The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
DARYA DEARING, JANICE GULLICK, )
RICHARD A. HAYNES, NELSON )
SIEVERS, and LAUREN BROWN, )
individually and as )
representatives of a class )
of similarly situated persons, )
on behalf of the IQVIA )
401(K) Plan, )
)
Plaintiffs, )
)
v. ) 1:20CV574
)
IQVIA INC., THE BOARD OF )
DIRECTORS OF IQVIA HOLDINGS, )
INC., THE BENEFITS INVESTMENT )
COMMITTEE, and JOHN DOES No. )
1-20, Whose Names Are )
Currently Unknown, )
)
Defendants. )
MEMORANDUM OPINION AND ORDER
OSTEEN, JR., District Judge
Presently before the court is a Renewed Motion to Dismiss
the Amended Complaint filed by Defendants IQVIA Inc., the Board
of Directors of IQVIA, and the IQVIA Benefits Investment
Committee (together “Defendants”). (Doc. 18.) Plaintiffs
responded in opposition, (Doc. 22), and Defendants filed a
reply, (Doc. 23). Defendants move to dismiss Plaintiff’s Amended
Complaint under Federal Rules of Civil Procedure 12(b)(6).
For the reasons set forth herein, this court will deny
Defendants’ motion.
I. FACTUAL AND PROCEDURAL BACKGROUND
On a motion to dismiss, a court must “accept as true all of
the factual allegations contained in the complaint . . . .” Ray
v. Roane, 948 F.3d 222, 226 (4th Cir. 2020). The facts, taken in
the light most favorable to Plaintiffs, are as follows.
Plaintiff IQVIA, Inc. (“IQVIA”) sponsors a qualified tax-
deferred, defined contribution retirement plan (“the Plan”) for
participating employees. (Am. Complaint (“Am. Compl.”) (Doc. 17)
¶¶ 2, 4, 24.) This type of plan, commonly referred to as a
401(k), allows participants to direct their retirement savings
contributions into various investment fund options offered by
the Plan. (Id. ¶ 24.) The Plan is one of the largest in the
nation, with over 21,000 participants and total assets over $1.6
billion. (Id. at ¶ 4.) Plaintiffs are participants, both past
and present, in the Plan. (Id. ¶¶ 9-10, 12-14.) Defendants are
fiduciaries of the Plan and responsible for its administration,
including choosing the Plan’s lineup of fund options. (Id. ¶ 5.)
In particular, IQVIA’s Board of Directors exercises
discretionary authority over the Benefit Investment Committee,
the entity “which ha[s] control over Plan management and/or
authority or control over management or disposition of Plan
assets.” (Id. ¶ 16.)
Stated broadly, Plaintiffs allege that two primary failings
of the Plan since 2014 constitute breaches of Defendants’
fiduciary duties of loyalty and prudence under the Employee
Retirement Income Security Act, (“ERISA”), 29 U.S.C. § 1001, et
seq. First, Plaintiffs allege Defendants are selecting and
retaining underperforming funds in the Plan’s lineup “causing
Plan participants to miss out on greater investment returns for
their retirement savings.” (Id. ¶ 46; see also id. ¶¶ 30-39, 43-
53.) Second, Plaintiffs allege Defendants are failing to
adequately control the Plan’s cost causing “participants [to]
suffer harm to their retirement savings through the payment of
needless extra fees.” (Id. ¶ 59; see also id. ¶¶ 40-42, 54-59.)
A. Underperformance of Funds in the Plan’s Lineup
Plaintiffs allege that Defendants are breaching their
fiduciary duties by consistently selecting and retaining funds
for the Plan’s lineup that are unsuitable for the average
retirement investor. (Id. ¶¶ 46, 49, 53.) The Plan’s lineup
features twenty-eight funds in total, (id. ¶ 54), and Plaintiffs
allege that fourteen of these are so underperforming — when
compared to funds simply tracking the market — that Defendants’
selection of them breached their fiduciary duties, (id. ¶¶ 46,
49, 53).
