The opinion
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
RAY ALLEN LUENSE, PAMELA PEARSON,
DANIEL F. SETTNEK, and NEIL ROSE,
Individually and as representatives of a class of
participants and beneficiaries on behalf of the Civil Action No. 20-6827
Konica Minolta 401(k) Plan, (JMV) (MF)
Plaintiffs,
OPINION
v.
KONICA MINOLTA BUSINESS SOLUTIONS
U.S.A., INC., BOARD OF DIRECTORS OF
KONICA MINOLTA BUSINESS SOLUTIONS
U.S.A., INC., KONICA MINOLTA 401(K)
PLAN COMMITTEE, SANDRA SOHL,
SUSAN MCCARTHY, and JOHN DOES 1-30,
Defendants.
John Michael Vazquez, U.S.D.J.
This putative class action, brought under the Employee Retirement Income Security Act
(“ERISA”), arises out of allegations that fiduciaries of Konica Minolta’s 401(k) plan breached
their duties of loyalty and prudence and engaged in a prohibited transaction. Presently before the
Court is Defendants’ motion to dismiss Plaintiffs’ Complaint. The Court reviewed all the
submissions in support and in opposition1 and considered the motion without oral argument
1 Defendants’ moving brief will be referred to as “Def. Br.,” D.E. 23-1. Plaintiffs’ opposition brief
will be referred to as “Opp. Br.,” D.E. 35. Defendants’ reply brief will be referred to as “Reply,”
D.E. 38. Plaintiffs also submitted two notices of supplemental authority, D.E. 40, 43, to which
Defendants filed responses, D.E. 41, 42, 45. On April 29, 2021 Plaintiffs filed a motion for leave
to submit supplemental authority, D.E. 46, which Defendants opposed, D.E. 47, and to which
Plaintiffs replied, D.E. 48. Plaintiffs filed a second motion for leave to file additional supplemental
pursuant to Federal Rule of Civil Procedure 78(b) and Local Civil Rule 78.1(b). For the reasons
discussed below, Defendants’ motion to dismiss is GRANTED in part and DENIED in part.
I. FACTS AND PROCEDURAL HISTORY2
At issue in this matter is Konica Minolta Business Solutions U.S.A. Inc.’s (“Konica”)
401(k) plan (the “Plan”). The named Plaintiffs are four individuals who participated in the Plan.
Id. ¶¶ 19-22. They bring this action on behalf of themselves and a proposed class defined as “[a]ll
persons, except Defendants and their immediate family members, who were participants in or
beneficiaries of the Plan, at any time between June 4, 2014 and the present (the ‘Class Period’).”
Id. ¶ 50.
Defendant Konica is a New York corporation with its principal place of business in New
Jersey. Id. ¶ 26. Konica is the sponsor, administrator, and a fiduciary of the Plan, within the
meaning of 29 U.S.C. § 1002(21)(A). Id. ¶ 30. Defendant Sandra Sohl “has been the Director,
Compensation, Benefits & HRIS at [Konica]” since April 2013. Id. ¶ 28. Defendant Susan
McCarthy has been the Manager, Compensation & HRIS at [Konica] since April 2014.” Id. ¶ 29.
The “Board Defendants” are a group comprised of Konica’s Board of Directors and each of its
individual members during the Class Period (John Does 1-10). Id. ¶ 32. The “Committee
Defendants” are a group comprised of both the Plan Committee to which Konica delegated certain
administrative and investment related duties, and each of its members during the Class Period
(John Does 11-20). Id. ¶ 35-38. The remaining Defendants, John Does 21-30, “include but are
authority on May 10, 2019, D.E. 49, which Defendants opposed, D.E. 50. The Court grants
Plaintiffs’ motions, D.E. 46, 49, and considers the parties’ filings related to supplemental authority.
2 The factual background is taken from the Complaint (“Compl.”), D.E. 1. When reviewing a
motion to dismiss, the Court accepts as true all well-pleaded facts in the complaint. Fowler v.
UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009).
not limited to, Konica officers and employees where are/were fiduciaries of the Plan . . . during
the Class Period.” Id. ¶ 39.
The Plan is a single-employer “defined contribution” or “individual account” plan, within
the meaning of 29 U.S.C. § 1002(34). Id. ¶ 41. This type of plan “confer[s] tax benefits on
participating employees to incentivize saving for retirement.” Id. ¶ 3. “[T]he Plan provides for
individual accounts for each participant and for benefits based solely upon the amount contributed
to those accounts, and any income, expense, gains and losses, and any forfeitures of accounts of
the participants which may be allocated to such participant’s account.” Id. ¶ 41. As a result, the
Plan’s retirement benefits “are based solely on the amounts allocated to each individual’s account.”
Id.
The Plan’s participants may contribute to their account, subject to limitations of the Internal
Revenue Code and other federal limits, and Konica matches a portion of employee contributions.
Id. ¶¶ 44-46. Participants can “direct the investment of their contributions into various investment
options offered by the Plan.” Id. ¶ 44. The Plan Committee determines the appropriateness of the
various investment offerings and monitors the performance of investments. Id. ¶ 47. During the
Class Period, “[v]arious funds were available to Plan participants for investing.” Id. ¶ 47. As of
December 31, 2019, the Plan offered 27 different investment options to its participants. Id. ¶ 49.
