Michael Johnson v. Parker-Hannifin Corp.

RECOMMENDED FOR PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 24a0256p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

┐

MICHAEL D. JOHNSON, MATTHEW COLLARO, JOHN M. BERG,

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MALLIKARJUN B. KANDULA, and TYLER L. SEAMONS,

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individually and as representatives of a class of participants

│

and beneficiaries on behalf of Parker Retirement Savings Plan,

│

Plaintiffs-Appellants, > No. 24-3014

│

v. │

│

PARKER-HANNIFIN CORPORATION, BOARD OF DIRECTORS FOR │

PARKER-HANNIFIN CORPORATION, HUMAN RESOURCES AND │

THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS │

FOR PARKER-HANNIFIN CORPORATION, and PARKER TOTAL │

REWARDS ADMINISTRATION COMMITTEE, │

Defendants-Appellees. │

┘

Appeal from the United States District Court for the Northern District of Ohio at Cleveland.

No. 1:21-cv-00256—Bridget Meehan Brennan, District Judge.

Argued: July 24, 2024

Decided and Filed: November 20, 2024

Before: MOORE, MURPHY, and BLOOMEKATZ, Circuit Judges.

_________________

COUNSEL

ARGUED: Sean E. Soyars, SCHLICHTER, BOGARD LLP, St. Louis, Missouri, for

Appellants. Michael E. Kenneally, MORGAN, LEWIS & BOCKIUS LLP, Washington, D.C.,

for Appellees. ON BRIEF: Sean E. Soyars, SCHLICHTER, BOGARD LLP, St. Louis,

Missouri, for Appellants. Michael E. Kenneally, MORGAN, LEWIS & BOCKIUS LLP,

Washington, D.C., Christopher J. Boran, Kevin F. Gaffney, MORGAN, LEWIS & BOCKIUS

LLP, Chicago, Illinois, Keri L. Engelman, Joshua Adler, MORGAN, LEWIS & BOCKIUS LLP,

Boston, Massachusetts, for Appellees.

MOORE, J., delivered the opinion of the court in which BLOOMEKATZ, J., joined.

MURPHY, J. (pp. 23–46), delivered a separate dissenting opinion.

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 2

_________________

OPINION

_________________

KAREN NELSON MOORE, Circuit Judge. Five of the approximately 32,000 current

and former Parker-Hannifin Corporation employees who participate in the Parker Retirement

Savings Plan brought this action against the Parker-Hannifin Corporation and related boards,

committees, and board members, alleging that Parker-Hannifin violated the Employee

Retirement Income Security Act of 1974 (“ERISA”). Specifically, the plaintiffs allege that

Parker-Hannifin breached its fiduciary duties by imprudently retaining the Northern Trust Focus

Funds, imprudently providing participants with higher-cost shares, and failing to monitor its

agents in their fiduciary duties. The district court dismissed plaintiffs’ claims. For the following

reasons, we REVERSE the district court’s judgment and REMAND for further proceedings

consistent with this opinion.

I. BACKGROUND1

A. Factual Background

Plaintiffs-Appellants Michael D. Johnson, Matthew W. Collaro, John M. Berg,

Mallikarjun B. Kandula, and Tyler L. Seamons (collectively, “Johnson” or “Plaintiffs”) are five

of the approximately 32,000 current and former Parker-Hannifin Corporation employees who are

participants in the Parker Retirement Savings Plan (“Plan”). R. 20 (Am. Compl. ¶ 14, 16–20)

(Page ID #538–40). They bring their claims individually and as representatives of a class of Plan

participants and beneficiaries. Id. ¶ 1 (Page ID #534). The Plan is a defined contribution

employee pension benefit plan, id. ¶ 11 (Page ID #538), governed by ERISA, 29 U.S.C. § 1002.

Defendant-Appellees (collectively, “Parker-Hannifin”) are the Plan’s fiduciaries and are

collectively responsible for the administration of the Plan. R. 20 (Am. Compl. ¶ 21–30) (Page

ID #540–43).

1

We present the facts by accepting the complaint’s well-pleaded factual allegations as true and interpreting

them in the light most favorable to the plaintiff. Reilly v. Vadlamudi, 680 F.3d 617, 622 (6th Cir. 2012).

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 3

With approximately $4.3 billion in assets, the Plan is among the largest 0.03% of all

defined contribution plans in the United States. Id. ¶ 14–15 (Page ID #538). “Defined

contribution plans dominate the retirement plan scene today.” Id. ¶ 39 (Page ID #546–47)

(quoting LaRue v. DeWolff, Boberg & Assocs., 552 U.S. 248, 255 (2008)). In defined

contribution plans, “the employees and retirees bear all investment risks.” Id. ¶ 40 (Page ID

#547). Plan administrators create a menu of investment options for plan participants—the

employees and retirees—and the participants then select investments from this menu of options.

Id. ¶ 41 (Page ID #547); Johnson v. Parker-Hannifin Corp., No. 1:21-cv-00256, 2023 WL

8374525, at *1 (N.D. Ohio Dec. 4, 2023). The ultimate amount of retirement money available to

participants depends on the success of those investments. See Johnson, 2023 WL 8374525, at

*1.

1. Northern Trust Focus Funds

One of the investment options chosen by Parker-Hannifin was the Northern Trust Focus

Funds (“Focus Funds”). R. 20 (Am. Compl. ¶ 4) (Page ID #535). The Focus Funds are a suite

of target date funds that “were collective investment trusts, not mutual funds, comprised

primarily of index or passive strategies.” Id. ¶ 63 (Page ID #556). Target date funds are “a

single diversified investment vehicle . . . offered as a suite of funds typically identified by the

participant’s target retirement date.” Id. ¶ 45 (Page ID #549). When a target date fund is

passively managed, “the portfolio manager is attempting to mimic the performance of a relevant

benchmark return.” Id. ¶ 51 (Page ID #551). This relevant benchmark is often a market index.

Id.

Target date funds typically “rebalance their portfolios to become more conservative as

the participant gets closer to retirement.” Id. ¶ 47 (Page ID #549). In other words, it is a plan

that gradually shifts a retirement fund’s investments from riskier to safer options as you get

closer to retirement age. This reallocation is based on the Fund’s “glide path.” Id. “A glide path

determines how the fund’s target asset allocations . . . are expected to change over time . . . as the

target retirement date approaches.” Id. “[T]he development of a target date fund’s glide path

and the corresponding underlying asset allocation are the most essential components of a target

date fund.” Id. ¶ 50 (Page ID #550). A “diversion[]” from a target date fund’s “determined glide

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 4

path,” or a significant change in the target date fund’s “underlying assets or asset allocations can

have an extremely negative impact on wealth aggregation of” participants. Id. ¶ 52 (Page ID

#551). Glide paths in retirement funds come in two main types: “to” and “through.” “To” glide

paths reach their most conservative allocation at the target retirement date and stay there, while

“through” glide paths continue to adjust and become more conservative for several years after

the retirement date. The Focus Funds were a “through” target date fund. Id. ¶ 71 (Page ID

#560).