The Fidelity Freedom Funds Active Suite (“the Active
Suite”) accounts for twelve of these allegedly underperforming
funds.1 (Id. ¶ 29.) The Active Suite consists of “all-in-one”
retirement target date funds, (id. ¶ 30), which “gradually
shift[] to become more conservative as the assumed target
retirement year approaches,” (id. ¶ 29). The Active Suite is the
Plan’s default investment option, meaning that if participants
do not themselves select funds from the lineup, all their
contributions are automatically invested in an Active Suite
fund. (Id. ¶ 32.) “Given that the vast majority of plan
participants are not sophisticated investors, many of the Plan
participants, by default, concentrate their retirement assets in
target date funds. . . . Indeed, by December 31, 2018,
approximately 54% of the Plan’s assets were invested in the
Active suite.” (Id. ¶ 33.)
Plaintiffs allege that the Active Suite target date funds
are underperforming when compared to the Fidelity Freedom Funds
Index Suite (“the Index Suite”) target date funds, which are not
1 The other two allegedly underperforming funds are the
Columbia Acorn USA Fund and the Prudential Jennison Mid Cap
Growth Fund. (Am. Compl. (Doc. 17) ¶ 48-53.) Plaintiffs assert
similar criticisms against these funds; namely, that Defendants
should replace them with funds tracking the market. (Id.)
included in the Plan’s lineup. Plaintiffs insist that
“Defendants’ decision to add the Active suite over the Index
suite, and their failure to replace the Active suite with the
Index suite at any point during the Class Period, constitutes a
glaring breach of their fiduciary duties.” (Id. ¶ 31.) “[B]y
choosing to select and retain the Active suite,” Defendants
allegedly “caus[ed] Plan participants to miss out on greater
investment returns” that the Index Suite could have generated.
(Id. at 46.)
Plaintiffs argue that the Index Suite is an appropriate
benchmark to measure the Active Suite’s performance because the
two Suites are similar in many ways — they are offered by the
same investment management company, they share a management
team, and appear to have near identical asset allocation
strategies. (Id. ¶¶ 30, 31, 34.) The chief distinction between
the Suites is that the Active Suite mainly invests in actively
managed mutual funds, while the Index Suite invests in passive
funds that simply track the market. (Id. ¶ 31.) Therefore,
Plaintiffs argue that the Index Suite serves as an ideal
benchmark to measure the Active Suite’s performance; the Index
Suite “is the control while the Active Suite, with its expanded
discretion to the investment managers, is the variable.”
(Doc. 22 at 20.)
Plaintiffs allege that the Active Suite’s investments are
riskier than the Index Suite’s, (Am. Compl. (Doc. 17) ¶ 34-39),
and that this risk has not been worthwhile because “the Active
suite has simply failed to measure up to the returns produced by
its index cousin, in which the Plan participants’ assets would be
significantly better off.” (Id. ¶ 45.) Plaintiffs note that “the
Index suite has outperformed the Active suite . . . across every
vintage of the fund families, [meaning that] the Index suite
would have earned investors significantly greater sums.” (Id.
¶ 46.) Third parties allegedly concur. (Id. ¶¶ 43-44.) An
investment research organization gave the Index Suite a better
ranking, (id. ¶ 44), and investors have allegedly decreased
their investments in the Active Suite and increased their
investments in the Index Suite. (Id. ¶ 43.)
B. Excessive Cost of Funds in the Plan’s Lineup
Plaintiffs also allege that Defendants breached their
fiduciary duties by offering funds in the Plan that are too
expensive. (Id. ¶¶ 40-42, 54-59.) Plaintiffs explain that
“[e]ven a minor increase in a fund’s expense ratio (the total
annual cost to an investor, expressed as a percentage of assets)
can considerably reduce long-term retirement savings.” (Id.
¶ 40.)