Of these options, some were “passively managed funds, which are “designed to track a market
index like the Standard & Poor’s 500,” and others were “actively managed funds, which have a
mix of securities selected by the fund manager based on his or her belief that they will beat the
market.” Id. ¶¶ 84-85. The Plan pays more for actively managed funds “in order to compensate
the fund managers and their associates for the work associated with stock picking.” Id. ¶ 85. The
Plan’s recordkeeper is Prudential Retirement Insurance and Annuity Company (“Prudential”),
which is paid “per participant recordkeeping and other administrative costs during the Class
Period.” Id. ¶ 136. The Plan fit the classification of a “Large” plan – as of December 31, 2017,
the Plan had more than $810 million in assets and as of December 31, 2018, it had more than $766
million. Id. ¶¶ 6-7.
Plaintiffs allege that Defendants were fiduciaries of the Plan and that, pursuant to 29 U.S.C.
§ 1104(a)(1), they were required to manage and administer the Plan in the interest of the Plan’s
participants and bound by the duties of loyalty and prudence. Id. ¶¶ 59-60. As fiduciaries, 29
U.S.C. § 1105(a) provides that Defendants could be liable for another fiduciary’s breach of
responsibility. Defendants breached these duties, Plaintiffs allege, by including “many mutual
fund investments that were more expensive than necessary and otherwise were not justified on the
basis of their economic value to the Plan”; failing “to have a proper system of review in place to
ensure that participants in the Plan were being charged appropriate and reasonable fees for the
Plan’s investment options”; and failing “to leverage the size of the Plan to negotiate lower expense
ratios for certain investment options maintained and/or added to the Plan during the Class Period.”
Id. ¶¶ 66-67.
Plaintiffs filed their Complaint on June 4, 2020. D.E. 1. The Complaint asserts three
claims: Count One alleges that Konica and the Committee Defendants breached the fiduciary
duties of loyalty and prudence; Count Two alleges that Konica and the Board Defendants failed to
adequately monitor other fiduciaries; and Count Three alleges a prohibited transaction based on
excessive and unreasonable compensation in violation of ERISA. Compl. ¶¶ 142-161. The current
motion followed.
II. STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(6) permits a defendant to move to dismiss a count
for “failure to state a claim upon which relief can be granted[.]” To withstand a motion to dismiss
under Rule 12(b)(6), a plaintiff must allege “enough facts to state a claim to relief that is plausible
on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A complaint is plausible on
its face when there is enough factual content “that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). Although the plausibility standard “does not impose a probability requirement, it does
require a pleading to show more than a sheer possibility that a defendant has acted unlawfully.”
Connelly v. Lane Const. Corp., 809 F.3d 780, 786 (3d Cir. 2016) (internal quotation marks and
citations omitted). As a result, a plaintiff must “allege sufficient facts to raise a reasonable
expectation that discovery will uncover proof of [his] claims.” Id. at 789.
In evaluating the sufficiency of a complaint, a district court must accept all factual
allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff.
Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008). A court, however, is “not
compelled to accept unwarranted inferences, unsupported conclusions or legal conclusions
disguised as factual allegations.” Baraka v. McGreevey, 481 F.3d 187, 211 (3d Cir. 2007). If,
after viewing the allegations in the complaint most favorable to the plaintiff, it appears that no
relief could be granted under any set of facts consistent with the allegations, a court may dismiss
the complaint for failure to state a claim. DeFazio v. Leading Edge Recovery Sols., No. 10-2945,
2010 WL 5146765, at *1 (D.N.J. Dec. 13, 2010).
III. ANALYSIS
a. Article III Standing
The Constitution provides that “judicial Power” extends to “Cases” and “Controversies[.]”
U.S. Const. art. III, § 2. To meet the case-or-controversy requirement, a plaintiff must show it has
standing to sue. See Raines v. Byrd, 521 U.S. 811, 818 (1997) (citation omitted). To establish
Article III standing, a plaintiff “must demonstrate ‘(1) an injury-in-fact, (2) a sufficient causal
connection between the injury and the conduct complained of, and (3) a likelihood that the injury
will be redressed by a favorable decision.”’ Finkelman v. Nat’l Football League, 810 F.3d 187,
193 (3d Cir. 2016) (quoting Neale v. Volvo Cars of N. Am., LLC, 794 F.3d 353, 358-59 (3d Cir.
2015)). An injury-in-fact requires a plaintiff to show that she suffered “an invasion of a legally
protected interest” that is “concrete and particularized[.]” Lujan v. Defenders of Wildlife, 504 U.S.
555, 560 (1992). A particularized injury means that it “must affect the plaintiff in a personal and
individual way.” Id. at 560, n.1. A concrete injury refers to one that actually exists; one that is
real and not abstract. Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1548 (2016). In addition, “[t]he
injury must be concrete in both a qualitative and temporal sense[.]” Kamal v. J. Crew Grp., Inc.,
918 F.3d 102, 110 (3d Cir. 2019) (quoting Whitmore v. Arkansas, 495 U.S. 149, 155 (1990)).
Defendants argue that Plaintiffs lack standing to assert claims related to the eighteen
investment options in which they did not invest because they suffered no personal injury as a result
of those investments. Def. Br. at 24.3 Defendants further contend that Plaintiffs lack standing
with respect to their allegations that the Plan should have included more index funds and their
3 The Complaint indicates that 27 different investment options were available to Plan participants
as of December 31, 2018. Compl. ¶ 49. Of these, 25 were challenged as imprudent. Id. ¶ 10.
