Yet another of the suits alleging that plan fiduciaries “chased low fees” and were inattentive to performance results has been dismissed.
This was another of the series of roughly a dozen suits filed on behalf of participant-plaintiffs by Miller Shah LLP—this one in August 2022. Plaintiffs Christine Abel, Steven Auld, and David Pennington—all former participants (invested in the BlackRock LifePath Index 2035, 2030 and 2050 Funds, respectively) of the 4,461-participant plan (as of Dec. 31, 2020, anyway) filed suit in the U.S. District Court for the Western District of Wisconsin (where CUNA is based) against the parties that appointed, and ostensibly had the responsibility for monitoring the committee’s activities.
More specifically, the suit claimed that “Defendants were responsible for crafting the Plan lineup and could have chosen from a wide range of prudent alternative target date families offered by competing TDF providers, which are readily available in the marketplace, but elected to retain the BlackRock TDFs instead, an imprudent decision that has deprived Plan participants of significant growth in their retirement assets.”
The Motion to Dismiss
In analyzing the case (Abel v. CMFG Life Ins. Co., 2024 BL 26837, W.D. Wis., No. 3:22-cv-00449, 1/26/24), Judge William M. Conley cited three claims made by the plaintiffs: (1) defendants breached their duty of prudence by choosing and retaining the BlackRock TDFs as a Plan investment option, despite their poor performance compared to other investment options; (2) defendants breached their duty to monitor the performance of other fiduciaries who had chosen poorly performing investments for the Plan; and (3) defendants knowingly breached their duty of trust to the Plan and its participants. Defendants move to dismiss all three of these claims for failure to state a claim.
He then pivoted to the legal standards[i] sufficient to survive a motion to dismiss filed by the CUNA defendants, explaining that it “turns on whether plaintiffs provided defendants with fair notice of their claims and alleged facts plausibly suggesting that they are entitled to relief.”
Judge Conley noted that, in order to state a breach of the duty of prudence under ERISA, a plaintiff must plead "(1) that the defendant is a plan fiduciary; (2) that the defendant breached its fiduciary duty; and (3) that the breach resulted in harm to the plaintiff." He acknowledged that the CUNA defendants didn’t dispute that the plan committee was a plan fiduciary that may be sued under ERISA for breach of its duty to act prudently, or that poorly performing investments may have harmed plan participants. “However,” he continued, “the Committee contends that even taking plaintiffs allegations as true, they simply do not show, nor allow a reasonable inference, that it acted imprudently.”
‘Plausible’ Denial?
As for the specific allegations, Judge Conley noted that, “Like many cases involving claims for breach of fiduciary duty, plaintiffs do not actually know what process the fiduciaries used in deciding to include BlackRock TDFs as an investment option, much more as a QDIA, so plaintiffs must rely on circumstantial [*5] allegations to support a plausible claim.” That noted, he explained that “plaintiffs only broadly allege that defendants ‘acted imprudently’ by ‘employ[ing] a fundamentally irrational decision-making process,’” suggesting further that defendants "appear to have chased the low fees charged by the BlackRock TDFs without any consideration of their ability to generate return." He also noted that the plaintiffs had alleged “in conclusory language that ‘any objective evaluation of the BlackRock TDFs would have resulted in the selection of a more consistent, better performing, and more appropriate TDF suite.’”
At this point, you can see where this is going—but he went on to comment that, “as support for these sweeping assertions, plaintiffs point to the performance of their cherry picked Comparator TDFs, alleging that BlackRock TDFs' underperformance compared to those funds was ‘dramatic[]’ and ‘consistently deplorable.’” He then commented that “Plaintiffs purport to show this underperformance using a variety of metrics that allegedly would have been ‘easily accessible’ to defendants.” Concluding that, “in short, plaintiffs ask this court to infer with the benefit of hindsight unavailable to the Committee that defendants committed a breach of their fiduciary duty simply because the BlackRock TDFs ultimately underperformed in comparison to the Comparator TDFs.”