Plaintiffs allege that at least seventeen of the funds in
the Plan are “substantially more expensive than comparable funds
found in similarly sized plans.” (Id. ¶ 54.) Most of these
overly expensive funds were from the Active Suite, which has
much higher fees than the Index Suite. (Id. ¶ 40.)
In addition to replacing the Active Suite with the Index
Suite, Plaintiffs specify two other ways Defendants should have
lowered the Plan’s expense ratio: (1) by replacing a fund with a
cheaper alternative investment vehicle, known as a “collective
trust,” comprised of identical underlying investments, (id.
¶¶ 56-57); and (2) by replacing a fund’s unnecessarily expensive
share class with the least expensive class, as the classes are
identical other than price, (id. ¶¶ 58-59). Plaintiffs insist
that these cheaper options were available to Defendants because
large institutional investors, such as the Plan, should be able
to leverage their size in negotiations to get fund managers to
agree to provide lower fee options. (Id. ¶¶ 26, 58.)
C. Procedural History
Plaintiffs filed their original complaint on June 23, 2020.
(Doc. 1.) Defendants moved to dismiss it under Rule 12(b)(6).
(Doc. 8.) Plaintiffs subsequently filed an Amended Complaint on
September 25, 2020, asserting three counts: (I) breach of
fiduciary duties; (II) failure to monitor fiduciaries and
co-fiduciaries; and, in the alternative, (III) knowing breach of
trust. (Am. Compl. (Doc. 17) ¶¶ 79-95.)
Defendants renewed their Motion to Dismiss on October 23,
2020, (Doc. 18), and filed an accompanying Memorandum, (Doc.
19). Plaintiffs responded, (Doc. 22), and Defendants replied,
(Doc. 23). In the ensuing months, both parties brought to this
court’s attention subsequent decisions in analogous ERISA cases.
(Docs. 24-29.) This matter is now ripe for adjudication.
II. STANDARD OF REVIEW
To survive a Rule 12(b)(6) motion, “a complaint must
contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible on its
face if “the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is
liable” and demonstrates “more than a sheer possibility that a
defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (citing
Twombly, 550 U.S. at 556–57). When ruling on a motion to
dismiss, this court accepts the complaint’s factual allegations
as true. Iqbal, 556 U.S. at 678. Further, this court liberally
construes “the complaint, including all reasonable inferences
therefrom, . . . in the plaintiff’s favor.” Est. of Williams-
Moore v. All. One Receivables Mgmt., Inc., 335 F. Supp. 2d 636,
646 (M.D.N.C. 2004). This court does not, however, accept legal
conclusions as true, and “[t]hreadbare recitals of the elements
of a cause of action, supported by mere conclusory statements,
do not suffice.” Iqbal, 556 U.S. at 678.
III. ANALYSIS
This court will deny Defendants’ Rule 12(b)(6) Motion to
Dismiss because Plaintiffs’ factual allegations, taken as true,
sufficiently state claims as to all three counts.
A. Breach of Fiduciary Duties (Count I)
To allege a breach of ERISA’s fiduciary duties of loyalty
and prudence, Plaintiffs must allege three elements: “(1) the
Plan is governed by ERISA; (2) Defendants were fiduciaries of
the Plan; and (3) Defendants breached their [fiduciary] duties
of prudence and/or loyalty under ERISA, resulting in losses to
the participants of the Plan.” Jones v. Coca-Cola Consol., Inc.,
No. 3:20-cv-00654-FDW-DSC, 2021 WL 1226551, at *4 (W.D.N.C.