The named Plaintiffs collectively participated in 7 of the 25 challenged investment options. Id. ¶¶
19-22.
allegations concerning the expense of the Plan’s investment options; Defendants allege that
Plaintiffs have failed to plausibly allege that they were injured or suffered losses in connection
with these allegations. Id. at 25. In opposition, Plaintiffs submit that this argument has been
rejected by courts across the country “because Plaintiffs’ losses in their Plan investment options,
as well as the higher recordkeeping fees they paid along with all other participants in the Plan are
fairly and properly traceable to Defendants’ breaches of the duties of prudence and loyalty as
described in the Complaint.” Opp. Br. at 12.
Defendants rely on Thole v. U.S. Bank N.A., -- U.S. --, 140 S. Ct. 1615 (2020) for the
proposition that Plan participants lack standing to represent the Plan itself unless they were
personally injured by the challenged conduct. Def. Br. at 24-25. However, the Thole Court
emphasized that it was “[o]f decisive importance” that the relevant retirement plan was a defined-
benefit plan and not a defined-contribution plan. Id. at 1618. The Supreme Court explained as
follows:
In a defined-benefit plan, retirees receive a fixed payment each
month, and the payments do not fluctuate with the value of the plan
or because of the plan fiduciaries’ good or bad investment decisions.
By contrast, in a defined-contribution plan, such as a 401(k) plan,
the retirees’ benefits are typically tied to the value of their accounts,
and the benefits can turn on the plan fiduciaries’ particular
investment decisions.
Id. Pursuant to Thole, Plaintiffs have standing with respect to the investment funds in which they
invested. McGowan v. Barnabas Health, Inc., No. 20-13119, 2021 WL 1399870, at *3 (D.N.J.
Apr. 13, 2021).
As for the remaining investment funds in which the Plans were invested but the named
Plaintiffs were not, “Thole suggests . . . that a plaintiff has standing to sue on behalf of the Plan,
even if that particular plaintiff was not invested in each one of the Plan’s investment vehicles.” Id.
at *4. If a plan’s participants “have alleged an injury to their own investments by virtue of the
Fiduciaries’ mismanagement, sufficient to create a case or controversy for Article III purposes,”
then ERISA “grants the Participants a cause of action to sue on behalf of the Plan[].” Id. Since
Thole, courts “have generally rejected the argument that a plaintiff’s ERISA challenge must be
confined to the individual funds in which he or she invested.” Id. (citing district court cases).
The Complaint alleges that “Plaintiff’s individual accounts in the Plan were harmed
because they invested in investment options that would have been removed from the Plan had
Defendants discharged their fiduciary duties.” Compl. ¶ 18. Additionally, Plaintiffs allege that
they and the Plan’s other participants “suffered financial harm as a result of the imprudent
investment options in the Plan” because they were deprived “of the opportunity to grow their
retirement savings by investing in prudent options with reasonable fees, which would have been
available . . . if Defendants had satisfied their fiduciary obligations.” Id. ¶ 17. Plaintiffs allege
Plan-wide injuries and, as a result, the Court finds that Plaintiffs have standing to challenge the
Plan’s management and to assert their ERISA claims. In re Quest Diagnostics Inc. ERISA Litig.,
No. 20-07936, 2021 WL 1783274, at *2 (D.N.J. May 4, 2021).
b. Defendants’ Fiduciary Status
As a threshold matter, the Court must first consider whether Defendants were acting as
fiduciaries under ERISA when taking the actions of which Plaintiffs complain. Perrone v. Johnson
& Johnson, No. 19-923, 2020 WL 2060324, at *6 (D.N.J. Apr. 29, 2020). Defendants submit that
the Committee was the sole fiduciary responsible for the actions Plaintiffs challenge and argue that
Plaintiffs have not plausibly alleged that Konica, the Board, the individual members of the Board,
and the individual members of the Committee functioned as fiduciaries with respect to the acts
alleged in the Complaint. Def. Br. at 5.
“ERISA requires every plan to identify at least one ‘named fiduciary’ with the
responsibility for plan administration.” Perrone, 2020 WL 2060324 at *6 (citing 29 U.S.C. §
1102(a)(1)). Additionally, individuals who act in a fiduciary capacity are also considered
fiduciaries of the plan, even if they are not expressly named. Id. ERISA provides that
a person is a fiduciary with respect to a plan to the extent (i) he
exercises any discretionary authority or discretionary control
respecting management of such plan or exercises any authority or
control respecting management or disposition of its assets, (ii) he
renders investment advice for a fee or other compensation, direct or
indirect, with respect to any moneys or other property of such plan,
or has any authority or responsibility to do so, or (iii) he has any
discretionary authority or discretionary responsibility in the
administration of such plan.
29 U.S.C. § 1002(21)(A). “Because an entity is only a fiduciary to the extent it possesses authority
or discretionary control over the plan, we must ask whether [the entity] is a fiduciary with respect
to the particular activity in question.” Renfro v. Unisys Corp., 671 F.3d 314, 321 (3d Cir. 2011)
(internal quotation and citations omitted). Thus, when a breach of fiduciary duty is alleged, “the
threshold question is not whether the actions of some person employed to provide services under
a plan adversely affected a plan beneficiary’s interest, but whether that person was acting as a
fiduciary . . . when taking the action subject to complaint.” Id. (quoting Pegram v. Herdrich, 530
U.S. 211, 226 (2000)).
Here, the relevant allegations concern the investment and administration of the Plan’s
assets and its recordkeeping expenses. Compl. ¶¶142-61. Most paragraphs in the Complaint make
allegations against “Defendants” without specifying exactly which Defendant was responsible for
each challenged action.4 Because the allegations are charged against Defendants collectively, it is
4 Defendants have not raised the issue of group pleading, and the Court will not address it sua
sponte.
difficult to discern precisely what discretion each individual Defendant/group of Defendants had
and how they exercised it.