The Focus Funds were launched in 2009. Id. ¶ 63 (Page ID #555). The Focus Funds

were advertised as “back-tested,” meaning that qualitative models were used to create a

hypothetical performance history to demonstrate how the Funds would have performed under

past conditions, had they previously existed. Id. ¶ 65 (Page ID #556–57). Back-tested data is

purely hypothetical and “not reliable because it can be easily manipulated by the investment

manager to show inflated investment results and is based on the benefit of hindsight.” Id.

From the time the Focus Funds launched until 2013, the Funds underperformed the S&P

target date fund benchmark, an “industry-accepted target date benchmark for ‘Through’ target

date funds used by investment professionals.” Id. ¶ 67–68 (Page ID #557).

In addition to underperforming industry standards, the Focus Funds also faced high

turnover rates. Turnover rates measure how often a fund changes its investments, with higher

rates meaning the fund frequently buys and sells stocks or bonds. In 2013, the Focus Funds

“changed 5 out of the 10 index funds in which [it] invest[ed], resulting in significant and material

changes to the underlying assets and allocations of those assets.” Id. ¶ 79 (Page ID #563). The

Focus Funds turnover rates reached as high as 90 percent. Id. ¶ 80 (Page ID #564). This

“substantial turnover” created transaction costs for the Funds. Id. A turnover rate above 30%

“warrants close analysis by investment professionals as it can suggest that the manager is not

following a disciplined investment strategy.” Id. ¶ 81 (Page ID #564) (internal quotation marks

omitted).

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 5

Effective February 1, 2014, Parker-Hannifin replaced the existing retirement investment

options, called Fidelity Freedom Funds, with these new Focus Funds. Id. ¶ 82–83 (Page ID

#564–65). In so doing, all the money that employees had in the old funds was moved into these

new Focus Funds. Id. The Plan assets moved to the Focus Funds constituted approximately

$800 million of Plan participants’ retirement savings. Id.

From 2014 on, the Focus Funds continued to “substantially underperform” the S&P

target date fund benchmark as well as other target date funds. See id. ¶ 86–93 (Page ID #566–

69). “[D]espite the persistent underperformance and upheaval in” the Focus Funds, id. ¶ 95

(Page ID #569), the Funds remained in the Plan until September 2019, id. ¶ 94 (Page ID #569).

2. Fees

In addition to choosing the investment options available to plan participants, plan

fiduciaries “also have control over the expenses charged to participants.” R. 20 (Am. Compl.

¶ 42) (Page ID #548). Different investment alternatives chosen by the Plan’s fiduciaries have

different fees. Id. Investment fees are charges associated with managing and operating the funds

in a retirement plan. Because “a 1% difference in fees over the course of a 35-year career makes

a difference of 28% in savings at retirement,” fiduciary decisions affecting fees can

“dramatically affect the amount of money that participants are able to save for retirement.” Id.

¶ 43 (Page ID #548).

Several funds included in the Plan offered institutional investors, like Parker-Hannifin,

different share classes with different costs. See, e.g., id. ¶ 105–106 (Page ID #573–74). “The

different share classes of a given mutual fund or collective trust have the identical manager, are

managed identically, invest in the same portfolio of securities, and allocate their assets the same.

The only differences are the fees charged.” Id. ¶ 100 (Page ID #571–72).

From 2015 to 2019, Parker-Hannifin invested in the Focus Funds’ K share class, which

had a 0.07% fee. Id. ¶ 105 (Page ID #573). During that time, however, there was a J share class

“with a substantially lower fee of 0.02%” available. Id. “The .05% fee difference between the

Focus Funds’ K and J shares was the only distinction between the two shares.” Johnson,

2023 WL 8374525, at *4 (citing R. 20 (Am. Compl. ¶ 100, 105) (Page ID #571–74)).

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 6

Parker-Hannifin’s “failure to utilize the available, lower-cost share class of the Focus Funds

caused the Plan to pay as much as 250% more in fees.” R. 20 (Am. Compl. ¶ 105) (Page ID

#573–74).

Likewise, Parker-Hannifin invested in Vanguard Funds’ share classes with fees ranging

between 0.01% and 0.03% higher than Vanguard’s lower-cost share classes. See id. ¶ 106–07

(Page ID #574). “Fund providers explicitly acknowledge the ability of plan fiduciaries to

negotiate for lower-cost shares.” Id. ¶ 103 (Page ID #573). Vanguard, for example, “recognizes

this ability and expressly reserves the right to establish higher or lower minimum amounts for

certain investors.” Id. (internal quotation marks omitted).

“The marketplace for retirement plan investment options, including target date funds, is

established and competitive.” Id. ¶ 2 (Page ID #535). Given the Plan’s $4.3 billion in assets, it

“had tremendous bargaining power to obtain share classes with far lower costs”; “[l]ower-cost

share classes of the Plan’s investments were readily available.” Id. ¶ 102 (Page ID #572). To

the extent that the Plan’s assets did not meet “advertised minimum investment thresholds for the

lowest-cost institutional shares, the investment provider would have waived those requirements

based on the Plan’s size, if the Defendants had requested such a waiver.” Id. “By providing

Plan participants the more expensive share classes of Plan investment options, [Parker-Hannifin]

caused participants to lose millions of dollars of their retirement savings.” Id. ¶ 108 (Page ID

#575).

B. Procedural History

Johnson filed suit on January 29, 2021, R. 1 (Compl.) (Page ID #1), and filed a first

amended complaint on June 11, 2021, R. 20 (Am. Compl.) (Page ID #534). Asserted under

ERISA, 29 U.S.C. § 1132(a)(3), the complaint alleges that Parker-Hannifin breached its

fiduciary duties, see id. § 1104(a), when it (1) imprudently retained the Northern Trust Focus

Funds, (2) failed to negotiate for access to share classes with reasonable investment management

fees, and (3) failed to monitor its agents in exercising their fiduciary duties, see R. 20 (Am.

Compl. ¶ 114–36) (Page ID #582–87).

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 7

Following several motions and notices of supplemental authority, see Johnson, 2023 WL

8374525, at *4, Parker-Hannifin moved to dismiss the Amended Complaint, R. 45 (Renewed

Mot. to Dismiss) (Page ID #1218). The district court granted Parker-Hannifin’s motion to

dismiss. Johnson, 2023 WL 8374525, at *1.

As to Johnson’s claim that Parker-Hannifin breached its duty of prudence when it

retained the Focus Funds, the district court found that Johnson did not state a viable claim of

breach of fiduciary duty because he did not identify other plans that could serve as meaningful

benchmarks, id. at *6, the other supporting evidence was untimely, id. at *8, and, even if not

untimely, “high turnover rates” and “limited or no performance history” are not sufficient to

sustain an imprudence claim, id. at *9. As to Johnson’s second claim—that Parker-Hannifin

breached its duty of prudence by obtaining higher-cost shares, the district court found that

Johnson’s “lone allegation that the investment thresholds would have been waived upon request

is speculative and conclusory,” and thus insufficient to state a claim. Id. at *11. Finally, because

“Count Three’s fate is contingent on the success or failure of Counts One and Two,” and because

the district court “granted Defendants’ motion [to dismiss] as it relates to Counts One and Two,”

it also dismissed Count Three. Id. at *12. This appeal followed. See R. 55 (Notice of Appeal)

(Page ID #1640).

