Yet another excessive fee suit has filed for, and been granted, an opportunity to represent its case to dismiss the plaintiff’s suit.
This time it’s the fiduciary defendants of the $4.3 billion 401(k) plan of Cleveland-based Parker Hannifin Corp.—who have been granted permission to incorporate “new law” arising from “substantial” new guidance from the Sixth Circuit—more specifically, a June ruling in the case of Smith v. CommonSpirit Health.
While that case[i] dealt with the inclusion of actively managed target-date funds, the appellate court there unanimously affirmed the district court’s dismissal of the suit, writing that whether an ERISA fee-and-expense claim is plausible “depends on a host of considerations, including common sense and the strength of competing explanations for the defendant’s conduct.” They commented that actively managed funds “represent a common fixture of retirement plans, and there is nothing wrong with permitting employees to choose them in hopes of realizing above-average returns over the course of the long lifespan of a retirement account,” the court noted. Rather, they added, in order to be deemed sufficient, those claims of imprudence “require evidence that an investment was imprudent from the moment the administrator selected it, that the investment became imprudent over time, or that the investment was otherwise clearly unsuitable for the goals of the fund based on ongoing performance.”
In permitting the motion (Johnson v. Parker-Hannifin Corp., N.D. Ohio, No. 1:21-cv-00256, minutes of proceedings 7/26/22) to refile, Judge Bridget Meehan Brennan of the U.S. District Court for the Northern District of Ohio, said this move was driven by “the importance of understanding how recent decisions may apply to the facts and circumstances of this case.”
Parker Hannifin was accused (the plaintiffs here are represented by Schlichter Bogard & Denton LLP) of retaining a suite of allegedly unproven underperforming target date funds from Northern Trust[ii]—which the plaintiffs said had “significant and ongoing quantitative deficiencies and turmoil” resulting in losses ranging from $45 million and $73 million—when identical, lower-cost alternatives were available.
Earlier this week the fiduciary defendants of Humana’s $5.4 billion plan filed for similar (re)consideration. Just two weeks before that, the fiduciary defendants of the $457 million TriHealth retirement plan won a favorable ruling (on most counts of the suit), as the appellate court noted that “precedent has overtaken some of the debates in the case,” a federal appellate court has weighed in on an excessive fee case—affirming the rejection of most, but not all, of the plaintiffs’ claims. While a recent panel of litigators at the NAPA DC Fly-In Forum wasn’t prepared to label the CommonSpirit decision a “watershed,” it certainly seems to be stirring things up.
Brennan gave Parker Hannifin a September 30 deadline to file a revised motion to dismiss.
[i] It’s the first such appellate court ruling since the Supreme Court weighed in in the case of Hughes v. Northwestern University, which held that motions to dismiss in fee-and-expense cases under ERISA had to employ a “context-specific inquiry” that gives “due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.” Two dismissed cases on appeal that had been pending in the Ninth Circuit have been resurrected in the wake of the Hughes decision.
[ii] The funds have been targeted in a number of suits—see Northern Trust TDFs the ‘Focus’ of Another 401(k) Suit.