Turning first to Konica, Plaintiffs allege that it is “the Plan sponsor, administrator, and a
fiduciary of the Plan within the meaning of . . . 29 U.S.C. § 1002(21)(A)” because it is a named
fiduciary under the Plan; it exercised discretionary authority and control over Plan management
and/or over disposition of Plan assets; and it appointed Plan fiduciaries. Compl. ¶ 30. Further,
Konica “has been responsible for ‘handling the day-to-day operations of the Plan,’ and . . . for the
administrative and investment responsibilities associated with the Plan.” Id. ¶ 31. Defendants
argue that Plaintiffs’ allegations that Konica is the Plan’s sponsor is insufficient to create fiduciary
status, and Plaintiffs’ allegations that Konica was a named fiduciary and the Plan’s administrator
are insufficient because Konica delegated these responsibilities to the Committee. Id. at 6-7.
Similarly, Defendants contend, appointing fiduciaries did not confer fiduciary responsibilities
upon Konica. Id. at 7.
The Court agrees with Defendants that Konica is not a fiduciary of the Plan merely by
virtue of being its sponsor. See Fonti v. Health Prof’ls & Allied Emps., No. 13-4231, 2017 WL
1197759, at *9, n.7 (D.N.J. Mar. 31, 2017). However, Plaintiffs allege – and Defendants do not
contest – that Konica is a named fiduciary of the Plan and the Plan’s administrator.5 Compl. ¶¶
30-31; Def. Br. at 6. Nonetheless, the parties disagree as to whether Konica’s delegation of its
responsibilities as named fiduciary and Plan administrator absolved Konica of its fiduciary status.
Def. Br. at 6; Opp. Br. at 17. Plaintiffs allege that Konica delegated the following Plan functions
to the Committee: “[t]o act as a ‘Named Fiduciary’ under ERISA with respect to the control and
5 The parties have not submitted a copy of the Plan with their pleadings or briefing.
management of assets of the Plan and provide oversight of the investments and funding policies
and objectives of the Plan”; “[e]stablish and periodically review the investment management
policies and/or guidelines of the Plan”; “[a]pprove the appointment of investment managers for
the Plan, and the policies and operating procedures governing investment managers”; “[m]onitor
the investment performance of the Plan”; “[r]eceive, review and keep on file reports of investment
performance, financial condition, receipts and disbursements of the Plan’s assets”; “[a]ppoint and
retain individuals to assist in the administration of the Committee’s duties under the Committee
Charter and under the Plan, including consulting services as it may require or as may be required
by any applicable law or laws”; “[a]ppoint and remove the trustee for the Plan and the Plan’s trust”;
and “[r]eport to the Board.” Compl. ¶ 36. The Complaint fails to allege what (if any) discretionary
authority Konica had post-delegation, and how Konica exercised that discretion. The Complaint
fails to allege that any fiduciary duties were non-delegable or that Konica maintained fiduciary
duties through other theories, such as agency.
The parties appear to agree, however, that upon delegation of its ERISA fiduciary duties,
Konica maintained a duty to monitor the Committee’s actions. Def. Br. at 6; Pl. Opp. at 14. As a
result, the Count finds that Plaintiffs have plausibly alleged that Defendant Konica had a fiduciary
responsibility to monitor the Committee’s actions but have not adequately pled that Konica
maintained any additional fiduciary responsibilities with respect to the alleged conduct.
The Court next considers whether Plaintiffs have sufficiently pled that the Board is a
fiduciary. Plaintiffs allege that the Board has “discretion to authorize Konica to contribute annual
profit-sharing amounts to the Plan participants.” Id. ¶ 34. Defendants argue that this is insufficient
to establish that the Board is a fiduciary because “decisions regarding how much to contribute to
the Plan are not ERISA fiduciary acts.” Def. Br. at 8. The Court agrees. Konica’s contribution
of annual profit sharing is not at issue in this lawsuit. There are no further allegations in the
Complaint as to the Board’s discretion and how it exercised that discretion. As a result, Plaintiffs
fail to sufficiently allege that the Board is a fiduciary with respect to the relevant actions.
Turning to the individual members of the Board, Plaintiffs allege that each Board Member
“is/was a fiduciary of the Plan . . . during the Class Period, because each exercised discretionary
authority to appoint and monitor Plan fiduciary who had control over Plan management and/or
authority or control over management or disposition of Plan assets.” Compl. ¶ 32. Defendants
contend that this is insufficient to establish that the individual members were fiduciaries because
“the appointment of fiduciaries does not render the person making the appointment a fiduciary
with the same responsibilities as the appointee.” Def. Br. at 8. Rather, Defendants continue,
appointing a fiduciary only gives the appointor the duty to monitor and supervise the appointee.
Id. Defendants add that Plaintiffs have failed to sufficiently allege that individuals on the Board –
as opposed to the Board itself – had the authority to appoint Plan fiduciaries. Id. at 9. The Court
agrees. The Complaint is devoid of plausible allegations that any individual member of the Board
possessed or exercised discretionary authority over the appointment of Plan fiduciaries.6 The
Court concludes that Plaintiffs have failed to sufficiently plead that the individual members of the
Board were fiduciaries.