II. ANALYSIS

A. Standard of Review

“We review de novo a district court’s decision to grant a motion to dismiss under Federal

Rule of Civil Procedure 12(b)(6).” Peterson v. Johnson, 87 F.4th 833, 836 (6th Cir. 2023). To

defeat a motion to dismiss, a plaintiff must plead “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)). If a “plaintiff pleads factual

content that allows the court to draw the reasonable inference that the defendant is liable for the

misconduct alleged,” then the claim is facially plausible. Id. In determining whether a

complaint is facially plausible, “we construe the . . . complaint liberally, in plaintiff’s favor,

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 8

accepting all factual allegations as true and drawing all reasonable inferences in favor of the

plaintiff.” Logsdon v. Hains, 492 F.3d 334, 340 (6th Cir. 2007).

B. ERISA Duty of Prudence

“ERISA protects participants in employee benefit plans, including retirement plans, by

establishing standards of conduct for plan fiduciaries.” Forman v. TriHealth, Inc., 40 F.4th 443,

447 (6th Cir. 2022). One such standard of conduct is the duty of prudence. Under ERISA, a

fiduciary must act “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.”

29 U.S.C. § 1104(a)(1)(B). “[T]he duties charged to an ERISA fiduciary,” including the duty of

prudence, “are ‘the highest known to the law.’” Chao v. Hall Holding Co., 285 F.3d 415, 426

(6th Cir. 2002) (quoting Howard v. Shay, 100 F.3d 1484, 1488 (9th Cir. 1996)).

An ERISA fiduciary’s duty of prudence is derived from the law of trusts and “requires

plan administrators to select initial investment options with care, to monitor plan investments,

and to remove imprudent ones,” Forman, 40 F.4th at 448 (citing Tibble v. Edison Int’l, 575 U.S.

523, 528–29 (2015) (hereinafter Tibble I)). A plan participant may, accordingly, bring a breach

of fiduciary duty claim under ERISA if a plan fiduciary imprudently selects an investment option

or “fail[s] to properly monitor investments and remove imprudent ones.” Tibble I, 575 U.S. at

530.

The duty of prudence is a process-driven obligation. See Smith v. CommonSpirit Health,

37 F.4th 1160, 1166 (6th Cir. 2022) (calling the duty of prudence “largely a process-based

inquiry”); Pfeil v. State St. Bank & Tr. Co., 806 F.3d 377, 384 (6th Cir. 2015) (calling it a

“prudent-process standard”); see also Davis v. Washington Univ. in St. Louis, 960 F.3d 478,

482–83 (8th Cir. 2020). When we enforce the duty of prudence, we focus on the fiduciary’s

“real-time decision-making process, not on whether any one investment performed well in

hindsight.” Forman, 40 F.4th at 448; see also Restatement (Third) of Trusts § 77 cmt. a (2007).

For an imprudent-retention claim, we ask whether the fiduciary, at the time it chose to retain an

investment, “employed the appropriate methods to investigate the merits of the investment.”

Pfeil, 806 F.3d at 384 (quoting Hunter v. Caliber Sys., Inc., 220 F.3d 702, 723 (6th Cir. 2000)).

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 9

The ultimate question is whether the fiduciary engaged in a reasoned decision-making process

when it decided to retain the investment. Id.; see also Davis, 960 F.3d at 482 (“This statutory

duty of prudence establishes ‘an objective standard’ that focuses on ‘the process by which’

decisions are made, ‘rather than the results of those decisions.’” (quoting Braden v. Wal-Mart

Stores, Inc., 588 F.3d 585, 595 (8th Cir. 2009))); Tatum v. RJR Pension Inv. Comm., 761 F.3d

346, 356 (4th Cir. 2014).

C. Imprudent Retention of Funds

Johnson’s first claim is that Parker-Hannifin “failed to properly monitor and remove the

imprudent Northern Trust Focus Funds.” Appellant Br. at 24. Johnson points to three defects

that would prompt a prudent fiduciary to remove the Focus Funds. See id. at 24–26. First,

Johnson argues that a prudent fiduciary would not have selected, and then would have removed,

the Focus Funds based on the Focus Funds’ short and untested track record. Id. at 25.

According to Johnson, a prudent fiduciary would not select a fund without “a sufficient live (not

hypothetical or back-tested) performance record to assess whether the manager has proven an

ability to generate superior long-term performance,” and then would not retain that fund “despite

continuing underperformance.” Id. at 24, 26. Second, Johnson argues that a prudent fiduciary

would “monitor changes in strategy or asset holdings,” and “monitor a fund’s turnover ratio and

understand that excessive turnover can mean that the manager is attempting to remedy

underperformance by deviating from the fund’s strategy, warranting further scrutiny.” Id. at 25.

Because the Focus Funds had “major changes in asset holdings, extremely high turnover,”—as

high as a 90% turnover rate—“and substantial transaction costs,” a prudent fiduciary would have

removed the Funds. Id. at 9; R. 20 (Am. Compl. ¶ 79–81) (Page ID #563–64); see also id. ¶ 95

(Page ID #569–70) (alleging “persistent . . . upheaval in those funds”). Finally, Johnson argues

that a prudent fiduciary would have removed the Focus Funds based on its underperformance

compared to the S&P target date fund benchmark and alternative target date funds. Appellant

Br. at 26, 33.

Parker-Hannifin, for its part, argues that Plaintiffs “allege no facts about the Plan

fiduciaries’ process,” instead simply pointing to funds with better performance; ERISA plan

participants, however, “cannot ‘simply point[] to a fund with better performance’ to state a

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 10

claim.” Appellee Br. at 25 (alteration in original) (quoting CommonSpirit, 37 F.4th at 1166).

Parker-Hannifin, moreover, argues that the S&P target date fund benchmark and alternative

funds that Johnson points to are not meaningful benchmarks. See id. at 27–36. Finally, Parker-

Hannifin argues that, “[e]ven if an insufficient performance history or excessive turnover could

somehow raise concerns about the initial selection of the Focus Funds back in 2013,” that

selection occurred outside ERISA’s six-year statute of repose, and Johnson has “not alleged

anything within the six-year leadup to this case that made it imprudent to retain the funds.” Id. at

38.

We first consider the relevant statutory period. Under ERISA, “[n]o action may be

commenced . . . with respect to a fiduciary’s breach of any responsibility, duty, or obligation . . .

after . . . six years after . . . the date of the last action which constituted a part of the breach or

violation.” 29 U.S.C. § 1113(1)(A). January 29, 2015 marks six years prior to the filing of this

lawsuit. Cf. R. 1 (Compl.) (Page ID #1).

As noted above, an ERISA fiduciary has an obligation not only to select prudent

investments, but also to remove imprudent ones. “This continuing duty exists separate and apart

from the [fiduciary’s] duty to exercise prudence in selecting investments at the outset.” Tibble I,

575 U.S. at 529. The Supreme Court explained that: “A plaintiff may allege that a fiduciary

breached the duty of prudence by failing to properly monitor investments and remove imprudent

ones. In such a case, so long as the alleged breach of the continuing duty occurred within six

years of suit, the claim is timely.” Id. at 530.