Other Decisions
Not surprisingly, Judge Conley agreed “that plaintiffs' allegations are insufficient to support a fiduciary breach claim under ERISA”. He noted that “numerous other district courts have considered motions to dismiss nearly identical complaints to that filed by plaintiffs' counsel here—each challenging 401(K) plans who had offered participants the BlackRock TDFs among other investment options—and all but one court has held similar allegations are insufficient to support a claim for breach of the duty of prudence at the pleadings stage.”
Judge Conley explained that those prior decisions outlined “several reasons why plaintiffs' allegations fail to state a claim”: (1) that the Comparator TDFs were not similar enough to the BlackRock TDFs to provide a "meaningful benchmark" for comparison; (2) that the plaintiffs appear to be comparing the BlackRock TDFs' performance against the modestly better performances by Comparator TDFs during a select group of three- and five-year trailing averages—particularly since the plaintiffs included charts showing that the BlackRock TDFs did NOT always underperform during the period in question; and (3) “plaintiffs' allegations are undercut by their own admission that the BlackRock TDFs offered "low fees." Judge Conley went on to note that, “Even plaintiffs' counsel argued in another case that the BlackRock TDFs would be a suitable option in a 401(k) plan, and that another plan breached its fiduciary duties by not offering the BlackRock TDFs in that plan's investment portfolio.”
‘Reasonable Judgements’
“In sum,” he concluded, “the duty of prudence requires a fiduciary to make reasonable judgments; it does not require them to pick the best performing fund each year or even each decade. Too many variables are at play to make that a viable basis for holding a plan administrator to have violated its fiduciary duty.” Judge Conley explained that the plaintiffs needed to not just allege underperformance, but that they “must plead sufficient facts from which a reasonable jury could find that the selection and retention of the BlackRock TDFs fell outside the range of a fiduciary's reasonable judgments”—and found nothing in their suit that did so (citing things such as investors abandoning the BlackRock funds, reports critical of the funds or its managers, gross, sustained underperformance or allegations of self-dealing, conflict of interest, excessive costs, or anything else of that nature).
“Instead, plaintiffs' allegations suggest, at worst, that defendants chose to stay their hand in a long-term investment that was, according to the complaint itself, one of the lowest-cost and most popular TDFs in the industry, which actually performed better than many of the Comparator TDFs in the later years of the putative class period. Given this, the complaint fails to give rise to a plausible inference that defendants' decisions were outside the range of the exercise of reasonable judgment expected by a fiduciary. Therefore, plaintiffs have failed to state a fiduciary breach claim.”
Judge Conley then made quick work of two additional claims by the plaintiffs; charges that CUNA failed to monitor alleged breached by other fiduciaries and co-fiduciaries (finding no breach of duty, there was no failure to monitor), and that any defendants who are found not to be fiduciaries or co-fiduciaries are liable for a knowing breach of trust (ditto).
That said, Judge Conley left the door open for further action, dismissing the suit “without prejudice,” meaning that the plaintiffs “may have the opportunity to file an amended complaint that includes the necessary, additional allegations.” Judge Conley did caution, however, that “plaintiffs should only file an amended complaint if they can, in good faith, plead sufficient facts to resolve the deficiencies discussed above.”
What This Means
As Judge Conley pointed out, only one[ii] of these cases has managed to get past the motion to dismiss, generally coming up short of a judicial assessment that the comparator TDFs aren’t really comparable, and/or that the underperformance isn’t really, or that underperformance alone isn’t a sufficient basis for finding a fiduciary breach. That those determinations have been made, and made consistently, across a wide variety of federal court jurisdictions, should be a comfort to plan fiduciaries with thoughtful, documented, processes in place.
[i] Judge Conley also quickly dismissed the question as to whether the plaintiff here had grounds (i.e., “standing”) to bring suit, noting that the CUNA defendants hadn’t disputed standing based on injuries, but set aside arguments that the plaintiff had no right to see injunctive relief as “premature.” He explained “plaintiffs have standing to bring an ERISA breach of fiduciary duty claim, and that is as far as the inquiry takes us for purposes of deciding defendants' motion to dismiss.”
[ii] Which, of course, is not the same as winning at trial—they just get to go to the next step, discovery, as preparation for going to trial.