Finally, the Court analyzes the fiduciary status of the individual members of the
Committee. The only apparently relevant allegation in the Complaint is the conclusory assertion
that “[t]he Committee and each of its members were fiduciaries of the Plan during the Class Period
. . . because each exercised discretionary authority over management or disposition of Plan assets.”
6 Even if the Board Members did possess and exert this authority, as discussed above, by delegating
their responsibilities to the Committee, the individual Board Members only retained a fiduciary
duty to monitor the Committee – at least as alleged in the Complaint.
Compl. ¶ 37. This allegation is insufficient to plausibly plead that the individual Committee
members were fiduciaries. The Complaint also references two individual Defendants – Sohl and
McCarthy – who signed certain of the Plan’s forms 5500 and served as fiduciaries, Compl. ¶¶ 28-
29; however, these bare allegations are insufficient to establish that these individual Committee
members had discretionary authority over the Plan.
The Court concludes that, in addition to the Committee – which Defendants agree is a
fiduciary – Plaintiffs have plausibly alleged that Konica had a duty to monitor the Committee.
Plaintiffs fail to plausibly allege that any other Defendants were fiduciaries with respect to the
actions challenged in the Complaint.
c. Breach of the Fiduciary Duties of Prudence and Loyalty (Count One)
ERISA’s fiduciary duties are governed by 29 U.S.C. § 1104; “ERISA fiduciaries are
required to act according to duties of prudence and loyalty to Plan participants.” In re Quest
Diagnostics, 2021 WL 1783274, at *3. These duties require fiduciaries to “act with the ‘care, skill,
prudence, and diligence under the circumstances’ that would be expected of a prudent man, and
do so ‘in the interest of the participants and beneficiaries’ and ‘for the exclusive purpose’ of
‘providing benefits to [them]’ while ‘defraying reasonable expenses of administering the plan.’”
Id. (alteration in original) (quoting 29 U.S.C. § 1104(a)(1)(A)-(B)). “To assert a claim for breach
of fiduciary duty under ERISA, Plaintiffs must allege that: ‘(1) a plan fiduciary (2) breache[d] an
ERISA-imposed duty (3) causing a loss to the plan.’” Peterson v. Ins. Servs. Office, Inc., No. 20-
13223, 2021 WL 1382168, at *3 (D.N.J. Apr. 13, 2021) (quoting Chaaban v. Criscito, 468 F.
App’x 156, 161-62 (3d Cir. 2012)).
Count One is brought against Konica and the Committee Defendants. Because Plaintiffs
failed to plausibly allege that the individual Committee members were fiduciaries, or that Konica
had fiduciaries responsibilities beyond a duty to monitor the Committee, Count One fails to state
a claim as to those Defendants. Defendants do not argue that Plaintiffs failed to adequately allege
the causation element. Therefore, the Court considers only whether Plaintiffs adequately stated a
claim that the Committee breached its fiduciary duties of prudence and loyalty.
i. Duty of Prudence
“Under § 1104(a), fiduciaries are held to the prudent man standard of care, which is drawn
from trust law.” Sweda, 923 F.3d at 327 (citing Tibble v. Edison Int’l, 135 S. Ct. 1823, 1828
(2015)). “A fiduciary must prudently select investments, and failure to ‘monitor . . . investments
and remove imprudent ones’ may constitute a breach.” Sweda, 923 F.3d at 328 (alteration in
original) (citing Tibble, 135 S. Ct. at 1828-29). Additionally, fiduciaries “must . . . understand and
monitor plan expenses.” Id. “‘Expenses, such as management or administrative fees, can
sometimes significantly reduce the value of an account in a defined-contribution plan,’ by
decreasing its immediate value, and by depriving the participant of the prospective value of funds
that would have continued to grow if not taken out in fees.” Id. (internal citation omitted) (quoting
Tibble, 135 S. Ct. at 1826). “Fiduciaries must also consider a plan’s ‘power . . . to obtain favorable
investment products, particularly when those products are substantially identical – other than their
lower cost – to products the trustee has already selected.’” Id. at 328-29 (alteration in original)
(quoting Tibble v. Edison Int’l, 843 F.3d 1187, 1198 (9th Cir. 2019).
“Although hindsight cannot play a role in determining whether a fiduciary’s actions were
prudent, many allegations concerning fiduciary conduct are factual questions not properly
addressed at the motion to dismiss stage.” In re Quest Diagnostics, 2021 WL 1783274, at (internal
quotations and citations omitted). Whether a fiduciary complied with the duty of prudence “is an
inherently factual question.” McGowan, 2021 WL 1399870 at *5 (internal quotation omitted). To
determine whether a fiduciary breached its duty of prudence, courts “look[] to its ‘process rather
than results’ and inquir[e] whether ‘it employed the appropriate methods to investigate and
determine the merits of a particular investment.’” Silva v. Evonik Corp., No. 20-2202, 2020 U.S.
Dist. LEXIS 250206, at *9 (D.N.J. Dec. 30, 2020) (quoting Sweda, 923 F.3d at 333). “To survive
a motion to dismiss, however, Plaintiffs need not ‘directly allege how [Defendants] mismanaged
the Plan,’ so long as there is ‘substantial circumstantial evidence’ to permit the Court to
‘reasonably infer that a breach had occurred.’” Id. (alteration in original) (quoting Sweda, 923
F.3d at 332). Because ERISA does not require fiduciaries “to scour the market to find and offer
the cheapest possible fund,” Plaintiffs who rely on “circumstantial evidence must . . . provide a
sound basis for comparison – a meaningful benchmark – to show a prudent fiduciary in like
circumstances would have selected a different fund.” Id. (internal quotations omitted).