Johnson’s first piece of evidence of imprudence is the Focus Funds’ back-tested,

hypothetical data and lack of “live performance history.” R. 20 (Am. Compl. ¶ 65) (Page ID

#556–57). Johnson alleges that, at the time Parker-Hannifin selected the Focus Funds, it was

imprudent to select a fund without live performance data. See Appellant Br. at 24–26. Johnson

does not, however, allege that the Focus Funds remained untested and without sufficient live

performance data after Parker-Hannifin selected it and on an ongoing basis. Though it may have

been imprudent to select the Focus Funds without live performance data, Johnson does not allege

that it was imprudent to retain the Focus Funds after January 29, 2015—or at any point—on the

basis of a lack of live performance data. Because Johnson claims only that it was imprudent to

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 11

retain the Focus Funds, the lack of live performance history at the time of selection does not

support the claim.

Johnson’s second and third pieces of evidence—the Focus Funds’ high turnover rates and

underperformance—however, both implicate Parker-Hannifin’s choice to retain the Focus Funds

after January 29, 2015. The Focus Funds had turnover rates as high as 90 percent, R. 20 (Am.

Compl. ¶ 79–80) (Page ID #563–64), causing “persistent . . . upheaval in” the Funds, id. ¶ 95

(Page ID #569). A turnover rate measures how much of a fund’s assets have been replaced over

the course of a year. That “upheaval” and the significant transaction costs caused by high

turnover rates directly implicate the fiduciary’s ongoing decision to retain the Focus Funds, both

before and after January 2015. Id. ¶ 79–80, 95 (Page ID #563–64, 569). Likewise, the Focus

Funds’ alleged underperformance could impact Parker-Hannifin’s prudence in nonetheless

choosing to retain the funds, a choice that post-dated January 29, 2015.2 See, e.g., id. ¶ 90 (Page

ID #568). Upheaval and underperformance both implicate Parker-Hannifin’s decision to retain

the Focus Funds during the relevant period.

Although the dissent argues that the complaint fails to state a claim for continued

imprudent retention because it does not allege ongoing turnover in the period after Parker-

Hannifin added the Focus Funds to the Plan, Dissenting Op. at 40–41, this is not the full story.

First, the complaint specifically alleges a high rate of turnover prior to 2014, but it also makes

clear that the administrators were imprudent in light of the “significant changes” in the Funds’

recent history, R. 20 (Am. Compl. ¶ 79) (Page ID #563–64), “coupled with the [Funds’]

persistent underperformance,” id. ¶ 87 (Page ID #567) (emphasis added). Johnson does not rely

only on an allegation that past turnover on its own would compel a prudent administrator to

replace the Focus Funds, but rather asserts that turnover (even historical turnover) would, when

combined with the rest of the Funds’ flaws, compel an administrator acting pursuant to a prudent

process to replace the Funds. A plaintiff need not plead that each challenged administrative

2

As we explain below, the precise timing of the turnover or underperformance does not matter where a

prudent administrator would consider it as part of a later retention decision. The dissent suggests that Parker-

Hannifin had to wait for a “change in circumstances” in order to replace the Focus Funds. Dissenting Op. at 40. But

an administrator has a “continuing duty” to “‘systematically consider all the investments of the trust at regular

intervals’ to ensure that they are appropriate.” Tibble I, 575 U.S. at 529 (cleaned up) (quoting Bogert, Law of Trusts

and Trustees § 684 (3d ed. 2009)).

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choice on its own constitutes a breach of fiduciary duty. See Ashland, Inc. v. Oppenheimer &

Co., 648 F.3d 461, 469 (6th Cir. 2011) (“[T]he court’s job is not to scrutinize each allegation [in

a complaint] in isolation but to assess all the allegations holistically.” (quoting Tellabs, Inc. v.

Makor Issues & Rts., Ltd., 551 U.S. 308, 326 (2007))).

Second, though the relevant period for this lawsuit begins in January 2015, a diligent

investment professional’s ongoing review of an investment’s performance would not necessarily

be so limited. A jury could find that, in 2015, a prudent administrative process weighing the

retention of a fund would take into account any underperformance and turnover, even if it

occurred before the fund was added to the Plan in 2014. Indeed, Johnson alleges that “diligent

investment professionals assess a fund’s prior performance based on a three-year trailing

performance,” which in early 2015 would have included 2013, the year when Johnson alleges the

Funds underwent 50% turnover. R. 20 (Am. Compl. ¶ 55, 79) (Page ID #552, 563). It would

also have included the period when, according to the complaint, the Focus Funds

underperformed the S&P target date fund benchmark. Id. ¶ 69 (Page ID #558–59). What

matters is whether a prudent administrative process would find the Funds’ history of turnover

significant in its assessment of the investments’ ongoing inclusion in the Plan in 2015. As

discussed in more detail below, Johnson’s assertions make such an inference reasonable and it is

for the jury to pass judgment on whether Parker-Hannifin’s fiduciary duties in fact required it to

replace the Focus Funds in early 2015 based on the combined effect of underperformance and

turnover, whether historical or not.

The next question is whether Johnson’s allegations of high turnover rate and

underperformance, taken together, sufficiently state a claim for imprudence under ERISA. In

Smith v. CommonSpirit Health, plaintiffs alleged that their pension administrator acted

imprudently under ERISA when it selected the Fidelity Freedom Funds, a suite of target date

funds, as an option for its participants. 37 F.4th at 1164–66. To make that claim, the

CommonSpirit plaintiffs “mainly compare[d] the Fidelity Freedom Funds’ performance to

[another fund’s] performance for a five-year period, noting that the Freedom Funds trailed the”

other fund by a significant amount each year. Id. at 1166. We held that “pointing to a fund with

better performance” “may offer a building block for a claim of imprudence,” but it does not

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 13

alone suffice to demonstrate imprudence. Id. at 1166–67. Instead, a plaintiff who points to a

higher-performing fund must also provide “evidence that an investment was imprudent from the

moment the administrator selected it, that the investment became imprudent over time, or that the

investment was otherwise clearly unsuitable for the goals of the fund based on ongoing

performance.” Id. at 1166.

That a plaintiff is permitted to point to a higher-performing fund—in conjunction with

additional context-specific evidence—to demonstrate imprudence, does not mean that a plaintiff

is required to point to a higher-performing fund to demonstrate imprudence. In fact,

CommonSpirit itself noted that a meaningful benchmark “may offer a building block” and “will

often be necessary,” not that it is always necessary in order to state a claim. Id. at 1166, 1167

(emphasis added). Likewise, in Forman v. TriHealth, Inc., we noted that “the ‘meaningful

benchmark’ hurdle may be” “[i]mportant” in some circumstances, but less-so in others. 40 F.4th

at 451.

This makes sense. Under ERISA, prudence is a “process-driven dut[y].” CommonSpirit,

37 F.4th at 1167; see also Pfeil, 806 F.3d at 384. Imprudence claims, moreover, must be viewed

from a “foresight-over-hindsight perspective.” CommonSpirit, 37 F.4th at 1167. “The focus is

on each administrator’s real-time decision-making process, not on whether any one investment

performed well in hindsight.” Forman, 40 F.4th at 448. Put differently, even if a poorly chosen

fund happens to perform well, the administrator would still have acted imprudently. A plaintiff

sufficiently states a claim of imprudence if it pleads facts sufficient to give rise to an inference of

insufficient process. See CommonSpirit, 37 F.4th at 1165–66, 1168; Forman, 40 F.4th at 450–

51. A meaningful benchmark may sometimes be one part of an imprudence pleading, but it is

not required.