Mar. 31, 2021). Defendants do not contest that Plaintiffs’
allegations satisfy the first and second elements, but they do
argue that Plaintiffs have failed to sufficiently allege the
third element. (Memo. of Law in Supp. of Defs.’ Renewed Mot. to
Dismiss (“Defs.’ Br.”) (Doc. 19) at 12-27.)2
ERISA’s fiduciary duties require plan fiduciaries to act:
(1) . . . solely in the interest of the participants
and beneficiaries and –
(A) for the exclusive purpose of:
(i) providing benefits to participants and
their beneficiaries; and
(ii) defraying reasonable expenses of
administering the plan; [and]
(B) with the care, skill, prudence, and
diligence under the circumstances then prevailing that
a prudent man acting in a like capacity and familiar
with such matters would use in the conduct of an
enterprise of a like character and with like aims.
29 U.S.C. § 1104(a)(1)(A), (B). These “fiduciary obligations of
the trustees to the participants and beneficiaries of [an ERISA]
plan are . . . the highest known to the law.” Tatum v. RJR
Pension Inv. Comm., 761 F.3d 346, 356 (4th Cir. 2014) (quoting
Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir. 1982)).
Plaintiffs allege Defendants breached these fiduciary
duties because (1) certain actively managed funds in the Plan’s
lineup have consistently underperformed when compared to funds
tracking the market, supra Part I.A, and (2) the Plan is too
2 All citations in this Memorandum Opinion and Order to
documents filed with the court refer to the page numbers located
at the bottom right-hand corner of the documents as they appear
on CM/ECF.
expensive, supra Part I.B. Courts have found similar factual
allegations sufficient to allege ERISA breach of fiduciary
duties claims. See, e.g., In re MedStar ERISA Litig., Civil
Action No. RDB-20-1984, 2021 WL 391701, at *6 (D. Md. Feb. 4,
2021) (“[P]laintiffs’ allegations that specific funds
underperformed” compared to funds tracking the market plausibly
stated a breach of fiduciary duty claim.); Jones, 2021 WL
1226551, at *4 n.3 (“Alleging that excessively high fees were
charged to plan participants can independently constitute a
breach of one’s duties of prudence and/or loyalty under
ERISA.”); Kruger v. Novant Health, Inc., 131 F. Supp. 3d 470,
478 (M.D.N.C. 2015) (“[T]he plaintiff alleged that the plan
fiduciaries were utilizing imprudently expensive investment
options to the detriment of the plan. Following this logic,
present Plaintiffs have stated enough of a claim for breach of
fiduciary duty to survive Defendants’ motion to dismiss.”).
Nevertheless, Defendants argue that Plaintiffs’ allegations
of fund underperformance fail as a matter of law because they
are made by comparing actively managed funds (e.g., the Active
Suite) to funds simply tracking the market (e.g., the Index
Suite) — an allegedly “apples and oranges” comparison. (Defs.’
Br. (Doc. 19) at 18 (quoting Davis v. Wash. Univ., 960 F.3d 478,
485 (8th Cir. 2020)).) However, Defendants’ argument raises
factual questions and thus is premature. “Courts have
specifically held that the determination of the appropriate
benchmark for a fund is not a question properly resolved at the
motion to dismiss stage.” MedStar, 2021 WL 391701, at *6.
Accordingly, this court finds the comparison sufficient at this
preliminary juncture to state a plausible claim for breach of
fiduciary duties due to underperformance.
Defendants also argue that the Plan’s costs fell within an
acceptable range as a matter of law, and thus Plaintiffs have
failed to sufficiently allege the Plan was too expensive.
(Defs.’ Br. (Doc. 19) at 20-22, 27.) A court in this circuit
recently rejected this argument in a similar case. See Jones,
2021 WL 1226551. In Jones, the plaintiffs alleged facts and
claims near identical to the ones Plaintiffs assert here —
including those concerning the cost savings of converting to
collective trusts and utilizing the cheapest share class
available. Id. at *1-2, *5. The district court in Jones held
that the “Plaintiffs’ factual allegations regarding [the]
Defendants’ alleged failure to utilize cheaper investments that
offer identical underlying investments [namely, a collective
trust and a cheaper share class] sufficiently state[d] a claim
for breach of fiduciary duty.” Id. at *5. Given Jones’
similarity to the claims asserted here, (Am. Compl. ¶¶ 56-59),
this court likewise finds that Plaintiffs’ allegations of
excessive cost suffice to state a fiduciary duty breach claim.