In reviewing the Complaint, “the Court may not parse [it] ‘piece by piece to determine
whether each allegation, in isolation is plausible.’” Id. (quoting Sweda, 923 F.3d at 221). “Instead,
the Court employs a ‘holistic approach’ by considering all well-pleaded, non-conclusory
allegations, including the ‘range of investment options,’ ‘reasonableness of fees,’ ‘selection and
retention of investment options,’ and ‘practices of similarly situated fiduciaries.’ Id. (quoting
Sweda, 923 F.3d at 331).
Here, the Complaint includes sufficient allegations that the Committee breached its duty
of prudence. First, Plaintiffs adequately plead that the Plan included funds with higher expense
ratios than comparable funds, and the Plan’s funds failed to outperform the less-expensive
comparable funds. For example, Plaintiffs allege that the Qualified Default Investment Alternative
selected for the Plan – the Principal Lifetime Hybrid CIT Z target retirement date fund – was
imprudent due to its unreasonable expense and underperformance as compared to less expensive
alternative target date funds. Compl. ¶ 48. In support, Plaintiffs include figures depicting that the
Plan’s target retirement date funds had net expense ratios of 0.29%, while comparable Vanguard
funds had net expense ratios of 0.13 to 0.15%. Id. ¶ 103. The Complaint alleges that the
comparable funds “employ the same investment strategies and have at least 90 percent similar
holdings” to those in the Plan. Id. The Complaint continues that “for at least 20” of the Plan’s
funds, “there are many equivalent investments that would cost participants far less than the funds
selected by Defendants.” Id. ¶ 104.
Second, Plaintiffs sufficiently allege that many funds were retained in the Plan despite their
underperformance as compared to their benchmarks. The Complaint includes comparisons of
thirteen of the Plan’s investments with one to five comparable low fee alternative funds. Id. ¶ 117.
Plaintiffs compare the net expense ratios, average annual returns, and the performance of the funds
in the Plan relative to their benchmarks. Id. The Complaint alleges that these figures demonstrate
that Defendants failed to regularly analyze the Plan’s investment options because a prudent
investor would have removed consistently underperforming investments. Id. ¶¶ 112-16.
The Complaint also plausibly pleads a failure to monitor and/or control the Plan’s
recordkeeping expenses. Plaintiffs allege that the Committee failed to take steps to manage and
control recordkeeping costs, such as leveraging the large number of participants in the Plan to
negotiate lower per-participant recordkeeping fees; closely monitoring and tracking the
recordkeeper’s expenses “by demanding documents to summarize and contextualize the
recordkeeper’s compensation”; identifying all fees, including direct compensation and revenue
sharing, to ensure that the recordkeeping fees are reasonable; and remaining informed about
overall trends in the marketplace concerning the fees paid by other plans and the recordkeeping
rates that are available. Id. ¶ 130, 133-135. To support its claims, the Complaint includes data on
the annual direct costs paid to Prudential from 2015-2018, which demonstrates that the cost per
participant rose from $22.89 to $92.54 during the period. Id. ¶ 136. This is unreasonable, Plaintiffs
allege, because the normal recordkeeping fees for a comparable plan would be between $20 and
$40 per participant at the start of the Class Period, and should have been lower in the following
years. Id. ¶ 138. Plaintiffs further aver that the increased in recordkeeping costs on a per
participant basis indicates that the Committee failed to leverage the growing size of the Plan. Id.
¶ 139. These allegations are similar to those deemed sufficient to state a claim in Sweda, as well
as in recent decisions from other courts in this District. See Sweda, 923 F.3d at 332; McGowan,
2021 WL 1399870 at *5; Silva, 2020 U.S. Dist. LEXIS 250206, at *12.
Defendants’ arguments to the contrary are unavailing. Several arguments raised by
Defendants view specific allegations in isolation and argue that, standing alone, they are
implausible. For example, Defendants argue that “[t]he premise of Plaintiffs’ claim is that there
is a requirement to offer a certain number of passively managed index funds in a 401(k) plan,” and
that this is not a requirement under ERISA. Def. Br. at 12. Defendants also assert that Plaintiffs
failed to plausibly allege that the index funds included in the plan were unreasonably expensive
because Plaintiffs do not provide allegations concerning the expenses of two of the three index
funds offered. Def. Br. at 13. The Third Circuit has instructed that “[t]he complaint should not be
parsed piece by piece to determine whether each allegation, in isolation, is plausible.” Sweda, 923
F.3d at 331 (internal quotation omitted). Taking a holistic approach, as this Court must at the
motion to dismiss stage, Plaintiffs have plausibly alleged violations of the duty of prudence.
Defendants also contend that Plaintiffs failed to plausibly allege a claim because the
comparison funds were inappropriate or insufficient. For example, Defendants argue that
Plaintiffs failed to sufficiently claim that the Plan’s investment options underperformed their
benchmarks because the Complaint does not use the benchmarks listed in each fund’s prospectus.
Def. Br. at 15-19. Defendants also argue that actively managed funds cannot be compared with
index funds. Id. at 20-21. These arguments are not properly considered at this stage because “an
inquiry into whether the alternative funds Plaintiff[s] suggest[] are apt comparisons is a question
of fact unsuitable for resolution on a motion to dismiss.” Silva, 2020 U.S. Dist. LEXIS 250206,
at *13 (alterations in original) (internal quotation omitted).