Though a meaningful benchmark is not required to plead a facially plausible claim of

imprudence, Johnson does in fact plead a meaningful benchmark in this case. Johnson alleges

that the Focus Funds were “comprised primarily of index or passive strategies.” R. 20 (Am.

Compl. ¶ 63) (Page ID #556). When a target date fund is passively managed, Johnson alleges,

“the portfolio manager is attempting to mimic the performance of a relevant benchmark return”

and models the fund based on the asset allocation of the indices. Id. ¶ 51 (Page ID #551).

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 14

Stated otherwise, Johnson makes the factual allegation that the Focus Funds were “designed to

meet industry-recognized benchmarks.” Id. ¶ 70 (Page ID #560). By definition, then, the Focus

Funds share the same goals, strategies, and risks as the indices they are designed to replicate.

Cf. CommonSpirit, 37 F.4th at 1167. Recognizing that the Focus Funds were expressly

structured to meet an industry benchmark, Johnson alleges that the S&P target date fund

benchmark was the relevant “industry-accepted target date benchmark[] for ‘Through’ target

date funds used by investment professionals.” R. 20 (Am. Compl. ¶ 67–68) (Page ID #557).

Johnson alleges that the Focus Funds underperformed the S&P target date fund benchmark

through at least 2014, id. ¶ 86–87 (Page ID #566–67), and that a prudent fiduciary would have

thus removed the Focus Funds by the end of January 2015, id. ¶ 91, 95–96 (Page ID #568–70);

see also Appellant Br. at 10.3

In Braden v. Wal-Mart Stores, plaintiffs alleged that plan fiduciaries “did not change the

[investment] options included in the Plan despite the fact that most of them underperformed the

market indices they were designed to track.” 588 F.3d at 596. The court held that the market

indices provided a meaningful comparison because “tracking the market index was the stated

investment goal of the fund the plaintiffs challenged.” Matousek v. MidAmerican Energy Co., 51

F.4th 274, 281 (8th Cir. 2022) (citing Braden, 588 F.3d at 595–96).

Just as the challenged fund tracked a market index in Braden, the Focus Funds were

“designed to meet industry-recognized benchmarks.” R. 20 (Am. Compl. ¶ 70) (Page ID #560);

Braden, 588 F.3d at 596. Because tracking an industry-recognized index is the “investment

goal” of a passively managed target date fund such as the Focus Funds, a relevant market index

is inherently a meaningful benchmark. Matousek, 51 F.4th at 281; see also R. 20 (Am. Compl.

¶ 51) (Page ID #551) (explaining that “the portfolio manager is attempting to mimic the

performance of a relevant benchmark return”). Contrary to the dissent’s assertion,

3

This is different from CommonSpirit, in which we rejected the use of a passive fund as a benchmark for an

active fund. 37 F.4th at 1166. For an active fund, a “portfolio manager actively makes investment decisions and

initiates buying and selling of securities in an effort to maximize return.” Id. at 1163 (quoting John Downes &

Jordan Elliot Goodman, Barron’s Dictionary of Finance and Investment Terms 9 (6th ed. 2003)). Evaluating

performance of these funds is more complex, as the fund’s strategy may differ significantly from that of an index or

passive fund. See id. And because an active fund is not trying to mimic an index, managers have more flexibility to

adjust asset allocation based on market conditions or their outlook. See id. Therefore, year-to-year comparisons

between active funds and indices or passive funds can be more inconsistent.

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 15

Dissenting Op. at 23, we thus break no “new ground” by holding that Johnson sufficiently

pleaded that the Focus Funds were “attempting to mimic” the S&P target date fund, making it a

meaningful benchmark, R. 20 (Am. Compl. ¶ 51, 67–68) (Page ID #551, 557).

Parker-Hannifin argues that the S&P target date fund benchmark is not a meaningful

comparison because (1) it “combines different aspects of all sorts of different target date funds

[and thus] is not a meaningful benchmark for evaluating any particular target date fund,” and

(2) “Plaintiffs do not allege that the Focus Funds underperformed the S&P [target date fund

benchmark] during the alleged class period.” Appellee Br. at 35. Parker-Hannifin, however,

fails to point to any circuit court that has held that a market index can never serve as a

meaningful benchmark. See id. at 34–35. As noted, in Braden, our sibling circuit expressly held

that market indices are appropriate meaningful points of comparison for passive funds. 588 F.3d

at 595–96. Parker-Hannifin fails to show why this is incorrect and its argument about the

timeframe is likewise unavailing. Johnson alleges that the 2014 underperformance data (which

demonstrates underperformance through December 2014) would have alerted a prudent fiduciary

to withdraw from the Focus Funds by early 2015. See R. 20 (Am. Compl. ¶ 91, 95–96) (Page ID

#568–70); Appellant Br. at 10. Because the relevant period begins in January 2015, that

allegation is timely.

The dissent argues that the complaint has failed to allege sufficient details about the S&P

target date fund benchmark—i.e., its risk profile, bond-to-equity ratio, and investment strategy—

and that this omission prevents the court from adequately comparing the Focus Funds’ actual

performance to the posited benchmark for purposes of assessing prudence. See Dissenting Op. at

37–38. But Northern Trust made this comparison all on its own when it designed the Funds, and

a jury could find that this shortfall between what the Funds promised and what they delivered

should have caused a prudent administrator to replace the Focus Funds. Surely, whether a

product, financial or otherwise, delivers the results it promises is “meaningful.” Even the dissent

acknowledges this truth. Dissenting Op. at 34 (“[I]f a fund meets its own disclosed investment

objectives, ‘the fact that [it] is outperformed by many others will have little bearing in a court

test of prudence.’” (citation omitted)). But here, the Focus Funds did not meet their own

disclosed investment objectives. Where a complaint alleges that a fund, by its design, sets a

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 16

benchmark for itself and repeatedly fails to meet that benchmark, it is perfectly appropriate to

submit to a jury the prudence of the administrator’s process in retaining the fund despite that

failure.

Nor must the complaint specifically articulate that the Focus Funds were designed to

match the S&P target date fund benchmark in particular. The appropriate inquiry is whether the

complaint alleges enough facts to permit the reasonable inference that the S&P benchmark

would allow a jury to assess appropriately the Funds’ performance and the prudence of the

process that led to their retention.4 We hold that the complaint here does; the complaint alleges

that the Focus Funds were “designed to meet industry-recognized benchmarks,” R. 20 (Am.

Compl. ¶ 70) (Page ID #560), that “[t]he S&P target date fund benchmark is one such

benchmark,” id. ¶ 68 (Page ID #557), and that the Funds systematically underperformed that

benchmark, id. ¶ 70 (Page ID #560). Against this backdrop, it is certainly plausible that a

prudent administrative process would find such performance unacceptable and would result in

the Focus Funds’ replacement. It is for the jury to decide whether the Funds’ failure to meet the

S&P benchmark in fact meant that a prudent administrative process would have resulted in their

replacement.

