducting RFPs, along with regular benchmarking and negotiations, sufficiently demonstrates a prudent process on summary judgment,” Judge Young wrote.
Consolidate ‘Shun?’
Judge Young did, however, find a “genuine dispute of material fact as to the Committee's decision not to consolidate the Plans during the 2018 RFP.” He explained that in 2018, the Committee considered an RFP for its recordkeeping fees, soliciting bids from five vendors and considered both single and multi-recordkeeping arrangements. He noted that the meeting minutes from the RFP state that the Committee considered the following factors during the RFP process: the recordkeeper's experience in administering university plans, fees, cybersecurity, administrative services, participant and plan sponsor technology platforms and websites, participant communication, advice and educational offerings, compliance services, and service teams.
However, he commented that there was testimony “showing that the Committee members heavily considered disruption and consumer choice/preference in deciding not to consolidate to a single recordkeeper.” On that point, the participant-plaintiffs questioned the validity of that focus, as well as its accuracy—providing evidence that Boston College did not conduct a survey or procure other "objective" data showing any participant preference for retaining incumbent recordkeepers as opposed to a consolidated plan. They also questioned whether "disruption" was a valid concern, “providing evidence that ‘[p]articipants who were happy with TIAA were free to keep TIAA investments,’ even if the Committee consolidated under Fidelity.” Judge Young further noted that the plaintiffs argued that the fiduciary defendants had the burden to show why the Committee "refused to act in a way that saved participants money."
Judge Young acknowledged that a fiduciary does not have to select the lowest fee to satisfy its duty of prudence, but commented that “in some instances, it may be imprudent to not consolidate plans,” citing expert testimony that the combination might have maximized bargaining power.
“Courts have found fiduciaries compliant with ERISA when its decision-making process was ‘considered, careful, and prudent,’” he wrote, citing Sacerdote v. NYU. He noted that, while “there is evidence that the Committee weighed the pros and cons of consolidation,” there was a dispute as to the “underlying assumptions to the Committee's decisions (whether it was appropriate to consider disruption and participant choice), which is thus an attack on whether the decision was prudent and considered.”
He noted that “a reasonable factfinder could find that the Committee engaged in an imprudent decision-making process in rejecting the consolidated bid,” and that “a reasonable factfinder could find that the Committee's reliance on ‘consumer choice’ as a factor for keeping incumbent recordkeepers was not an appropriate consideration because its beliefs about consumer choice derived from mere [*15] ‘anecdotal’ evidence and not from any objective measure of consumer preference.”
Moreover, he commented that “a reasonable factfinder could also find that disruption was not a valid concern, considering participants could keep their TIAA investments even if there was a change in recordkeepers and disruption concerns were factored into the RFP bidder's bids. These assumptions were especially important, as several Committee members identified participant choice and disruption as notable reasons for not choosing lower bids.” All that said, and “with all reasonable inferences in favor of the Participants and considering that reasonableness inquiries are usually inappropriate for decision on a motion for summary judgment, this Court holds that there is a genuine dispute of material fact as to whether the Committee prudently decided to not consolidate.”
TIAA’s Compensation
“While there is no genuine dispute as to TIAA's compensation from the 2018 RFP to present, this Court rules that a reasonable factfinder could find that the Committee was not sufficiently aware of the distinction between the unique participant fee (fee for TIAA's entire relationship with Boston College) and the per participant fee (fee for Plan I).”
Indeed, Judge Young noted that, “While Boston College submits compelling evidence that the Committee was sufficiently aware of Plan I's fees, this Court cannot weigh evidence on summary judgment and thus rules that a reasonable factfinder could find, based on Pontiff and Jack Burke's testimony, that the Committee did not have sufficient knowledge of the distinction between the unique participant fee and Plan I's actual fees.”
Conflicts of Interest(s)
Judge Young also concluded that there were “potential conflicts of interests between Committee members and the incumbent recordkeepers” that presented a “genuine dispute of material fact.” Here he cited instances where committee members accepted sporting event tickets from TIAA and Fidelity, and did not recuse himself from the vote on providers, nor did he discuss this potential conflict with other members of the Committee. He also noted that another committee member was on the TIAA-Nuveen investment council (“which provided Zona access to networking opportunities and consisted of TIAA clients”), and while there was no compensation for this, he noted that “TIAA did reimburse Zona's hotel and transportation expenses.”