Therefore, Plaintiffs have sufficiently alleged that
Defendants breached their fiduciary duties on the grounds of
underperformance and excessive cost, and accordingly, this court
will deny Defendants’ Motion to Dismiss Count I.
B. Failure to Monitor Fiduciaries (Count II)
Plaintiffs allege Defendant IQVIA failed to adequately
monitor the Benefit Investment Committee and that the Committee
itself failed to monitor its own members, leading to “enormous
losses as a result of the [members’] imprudent actions.” (Id.
¶ 89(a).) The power “‘to appoint, retain and remove plan
fiduciaries constitutes ‘discretionary authority’ over the
management or administration of a plan within the meaning of
[ERISA, 29 U.S.C.] § 1002(21)(A),’ and such authority ‘carries
with it a duty ‘to monitor appropriately’ those subject to
removal.’” MedStar, 2021 WL 391701, at *7 (quoting Coyne &
Delany Co. v. Selman, 98 F.3d 1457, 1465 (4th Cir. 1996)).
Defendants argue that Plaintiffs’ monitoring claim must be
dismissed because it is derivative of a deficient underlying
fiduciary duty claim. (Defs.’ Br. (Doc. 19) at 28.) However,
because this court has already found that Plaintiffs’ fiduciary
duty claim is factually sufficient, see supra Part III.A, this
argument fails. Defendants also argue that Plaintiffs have not
alleged “specific facts regarding the monitoring process or how
it might have been deficient.” (Id.) In actuality, Plaintiffs
have alleged such facts, (Am. Compl. (Doc. 17) ¶¶ 16, 84-92),
but regardless “an analysis of the precise contours of the
defendants’ duty to monitor . . . is premature” at the motion to
dismiss stage. Jones, 2021 WL 1226551, at *5 (internal quotation
marks omitted) (quoting In re M&T Bank Corp. ERISA Litig., No.
16-CV-375 FPG, 2018 WL 4334807, at *31 (W.D.N.Y. Sept. 11,
2018)).
Therefore, Plaintiffs have sufficiently alleged a failure
to monitor claim, and accordingly, this court will deny
Defendants’ Motion to Dismiss Count II.
C. Knowing Breach of Trust (Count III)
If any of the Defendants are found not to be fiduciaries of
the Plan under ERISA, Plaintiffs claim these Defendants should
still be held liable for knowing breaches of trust because they
possessed information to avoid the fiduciary breaches but
nevertheless knowingly participated in them. (Am. Compl. (Doc.
17) ¶ 93-95.) Defendants argue that this claim should be
dismissed “for want of any factual detail,” especially detail
indicating that Defendants had knowledge of unlawful
transactions. (Defs.’ Br. (Doc. 19) at 29.)
But, in both MedStar, 2021 WL 391701, at *7, and Jones, all
that was required for “a knowing breach of trust claim [to]
survive[] a motion to dismiss” were allegations that
“Defendants’ roles and relationships would place them in a
position to know of nonfeasance or malfeasance of the others.”
Jones, 2021 WL 1226551, at *5. Here, Defendants have made such
allegations. (Am. Compl. (Doc. 17) IG 5, 16-18, 93-95.)
Therefore, Plaintiffs have sufficiently alleged a knowing breach
of trust claim, and accordingly, this court will deny
Defendants’ Motion to Dismiss Count IIT.
Iv. CONCLUSION
For the foregoing reasons, this court finds that
Defendants’ Renewed Motion to Dismiss should be denied.
IT IS THEREFORE ORDERED that Defendants’ Renewed Motion to
Dismiss the Amended Complaint, (Doc. 18), is DENIED.
This the 2ist day of September, 2021.
*
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