In addition to pleading underperformance compared to the S&P target date fund

benchmark, a meaningful comparison,5 Johnson’s allegations support reasonable inferences

about the imprudence of Parker-Hannifin’s administrative process. “Even when the alleged facts

do not ‘directly address[ ] the process by which the Plan was managed,’ a claim alleging a breach

of fiduciary duty may still survive a motion to dismiss if the court, based on circumstantial

4

We find the dissent’s seven-page long analysis of whether, on the merits, Johnson’s underperformance

allegations are sufficient to sustain an imprudence claim under ERISA to be entirely inappropriate at this stage of

the litigation. See Dissenting Op. at 27–33. The question is whether, taken together, Johnson’s allegations of

underperformance and historical turnover make it plausible that a prudent administrative process would have led to

the replacement of the Focus Funds. The dissent’s lengthy exposition of the showing Johnson would have to make

in order to prevail at trial (which precedes the dissent’s discussion of the plausibility of the complaint’s allegations)

creates the mistaken impression that Johnson’s complaint has failed to carry a huge evidentiary burden—one that is

inapplicable to the matter currently before us.

5

In addition to the S&P target date fund benchmark, Johnson points to three alternative target date funds as

possible meaningful benchmarks. See, e.g., Appellant Br. at 33. Because we hold that the S&P target date fund

benchmark is a meaningful comparator, we need not determine whether the alternative target date funds are also

meaningful benchmarks.

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 17

factual allegations, may reasonably ‘infer from what is alleged that the process was flawed.’”6

Pension Benefit Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley

Inv. Mgmt. Inc., 712 F.3d 705, 718 (2d Cir. 2013) (quoting Braden, 588 F.3d at 596). This is

because “[n]o matter how clever or diligent, ERISA plaintiffs generally lack the inside

information necessary to make out their claims in detail unless and until discovery

commences. . . . If plaintiffs cannot state a claim without pleading facts which tend systemically

to be in the sole possession of defendants, the remedial scheme of the statute will fail, and the

crucial rights secured by ERISA will suffer.” Braden, 588 F.3d at 598.

“Plausibility requires the plaintiff to plead sufficient facts and law to allow ‘the court to

draw the reasonable inference that the defendant is liable for the misconduct alleged.’”

CommonSpirit, 37 F.4th at 1165 (quoting Iqbal, 556 U.S. at 678). Accepting Johnson’s

allegations as true, as we must, Parker-Hannifin retained the Focus Funds despite “persistent”

“upheaval” of the Funds’ assets and turnover rates many times higher than what is considered

“significant” and “warrant[ing] close analysis.”7 R. 20 (Am. Compl. ¶ 59, 95) (Page ID #554,

569–70). Johnson’s objection to Parker-Hannifin’s retention of a fund despite high historical

turnover rates and persistent underperformance relative to the Funds’ stated objectives suggests

an objection to the process by which Parker-Hannifin decided to retain the Focus Funds for as

long as it did. A jury could plausibly find that a prudent decision-making process would have

considered the Funds’ turnover and underperformance and would have arrived at the conclusion

that retaining the funds would not be in the Plan’s best interests.

6

The dissent asserts that “[t]o plead a process problem using circumstantial factors, one might think the test

should at least require plaintiffs to plead facts plausibly suggesting that the investment itself was what then-Judge

Scalia called a ‘patently unsound’ investment.” Dissenting Op. at 34 (quoting Fink v. Nat’l Sav. & Tr. Co., 772 F.2d

951, 962 (D.C. Cir. 1985) (Scalia, J., concurring in part and dissenting in part)). But the law does not require this.

Nor did then-Judge Scalia’s opinion. That opinion posited that “careful investigation and evaluation” does not

justify a “patently unsound” investment, not that a process claim requires pleading such an investment. Fink, 772

F.2d at 962 (“[T]here are two related but distinct duties imposed upon a trustee: to investigate and evaluate

investments, and to invest prudently.”).

7

Johnson alleges that “[t]he average turnover for all of the funds in the Focus Fund series was 90 percent,

which is astoundingly high for any investment strategy,” much less a passively managed retirement fund, id. ¶ 80

(Page ID #564), and that any turnover greater than 30% is “significant” and “warrants close analysis,” id. ¶ 59, 81

(Page ID #554, 564).

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 18

Furthermore, the factual allegation that Parker-Hannifin imprudently retained the Funds

despite turnover and underperformance stems from a “foresight-over-hindsight perspective.”

CommonSpirit, 37 F.4th at 1167. The turnover rate was known at the time that Parker-Hannifin

was making its allegedly imprudent retention decisions. These forward-looking factual

allegations, accepted as true, give rise to an inference of deficient process in retaining the Focus

Funds as an investment option. Taking these allegations together, Johnson has pleaded facts

sufficient to state a claim for imprudent process.

D. Imprudent Provision of Higher-Cost Shares

Johnson next argues that Parker-Hannifin violated its duty of prudence when it wasted

participants’ money by providing higher-cost shares of Plan investment options when it could

have secured lower fees for participants. See Appellant Br. at 38–42. Specifically, Johnson

argues that Parker-Hannifin imprudently “invested in the K-class shares of the Focus Funds

instead of the identical lower-cost J-class shares, and also invested in higher-cost shares of three

Vanguard funds.” Id. at 39 (citing R. 20 (Am. Compl. ¶ 105–07) (Page ID #573–74)). Parker-

Hannifin, on the other hand, argues that because there is no “allegation that the Plan ‘readily

qualified’ for those cheaper shares by satisfying their minimum-investment requirements,” the

district court properly dismissed this claim. Appellee Br. at 46.

In Forman v. TriHealth, Inc., the plaintiffs claimed that their plan fiduciaries offered

them “pricier retail shares of mutual funds when those same investment management companies

offered less expensive institutional shares of the same funds to other retirement plans.” 40 F.4th

at 450. The Forman plaintiffs argued that it was imprudent not to “take advantage of—indeed

just ask for—these lower-priced mutual fund shares for the same investment team and same

investment strategy when [the] retirement plan has nearly half a billion dollars in assets.” Id.

We agreed. We held that “these allegations permit the reasonable inference that TriHealth failed

to exploit the advantages of being a large retirement plan that could use scale to provide

substantial benefits to its participants,” and “[u]nder the common law of trusts, which supplied

the backdrop to ERISA,” that allegation sufficiently “state[s] a claim of imprudence.” Id.

Though we recognized that there were “[e]qually reasonable inferences in the other direction,”

that “could exonerate TriHealth once all of the facts come in,” we held that, “at the pleading

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 19

stage, it is too early to make these judgment calls.” Id. Because imprudence “is plausible, the

Rules of Civil Procedure entitle” the plaintiffs “to pursue [their imprudence] claim . . . to the next

stage.” Id. (quoting Fabian v. Fulmer Helmets, Inc., 628 F.3d 278, 281 (6th Cir. 2010)).

Likewise, in Davis v. Washington University in St. Louis, ERISA plan fiduciaries offered

more expensive retail shares for some funds, “even though minimum investment requirements

are ‘routinely waived’ for individual investors in large retirement-savings plans.” 960 F.3d at

483. The Eighth Circuit permitted plaintiffs’ claim of imprudence to move forward, explaining

that:

The complaint alleges that the marketplace for retirement plans is competitive,

and with $3.8 billion invested, WashU’s “pool of assets” is large. From these

facts, two inferences of mismanagement are plausible from WashU’s failure to

offer more institutional shares. The first is that it failed to gain access to them

because, as the complaint alleges, it did not negotiate aggressively enough with

Vanguard. The second is that it was asleep at the wheel: it failed to pay close

enough attention to available lower-cost alternatives. Either way, a “failure of

effort [or] competence” is enough to state a claim for breach of the duty of

prudence.