The BC defendants argued that these circumstances spoke to duty of loyalty, rather than a duty of prudence (the lawyers among you will appreciate the distinction), but even so, Judge Young noted that “courts have found that such conflicts of interest can also be evidence of a breach of the duty of prudence.” He then concluded that there was a “genuine dispute as to whether certain Committee members acted imprudently by failing to recuse themselves from voting during the 2018 RFP, as they failed to remove themselves from a position where their personal interest may have come into conflict with the Participants’ [interests]. A reasonable factfinder could find that this failure to recuse demonstrated a process failure. Thus, this Court rules that there is a genuine dispute of material fact as to breach on the Recordkeeping Fees' claim.”
‘Challenged Investments’ Challenge
Judge Young also found a “genuine dispute of material fact as to whether the Committee breached its fiduciary duties in deciding to retain the challenged investments.” More specifically, while the participant-plaintiffs had argued that it was imprudent to retain the CREF Stock Account and TIAA Real Estate Account, and the BC defendants countered that the Committee “reviewed and discussed reports on the investments regularly, made changes to its investment lineup, used a ‘Watch’ list to monitor investments, and considered various factors when evaluating the investments,” that they “prudently monitored the CREF Stock Account by adjusting its benchmarks as needed, put it on ‘Watch’ for a manager's departure in 2020, and has kept it on ‘Maintain’ status from 2021 to present,” and that they put the TIAA Real Estate fund on a "Discuss" list in 2022 due to a manager departure and shortly after placed it back on "Maintain”—well, Judge Young once again found “material, factual disputes as to whether the Committee followed a prudent process in deciding to retain these funds, and dispute whether it was reasonable to retain the challenged investments considering their performance.”
CREF Stock Account
Judge Young found that there was a “genuine dispute as to whether the CREF Stock Account underperformed relative to its benchmarks throughout the Class Period,” but commented that disputes as to CREF's performance were not enough to deny Boston College's motion for summary judgment, as "investment losses [alone] are not proof that an investor violated his duty of care." That said, he noted that “a reasonable factfinder could find that the CREF Stock Account's performance, especially after it was put on ‘Watch’ for sustained underperformance, should have compelled the Committee to subject it to additional review and monitoring.”
After some discussion, Judge Young acknowledged that there was, in fact, “evidence that performance was reviewed and discussed each quarter and, when reviewing investments, the Committee generally considered performance, market conditions, diversification, risk, strategy, and management.” However, he concluded that the record was “unclear” as to specific discussions about the CREF Stock Account's performance and the pros and cons of keeping it—especially in 2020, when it was put on "Watch" for sustained underperformance. Ultimately, “drawing all reasonable inferences in favor of the Participants, and recognizing that questions of ‘reasonableness’ are typically resolved by the finder of fact at trial, this Court rules that there is a genuine dispute of material fact as to whether the Committee thoroughly discussed and analyzed whether to retain the CREF Stock Account in 2020 and whether the Committee actually considered alternatives to the CREF Stock Account.”
TIAA Real Estate Account
“The Participants' evidence that the Committee engaged in an imprudent process in retaining the TIAA Real Estate Account is thin—especially because there is much less clear evidence, compared to the CREF Stock, that its performance should have signaled to the Committee to conduct additional review,” Judge Young noted. “Despite this, with all reasonable inferences in favor of the Participants, Halpern's opinion that the Committee should have considered alternatives to the TIAA Real Estate Account given its performance, the lack of evidence showing that the Committee considered any alternatives to TIAA Real Estate, and the lack of discussions about TIAA Real Estate ‘cash drag’ could lead a reasonable factfinder to believe that the Committee engaged in an imprudent process in deciding to retain the TIAA Real Estate Account”—and he determined that there was sufficient evidence for this claim to survive a motion for summary judgment as well.
Other Issues
“Even with all reasonable inferences in favor of the Participants, the Committee's bad faith is not genuinely disputed,” Judge Young concluded. “No reasonable juror could find that adding additional benchmarks to better understand the CREF Stock Account, documenting its evaluation process, and tracking litigation relevant to the Committee's duties under ERISA demonstrate bad faith—to the contrary, this all shows the Committee and Fiducient's diligence. Thus, this Court holds no reasonable juror could find that Boston College acted in bad faith.”
Judge Young also found no evidence that the BC defendants violated the terms of the plan document, and granted summary judgment as to whether the trustees prudently monitored the plan fiduciaries.
In sum, Judge Young noted that “this Court DENIES Boston College's motion for summary judgment as it relates to the Recordkeeping Fees Claim. This Court also DENIES Boston College's motion for summary judgment on the Challenged Investment Claim. This Court GRANTS Boston College's summary judgment motion on the claims that it violated the Plans' documents and that it failed prudently to monitor its fiduciaries.”
