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Home Depot Hammers Back Excessive Fee Suit


A federal judge found enough evidence of process—and not enough evidence of loss—to dismiss a class action excessive fee suit.

The suit was brought[i] by current and former employees of The Home Depot, Inc. who participated in the $9 billion, 230,000-participant (as of 12/31/19) Home Depot FutureBuilder 401(k) plan from April 2012 until the time of judgment. They alleged that Home Depot Defendants—the fiduciaries of the Plan—breached their fiduciary duties under ERISA in two principal ways: by failing to prudently monitor the investment advisory services offered to Plan participants by third-party professional managed account services providers (resulting in “excessive” fees charged to the Plan), and that they failed to prudently monitor and remove certain Plan investment options that performed poorly relative to other available investment options.

Well, if the claims were familiar, the review—and ultimately the dismissal—were not. In a nearly 100-page opinion (Pizarro v. Home Depot, Inc., N.D. Ga., No. 1:18-cv-01566, 9/30/22), Judge Steven D. Grimberg in the U.S. District Court for the Northern District of Georgia noted that during the period in question, not only did the Plan Committees hold individual committee meetings to discuss the Plan, but that the investment committee (IC) met quarterly and “was responsible for adopting an updated written investment policy statement (IPS), which set out guidelines for selecting and monitoring Plan investments; evaluating, selecting, reviewing, and monitoring the Plan’s investments; periodically reviewing each fund’s performance results and fee structures; and monitoring the reasonableness of expenses paid from the Plan’s assets.” 

‘Summary’ Judgement

But before getting into the merits of the arguments to dismiss the case, Judge Grimberg commented that “it is well-settled that the summary judgment movant must show an absence of evidence to support the non-movant’s case to prevail at summary judgment.” Said another way, the party moving to dismiss the suit has to prove that there is no case made that requires a trial. “As the summary judgment framework applies to this case, Home Depot Defendants are not required to disprove loss causation regarding either of Plaintiffs’ claims to win summary judgment; rather, to prevail, Home Depot Defendants must show an absence of any evidence supporting either breach or loss causation (the challenged elements), or that no reasonable factfinder could find breach or loss causation as a matter of law.” Alternatively, he commented that the plaintiffs pushing back on the motion had to prove that the defendants’ actions caused a loss, “or at least demonstrate a genuine issue of material fact concerning same to defeat Home Depot Defendants’ motion.”

Instead, Judge Grimberg observed that “Plaintiffs have not adduced sufficient evidence to show a disputed issue of material fact concerning whether Home Depot paid excessive fees relative to other FE or AFA clients. In fact, quite the contrary. Expressed as a per capita fee (i.e., dollars per participant), it is undisputed that Plan participants paid lower fees to FE and AFA for Professional Management throughout the Class Period than participants in almost all other plans serviced by FE and AFA. Based on information sought and obtained by Plaintiffs, the Plan’s average per capita fees for Professional Management in every year between 2012 and 2020 were lower than those FE and AFA assessed to at least 96% of other plans.” 

Said another way, Grimberg noted that the plaintiffs had “failed to adduce evidence to show why the Plan’s fees for Professional Management, expressed in basis points or per capita, were imprudent or imprudently bargained, let alone a result of anything other than the Plan’s unique characteristics.” He also found that the plaintiffs “failed to marshal any evidence that no prudent fiduciary in Home Depot Defendants’ proverbial shoes would have selected FE or AFA over other managed account providers,” commenting that “plaintiffs mistake competitors for comparators,” finding differences in the services provided, not to mention the aforementioned integration of recordkeeping data with the managed account services. And, “even if Plaintiffs adduced evidence to raise a disputed material fact as to whether these companies were appropriate comparators, a higher fee alone does not compel the conclusion that the fees charged to a plan are excessive; instead, fees must be evaluated ‘relative to the services rendered.’” Judge Grimberg noted that the “undisputed record evidence shows that Plaintiffs’ identified competitors were not apt for apples-to-apples comparison based on the services they provided…” Beyond that he found no evidence that the services offered were “both less expensive and satisfied the Plan’s goals as well as or better than FE and AFA.”

Committees ‘Call’

Moreover, Judge Grimberg commented that the administrative committee met at least once a year and was responsible for the administration of the Plan—and he noted that the defendants claimed to conduct business outside of those regularly scheduled meetings, though the plaintiffs “dispute the extent to which that occurred.” He also noted that the plan committees were “counseled by outside advisors at various points,” notably Aon Hewitt Investment Consultants. Curcio Webb LLC assisted the Plan Committees with selecting Plan service providers (among other duties), while herronpalmer, advised the AC in connection with a request for proposal (RFP) for recordkeeping services in 2019, following the filing of this lawsuit. He also noted that Benefits Department negotiated certain contracts with outside service providers and provided periodic updates to the Plan Committees.

Further, he noted that availability of “Professional Management” services that enabled an advisor employed by the services provider to basically take over investment of the participant account, based on information directly from the participant, or by integrating itself with the Plan’s recordkeeper, Aon Hewitt. “The latter approach, which the Plan employed during the Class Period, involved a data-sharing arrangement between the services provider and Aon Hewitt,” Judge Grimberg explained, noting that the plaintiffs here “dispute the usefulness and costs of the Plan’s data-sharing arrangements, as well as the prudence of Home Depot Defendants’ efforts to monitor the usefulness and costs of the data-sharing arrangements.” The plan had used a non-integrated advice structure with Merrill Lynch prior to that arrangement—though only 1.5% of participants took advantage before shifting to Financial Engines—which was integrated, and through which Aon charged Financial Engines some percentage of the fees it received (and that the plaintiffs here referred to as a “kickback”).

