The Eighth Circuit’s “Meaningful Benchmark” Requirement for 401(k) “Excessive Fee” Lawsuits Continues to Generate Dismissals

On August 21, 2023, the U.S. District Court for the District of Minnesota largely dismissed—for a second time—a putative ERISA class action challenging “excessive” fees and “poor” performance in a 401(k) plan. Fritton v. Taylor Corp., No. 22-cv-00415 (ECT/TNL), 2023 U.S. Dist. LEXIS 145940 (D. Minn. Aug. 21, 2023).

In Fritton, the plaintiffs alleged that fiduciaries of the Taylor Corporation 401(k) plan (the “Plan”) breached ERISA fiduciary duties by “[1] authorizing the Plan to pay unreasonably high recordkeeping fees, [2] allowing the Plan’s investment portfolio to include options with unreasonably high management fees and [3] needlessly expensive share classes, and [4] allowing the Plan to retain an underperforming fund.” Back in December 2022, the district court had dismissed the entire complaint but without prejudice. In their amended complaint, the plaintiffs tried to bolster their allegations and add new claims.

However, the district court determined that, for most of the claims, the plaintiff still had not satisfied the Eighth Circuit’s pleading requirements. As we discussed here and here, the Eighth Circuit has clarified what is necessary to state an ERISA breach-of-fiduciary-duty claim based on allegedly “excessive” 401(k) fees or poor performance. Specifically, the court held that “a plaintiff must provide a sound basis for comparison—a meaningful benchmark.” Only by comparing the fees of “meaningful benchmark” fund can a plaintiff plausibly allege that the challenged funds were too expensive or underperforming. In 2022, the Eighth Circuit clarified that plaintiffs also must meet the “meaningful benchmark” requirement to state a viable claim that a plan’s recordkeeping costs are “excessive.” Matousek v. MidAmerican Energy Co., 51 F.4th 274 (8th Cir. 2022).

The Fritton plaintiffs did not meet that standard. As to the excessive-recordkeeping-fees claim, plaintiffs did “not allege facts plausibly showing that the Plan’s recordkeeping fees are unreasonably high.” As to the excessive-management-fees claim, that claim “fail[ed] largely because as this theory is pleaded, a collective investment trust is not a plausible benchmark for a mutual fund.” As to the under-performance claim, that claim failed “because the benchmarks alleged to support this theory are implausible.” The court did allow the “expensive-share-class” claim to go forward into discovery because “[a]ccepting Defendants’ proffered inference—that the prudent use of revenue sharing caused the individual share classes to have a higher sticker price—would necessitate” fact finding, improper at the motion-to-dismiss stage.

Nick Bullard

Nick is a trial partner in Dorsey’s office in Minneapolis. His practice focuses on complex and high-stakes commercial litigation at the trial and appellate levels. He has particular expertise in defending clients in ERISA class actions involving both retirement and health and welfare plans. In his ERISA practice, Nick has represented some of the largest companies in the world in industries ranging from banking to healthcare.

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