Id. (quoting Braden, 588 F.3d at 596).

“Wasting beneficiaries’ money is imprudent.” Tibble v. Edison Int’l, 843 F.3d 1187,

1198 (9th Cir. 2016) (en banc) (hereinafter Tibble II) (citation omitted). “It is beyond dispute

that the higher the fees charged to a beneficiary, the more the beneficiary’s investment shrinks.”

Id.; see also R. 20 (Am. Compl. ¶ 43) (Page ID #548) (detailing the effect of fees on a

beneficiary’s investments). Pursuant to trust law, “a trustee cannot ignore the power the trust

wields to obtain favorable investment products, particularly when those products are

substantially identical—other than their lower cost—to products the trustee has already

selected.” Tibble II, 843 F.3d at 1198.

Like the participants in Forman and Davis, Johnson plausibly alleges that plan fiduciaries

breached their duty of prudence by selecting a share class with a higher fee when reasonable

effort would have unlocked a class with a lower fee. See Forman, 40 F.4th at 450–51; Davis,

960 F.3d at 483. Johnson alleges that “[t]he marketplace for retirement plan investment options,

including target date funds, is established and competitive.” R. 20 (Am. Compl. ¶ 2) (Page ID

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 20

#535). With “over $4.3 billion in net assets and over 32,000 participants with account balances,

. . . the Plan is among the largest 0.03% of all defined contribution plans in the United States.”

Id. ¶ 14–15 (Page ID #538). Moreover, given the large asset size of the Plan, it “had tremendous

bargaining power to obtain share classes with far lower costs,” and “[l]ower-cost share classes of

the Plan’s investments were readily available.” Id. ¶ 102 (Page ID #572). Johnson made factual

allegations making it plausible that, to the extent that the Plan’s assets did not meet “advertised

minimum investment thresholds for the lowest-cost institutional shares, the investment provider

would have waived those requirements based on the Plan’s size, if the Defendants had requested

such a waiver.”8 Id.; see also id. ¶ 103 (Page ID #573) (“Fund providers explicitly acknowledge

the ability of plan fiduciaries to negotiate for lower-cost shares.”); id. ¶ 15 (Page ID #538–39)

(“The Plan’s massive size gives it enormous bargaining power to command outstanding

investment products with . . . very low fees.”).

These allegations closely mirror those in Davis. 960 F.3d at 483. Moreover, they

“permit the reasonable inference that [Parker-Hannifin] failed to exploit the advantages of being

a large retirement plan that could use scale” to get lower-cost shares for its participants. Forman,

40 F.4th at 450. Perhaps, once more facts are developed, Parker-Hannifin will be able to

demonstrate that lower-cost shares were not readily available. At this stage, however, Johnson

has sufficiently pleaded facts to make out a plausible claim that Parker-Hannifin either failed to

“negotiate aggressively enough” or “failed to pay close enough attention to available lower-cost

alternatives,” and, “[e]ither way, a ‘failure of effort [or] competence’ is enough to state a claim

for breach of the duty of prudence.” Davis, 960 F.3d at 483 (second alteration in original)

(quoting Braden, 588 F.3d at 596). “In the absence of discovery or some other explanation that

would make an inference of imprudence implausible, we cannot dismiss the case.” Forman,

40 F.4th at 453.

8

The dissent analogizes this allegation about investment providers’ willingness to waive investment

thresholds to a “mere[] legal conclusion[]” that is “conclusory and not entitled to be assumed true.” Dissenting Op.

at 43 (citations omitted). But this is a straightforward factual allegation about industry practice which the jury will

be entitled to credit or discredit, but which we must accept as true at this stage.

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 21

Taken together, Johnson’s factual allegations support the reasonable inference that it

would be imprudent if Parker-Hannifin’s administrative process failed to negotiate access to

lower-fee share classes. Once discovery is exchanged and evidence presented, a jury could

conceivably credit evidence that investment providers do not routinely waive minimum

investment thresholds for large plans, that Parker-Hannifin did in fact ask for such lower-fee

shares, or that it did not make such a request because it had good reasons for believing the

answer would be no. But this possibility does not suffice to create, as the dissent suggests, an

“obvious alternative explanation” that “Parker-Hannifin negotiated for the best fees that its

investments permitted.” Dissenting Op. at 46 (quoting Iqbal, 556 U.S. at 682) (emphasis added).

Because Johnson alleges facts to support a reasonable contrary inference, the dissent posits a

merely possible alternative explanation which is insufficient to require dismissal at this early

stage. Braden, 588 F.3d at 596 (“Rule 8 does not require a plaintiff to plead facts tending to

rebut all possible lawful explanations for a defendant’s conduct.”).

The dissent would apply an inappropriately exacting standard, requiring that Johnson

“plausibly establish” that Parker-Hannifin imprudently failed to obtain lower fees. See

Dissenting Op. at 41 (emphasis added). But Johnson need only plausibly allege facts supporting

such an inference and need not establish anything at this stage. And the dissent posits that

Johnson should have pleaded, among other things, the specific share classes in which the Plan

invested as well as what other share classes were available, the minimum investment thresholds

for the less expensive share classes, the Plan’s precise investments relative to those thresholds,

whether the investment providers granted waivers to other plans and why they did so. Id. at 43–

44. We hold that this is evidence for the jury to consider and that Johnson need not plead it to

clear Rule 8(a)’s bar. See Braden, 588 F.3d at 596.

E. Failure to Monitor

Johnson’s final claim is that Parker-Hannifin failed to monitor its agents who acted

imprudently. Appellant Br. at 42. All parties agree that the failure-to-monitor claim is

contingent on the survival of the other two claims. See Johnson, 2023 WL 8374525, at *12;

Appellant Br. at 42; Appellee Br. at 51; see also Matney v. Barrick Gold of N. Am., 80 F.4th

1136, 1158–59 (10th Cir. 2023) (explaining how failure to monitor claims “rise or fall” with

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 22

imprudence claims). Because we reverse the district court’s dismissal of Counts I and II, we also

reverse the district court’s dismissal of Count III, the failure-to-monitor claim.

III. CONCLUSION

For the foregoing reasons, we REVERSE the district court’s judgment and REMAND

for further proceedings consistent with this opinion.

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 23

_________________

DISSENT

_________________

MURPHY, Circuit Judge, dissenting. The Parker Retirement Savings Plan (or the “Plan”

for short) allows employees of the Parker-Hannifin Corporation to save for retirement. Michael

Johnson and four other participants in the Plan allege that its administrators violated the

Employee Retirement Income Security Act (ERISA) by selecting or retaining imprudent

investment options. (Like the majority, I will refer to the plaintiffs as “Johnson” and the

defendant administrators as “Parker-Hannifin.”) My colleagues hold that Johnson’s complaint

states plausible claims that Parker-Hannifin violated its duty of prudence under ERISA. This

holding weakens an “important mechanism” to stop costly litigation over “meritless claims”:

motions to dismiss complaints. Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 425 (2014).