Process ‘Proof’

Judge Grimberg took pains to outline the processes that the fiduciary defendants had in place, as well as the proof with which he was presented regarding the action, if not the efficacy of their approach. For example, and “though Plaintiffs dispute whether and to what extent Home Depot Defendants, as opposed to a designee (e.g., the Benefits Department), were involved in any negotiation, FE lowered its fees charged to the Plan three times during the Class Period,” he wrote. Additionally, he noted that “in 2015 and 2016, before the December 31, 2016 expiration of the Aon Hewitt recordkeeping contract, Curcio Webb was retained to perform a benchmarking analysis of recordkeeping services,” he commented. “Its analysis did not indicate the basis for its benchmark range of FE’s fees; in other words, it did not contain information indicating whether its assessment was based on fees paid by similarly-sized plans, or whether it accounted for the fees charged by other providers. Nevertheless, Curcio Webb advised that no formal RFP for recordkeeping services was necessary, and the IC did not conduct one.”

And then, “as part of the negotiation process with FE, the Benefits Department and Aon Hewitt discussed the data connectivity fee FE paid to Aon Hewitt, and Aon Hewitt agreed to reduce the fee and to cap the fee per annum. Further, purportedly in an effort to eliminate the payment of indirect compensation from FE to Aon Hewitt for data connectivity, Aon Hewitt recommended that Home Depot Defendants use an Aon Hewitt subsidiary, Aon Hewitt Financial Advisors (later, Alight Financial Advisors, or AFA), as its direct managed account service provider.” In 2019, Home Depot Defendants conducted a formal RFP for the Plan’s recordkeeping services. “herronpalmer advised the AC to renew the Plan’s agreement with Aon Hewitt and keep AFA, which agreed to eliminate the Plan Access fee, as the direct provider of investment advisory services. The negotiated agreement matched competitor Voya’s pricing and reduced Professional Management fees further, with an entirely different graduated fee schedule that offered lower fees for the initial investment tiers than the Top-Tier Fees in place for much of the Class Period, as well as no Plan Access Fee.” He then noted that the AC “approved the renewed agreement with Aon Hewitt and AFA at its November 20, 2019 meeting, effective January 1, 2021.”

You can see where this is going.

Imprudent Funds

Regarding allegations of imprudent fund choices (specifically the JPMorgan Stable Value Fund, the BlackRock LifePath Target Date Funds, the TS&W Small Cap Value Fund, and the Stephens Small Cap Growth Fund), Judge Grimberg stepped through in some detail the particulars with regard to the fund holdings and review, ultimately finding “substantial evidence that they prudently monitored the BlackRock TDFs during the Class Period” (though the plaintiffs claimed that the discussions were cursory, and not proof of a prudent process, citing things like a lack of full attendance at the committee meetings).

Judge Grimberg commented that the “Home Depot Defendants have put forth more than sufficient evidence to defeat Plaintiffs’ motion for summary judgment on procedural prudence grounds. And although the standard is objective prudence, not perfect prudence, the Court finds that Plaintiffs have identified sufficient disputed issues of material fact concerning the quantum and quality of Home Depot Defendants’ monitoring activities to warrant a denial of their summary judgment motion on procedural prudence grounds as well.”

Judge Grimberg basically discounted arguments that allegedly “better” benchmarks were available, in favor of the apparently reality that there were benchmarks, benchmarks that were tracked and monitored as part of the committee review process. “At bottom, as Home Depot Defendants point out, ERISA requires ‘prudence, not prescience.’” 

He drew similar comparisons to the review/monitoring of the other funds in question. He found the evidence “inconclusive” with regard to whether the Home Depot defendants fulfilled their fiduciary duties in monitoring the plan’s service fees and certain investment options, but found no evidence of losses resulting from that process that warranted a remedy (or a trial).

“Because Plaintiffs failed to establish evidence of loss causation concerning their Excessive Fees Claim, much less show a disputed issue of material fact concerning same, Plaintiffs’ motion for partial summary judgment in this regard is DENIED and Home Depot Defendants’ summary judgment motion regarding same is GRANTED.”

What This Means

As excessive fee suit victories go, this one feels a bit underwhelming. Ultimately, there was plenty of evidence of a process, and more evidence of actions taken as part of that process than is the case in many of these lawsuits. For fiduciaries there is at least an affirmation that it is the process, not the result that matters (at least so long as the process was prudent). 

That said, the plaintiffs were a bit cursory in their arguments, at least in Judge Grimberg’s view—so the precedent here seems of modest, if any value. 


[i] The plaintiffs originally filed suit not only against the plan fiduciaries, but also against Financial Engines Advisors, LLC (FEA) and Alight Financial Advisors, LLC (AFA), “investment advisory firms with which Home Depot has contracted to provide services for the Plan.” The plaintiffs claimed that Home Depot “imprudently selected and retained investment options for the Plan which were poorly-performing and charged high asset-based fees,” and that Home Depot “imprudently selected and retained FEA and AFA as investment advice service providers because they charged high asset-based fees, provided poor customer service, and provided substandard advisement services” (their April 2018 suit claimed that Home Depot “constructed a plan with far too many layers of fees, and turned a blind eye to a kickback scheme between Financial Engines and the Plan recordkeeper Aon Hewitt”).