Additionally, Defendants submit that Plaintiffs’ identification of cheaper and/or better
alternative investments fails to state a claim because ERISA confers no duty to select the cheapest
option or the best performing fund. Def. Br. at 18, 20. Again, this Court must employ a holistic
approach and look to the Complaint’s allegations as a whole; Plaintiffs’ plausible allegations, taken
together, create a reasonable inference of mismanagement. McGowan, 2021 WL 1399870, at *6.
Finally, in response to Plaintiffs’ allegations that Defendants failed to monitor the Plan’s
investment options, Defendants argue that Plaintiffs’ own allegations undermine this point because
the Complaint alleges that the Plan removed several funds. Def. Br. at 21. Whether removing
several funds satisfies the duty of prudence is ultimately a question on the merits. At this stage of
the litigation, the Court must accept Plaintiffs’ account of the facts and draw all inferences in
Plaintiffs’ favor. Sweda, 923 F.3d at 333. Viewing Plaintiffs’ overall allegations of the Plan’s
mismanagement, the Court concludes that dismissal of Plaintiffs’ duty of prudence claim as against
the Committee at this early stage would be inappropriate. See In re Quest Diagnostics, 2021 WL
178274, at *4.
i. Duty of Loyalty
ERISA also imposes a duty of loyalty and requires that fiduciaries act “with an eye single
toward beneficiaries’ interests.” McGowan, 2021 WL 1399870, at *7 (quoting Pegram v.
Herdrich, 530 U.S. 211, 235 (2000)). “To plead a loyalty claim, courts look for allegations
suggesting that the fiduciary made decisions benefitting itself or a third party.” Id. “Accordingly,
a plaintiff may not simply ‘recast’ a claim of imprudence as an independent claim of disloyalty
without additional facts suggesting an improper motive or financial benefit.” Silva, 2020 U.S.
Dist. LEXIS 250206, at *19.
The Complaint includes few, if any, allegations to support a claim for breach of the duty
of loyalty. Absent from the Complaint are any facts to suggest that the Committee was acting for
its own benefit or for the benefit of a third party. Although Plaintiffs’ opposition brief includes
arguments that the Committee was acting for the benefit of Prudential, “it is ‘axiomatic that the
complaint may not be amended by the briefs in opposition to a motion to dismiss,” Olson v. Ako,
724 F. App’x 160, 166 (3d Cir. 2018) (quoting Pennsylvania ex rel. Zimmerman v. PepsiCo, Inc.,
836 F.2d 173, 181 (3d Cir. 1988)), and Plaintiffs’ Complaint does not include sufficient factual
allegations to support these contentions. As a result, Defendants’ motion to dismiss is granted as
to Count One with respect to the duty of loyalty.
d. Failure to Adequately Monitor Other Fiduciaries (Count Two)
Count Two is brought against Defendants Konica, the Board, and the individual members
of the Board; however, as previously discussed, the Complaint sufficiently alleges only that Konica
had a duty to monitor the Committee. The Court will therefore analyze Count Two solely as to
Konica.
“Courts recognize that when a fiduciary has and exercises the power to appoint and remove
plan administrators, it has the duty to monitor those appointees.” McGowan, 2021 WL 1399870,
at *8. Further, “[c]ourts have been willing to find a failure to monitor claim if the plaintiff has
adequately alleged a breach of fiduciary duty claim.” Id. Because the Complaint sufficiently
pleads that the Committee breached the duty of prudence, Plaintiffs’ failure to monitor claim also
survives. See id. Defendants’ motion is denied as to Count Two vis-à-vis Konica.
e. Prohibited Transaction – Excessive and Unreasonable Compensation
for Services (Count Three)
Count Three alleges a violation of 29 U.S.C. § 1108(b)(2) based on excessive and
unreasonable compensation paid to the Plan’s recordkeeper, Prudential. Compl. ¶¶ 156-161. As
an initial matter, unlike Counts One and Two, Plaintiffs do not specify against which Defendant(s)
Count Three is brought. One allegation under Count Three refers to “Defendants,” while another
refers to “Defendant.” Compl. ¶¶ 160, 161. Because “prohibited transaction claims require that
an action be taken by an ERISA fiduciary,” and the Complaint plausibly alleges only that the
Committee was a fiduciary with respect to any duties beyond monitoring, the Court construes
Count Three as against the Committee.7
This claim implicates the Prudential Guaranteed Interest Contract Account (“Prudential
GIC”), which is alleged to be “the single largest holding in the Plan with $191,230,964 invested
as of December 31, 2018.” Compl. ¶ 122. Plaintiffs explain that “[t]he Prudential GIC is a stable
value insurance general account product that is designed to provide liquidity and a stable rate of
return.” Id. The Plan’s assets in the Prudential GIC are invested in Prudential’s General Account,
which invests the funds into a portfolio of bonds and common stocks. Id. Prudential “retains the
spread between the overall rate of return on the general account and the interest credited to Plan
participants.” Id. ¶ 123. Pursuant to the arrangement, Prudential receives compensation for “the
return on the investment of the Plan funds transferred to the [General Account], plus the nominal
0.1% expense ratio paid by Participants in the GIC,” minus “the interest credited to Plan
7 Defendants indicate that “the Committee is the only Defendant against who such a claim could
be brought.” Def. Br. at 29 n.15. At the same time, Defendants do not challenge Count Three as
an improper group pleading or as unduly vague.
participants in the [General Account].” Id. Plaintiffs allege that this results in Prudential receiving
compensation that “greatly exceeds a reasonable fee in relation to the costs of administering the
Prudential GIC.” Id.
29 U.S.C. § 1106(a) governs prohibited transactions and “erect[s] a categorical bar to
transactions between the plan and a ‘party in interest’ deemed likely to injure the plan.” Sweda,
923 F.3d at 327 (quoting Nat’l Sec. Sys. v. Iola, 700 F.3d 65, 82 (3d Cir. 2012)). This provision
provides, in relevant part, that “[a] fiduciary with respect to a plan shall not cause the plan to
engage in a transaction, if he knows or should know that such transaction constitutes a direct or
indirect . . . furnishing of goods, services, or facilities between the plan and a party in interest.” 29
U.S.C. § 1106(a)(1)(C). To state a claim for a violation of 29 U.S.C. § 1106(a)(1)(D), Plaintiffs
must allege that “(1) a fiduciary, (2) causes a plan to engage in a transaction, (3) that uses plan
assets, (4) for the benefit of a party in interest, and (5) ‘the fiduciary knows or should know that
elements three and four are satisfied.’” Sweda, 923 F.3d 320 (quoting Reich v. Compton, 57 F.3d
270, 278 (3d Cir. 1995) (internal quotation omitted)).
Defendants characterize the Prudential GIC as a “stable value product” which has “the
insurance company, here Prudential, take the investment risk (and retain the gains in good years,
and eat the losses in bad years), so that participants can have a stable return.” Def. Br. at 28-29.
If Plaintiffs were correct on the law, Defendants argue, then this type of investment product would
be prohibited under ERISA. Defendants argue that the Prudential GIC is a “guaranteed benefit
policy” and ERISA explicitly provides that the assets held in Prudential’s General Account are not
Plan assets so Prudential’s retention of the earnings on these assets is not a prohibited transaction.
Id. at 29.
Plaintiffs have plausibly pled the first two elements of a § 1106(a)(1)(D) claim – they have
alleged that the Committee was a fiduciary that caused the Plan to enter into transactions. Compl.
¶¶ 36, 47. But the allegations concerning elements three, four, and five are conclusory at best. For
example, the fourth element requires Plaintiffs to show that the arrangement was “for the benefit
of a party in interest.” As the Third Circuit explained in Sweda, the purpose of 29 U.S.C. §
1106(a)(1) is “to rout out transactions that benefit [parties in interest] at the expense of
participants.” 923 F.3d at 338. The Sweda court continued, “Section 1106(a)(1) is not meant to
impede necessary service transactions, but rather transactions that present legitimate risks to
participants and beneficiaries such as ‘securities purchases or sales by a plan to manipulate the
price of the security to the advantage of a party-in-interest.’” Id. (quoting Leigh v. Engle, 727 F.2d
113, 117 (7th Cir. 1984)). The fourth element “require[s] a subjective intent to benefit a party in
interest.” Reich v. Compton, 57 F.3d 270, 279 (3d Cir. 1995). The third Circuit explained as
follows:
[I]f element four did not require a subjective intent to benefit a party
in interest, section 406(a)(1)(D) would produce unreasonable
consequences . . . . If ‘for the benefit of’ is read to mean ‘having the
effect of benefitting,’ section 406(a)(1)(D) would appear to prohibit
a fiduciary from causing a plan to engage in any transaction that he
or she should know would result in any form or degree of benefit for
any party in interest, even if the transaction would be highly
advantageous for the plan and the benefit for the party in interest
would be unintended, indirect, and slight.
Id. There are no allegations that the Prudential GIC account was included in the Plan primarily
for the benefit of a party in interest.
Plaintiffs’ prohibited transaction claim actually appears to focus on allegations that
Defendants cannot satisfy exceptions to 29 U.S.C. § 1106(a)(1). 29 U.S.C. § 1108 makes the
following exempt from 29 U.S.C. § 1106: “Contracting or making reasonable arrangements with
a party in interest for office space, or legal, accounting, or other services necessary for the
establishment or operation of the plan, if no more than reasonable compensation is paid therefor.”
29 U'S.C. § 1106(b)(2)(A). The Complaint invokes certain provisions within the Code of Federal
Regulations interpreting these exceptions — Plaintiffs suggest that Defendants cannot satisfy these
exceptions and, therefore, this was a prohibited transaction because Prudential’s compensation was
not reasonable. /d. 124-25. But the provisions Plaintiffs discuss concern exceptions to §
1106(a) —i.e., the regulations provide guidance as to how some transactions that appear to violate
§ 1106(a) may be exempt from § 1106(a)’s requirements and, therefore, not prohibited
transactions. While Plaintiffs allege that Defendants’ do not satisfy these exceptions, Opp. Br. at
26-28, Plaintiffs failed to meet their threshold burden, that is, providing sufficient allegations of a
violation of § 1106(a) in the first instance. As a result, the Court concludes that Plaintiffs failed
to state a prohibited transactions claim and Count Three is dismissed.
IV. CONCLUSION
For the reasons set forth above, Defendants’ motion to dismiss is GRANTED in part and
DENIED in part. Count One is dismissed as against Konica and the individual Committee
members and, insofar as it invokes the duty of loyalty, it is dismissed as to the Committee. Count
Two is dismissed as to the Board of Directors and the individual members of the Board. Count
Three is dismissed. The dismissals are without prejudice and Plaintiffs shall have thirty (30) days
to file an amended complaint that cures the deficiencies noted herein. If Plaintiffs do not file an
amended complaint within that time, the claims dismissed without prejudice will be dismissed
with prejudice. An appropriate Order accompanies this Opinion.
Dated: May 24, 2021
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