I respectfully dissent.

Johnson first argues that Parker-Hannifin kept a set of imprudent target-date funds (the

“Focus Funds”) in the Plan. As his support, he primarily alleges that the Focus Funds had worse

returns than a target-date benchmark and top-performing target-date funds. Yet his complaint

tells us nothing about the Focus Funds’ risk profiles or their mix of equity and bond investments.

The complaint also tells us nothing about the risk profiles of the benchmark and alternative

funds. And it tells us nothing about how the Focus Funds fit within the Plan’s entire portfolio.

So Johnson’s claim is analogous to suggesting that an administrator acted imprudently by

including (safe) government bonds in a balanced portfolio because the bonds performed worse

than (risky) stocks during a bull market. Courts should not allow such claims to proceed.

Traditionally, we and other courts would have dismissed Johnson’s claim for failing to show that

the alternative options were “meaningful” comparators to the challenged funds. Smith v.

CommonSpirit Health, 37 F.4th 1160, 1167 (6th Cir. 2022) (citation omitted). My colleagues

break new ground by holding otherwise.

Johnson next argues that Parker-Hannifin negligently selected higher-fee share classes for

several funds in the Plan. To imply Parker-Hannifin’s negligence, the complaint alleges that the

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 24

Plan’s large size gives the company bargaining power and that it did not choose the cheapest

share classes. But “an obvious alternative explanation” exists for this choice: the Plan did not

have enough money invested in the funds to qualify for the best rates. Id. (quoting Bell Atlantic

Corp. v. Twombly, 550 U.S. 544, 567 (2007)). And while the complaint speculates that the fund

providers would have waived any (unidentified) minimum investment thresholds, it should have

to allege more facts to open the costly discovery process. See Twombly, 550 U.S. at 557–58.

I. Challenge to the “Focus Funds”

The complaint first alleges that Parker-Hannifin imprudently kept a set of target-date

funds in the Plan for several years. But its allegations fail to assert a plausible ERISA violation.

A. Background ERISA Law

ERISA regulates “employee benefit plans.” 29 U.S.C. §§ 1002(3), 1003(a), 1101(a).

Among other things, it covers the defined-contribution plans employers create to help employees

save for retirement (many of which are better known as “401(k) plans”). See CommonSpirit,

37 F.4th at 1162. In passing ERISA, Congress sought to achieve competing goals. It wanted

both to encourage employers to create these plans (by adopting uniform standards that avoid

large costs) and to ensure that employees receive promised benefits (by imposing duties on plan

administrators and creating remedies for their breach). See Conkright v. Frommert, 559 U.S.

506, 516–17 (2010); Cent. States, Se. & Sw. Areas Pension Fund v. Cent. Transp., Inc., 472 U.S.

559, 569–70 (1985). As part of this balancing act, Congress required administrators to meet

standards of loyalty and care like the standards that the common law of trusts has long imposed

on trustees. See Cent. States, 472 U.S. at 570; Restatement (Second) of Trusts §§ 170, 174 (Am.

L. Inst. 1959).

This case concerns ERISA’s duty of “care” (also called its duty of “prudence”). When

managing a plan, fiduciaries must “discharge [their] duties” “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)(B). Congress wrote this language (requiring

administrators to exercise “care, skill, prudence, and diligence”) at perhaps the highest level of

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 25

generality. And other than adopting a few concrete guideposts (such as the need to diversify

plan assets, see id. § 1104(a)(1)(C)), ERISA does not offer more specific instructions about the

conduct that administrators must undertake to stay within the law’s general lanes of prudence.

Does this omission create a boundless test to decide whether an administrator breached

the duty of prudence? Not at all. As a general matter, the Supreme Court has recognized that

ERISA teems with language from the common law of trusts. See Cent. States, 472 U.S. at 570.

So it has looked to trust law to interpret the Act. See id. As a specific matter, the Court has

invoked this common-law analogy when applying ERISA’s duty of prudence to investment

decisions. See Hughes v. Nw. Univ., 595 U.S. 170, 175 (2022); Tibble v. Edison Int’l, 575 U.S.

523, 528–29 (2015). In Tibble, the Court read the common law as compelling trustees to

“exercise prudence” when choosing investments. 575 U.S. at 529. And it added that the

common law required trustees to monitor trust investments and remove those that later become

imprudent. Id. Tibble thus read ERISA as imposing both duties on administrators. See id.

Ultimately, though, it chose to “express no view on the scope” of these investing and monitoring

duties. Id. at 531.

B. Johnson’s Allegations

Johnson’s allegations about the “target-date funds” implicate the questions that Tibble

left open. Companies often include a “suite” of the same target-date funds in their 401(k) plans.

Compl., R.20, PageID 549. An employee may choose the specific fund that “corresponds to the

year” that the employee hopes to retire. Id. As the employee approaches this retirement date, the

fund adjusts its investments by swapping out aggressive equities for conservative non-equities.

Id.

In February 2014, Parker-Hannifin replaced its existing set of target-date funds with a

new set: the “Focus Funds” that Northern Trust created in 2009. Id., PageID 555, 565. The

Focus Funds follow a “passive strateg[y]” by buying Northern Trust “index funds,” which, in

turn, invest in “various” assets. Id., PageID 555–56, 563. Johnson’s complaint does not identify

the specific holdings in the Focus Funds or the funds’ relative mixes of equities and bonds. The

complaint also does not allege that Parker-Hannifin acted imprudently when selecting the Focus

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 26

Funds. Rather, it alleges that Parker-Hannifin imprudently retained the funds from “the end of

January 2015” until “September 30, 2019” when it removed them. Id., PageID 568–69, 582.

What allegations support this claim that Parker-Hannifin should have removed the Focus

Funds? The complaint relies primarily on their performance. Yet it alleges no facts telling us

how the funds performed in absolute terms. Did they gain 5% each year? Lose 1%? We do not

know. The complaint instead alleges facts about how the funds performed relative to other

things: a target-date benchmark and three other target-date funds. Id., PageID 557–63, 566–69.

In 2011 and 2012, some of the Focus Funds overperformed the S&P target-date benchmark

while others underperformed it. Id., PageID 558. But the funds all began to underperform this

benchmark in 2013 by as much as 7%. Id., PageID 559. From 2010 to 2013, they also

underperformed three target-date funds that the complaint calls some of the “top performers”:

those managed by T. Rowe Price, Vanguard, and TIAA-CREF. Id., PageID 560–64. This

underperformance continued after Parker-Hannifin added the Focus Funds to the Plan. Between

2014 and 2017, each of the Focus Funds performed anywhere from 4% to 17% below the three

top performers. Id., PageID 567–69.

Apart from a comparison to alternatives, the complaint raises two other allegations. It

alleges that Northern Trust created the Focus Funds in “mid to late 2009” and that the funds had

“no live performance history” before then. Id., PageID 555–56. At that time, Northern Trust

marketed the funds using a “hypothetical performance” model showing how they would have

performed in the past. Id., PageID 556. The complaint alleges that professionals do not typically

rely on this back-tested data because “it can be easily manipulated[.]” Id., PageID 557.

“[I]n 2013,” moreover, Northern Trust “changed 5 out of the 10 index funds” in which

the Focus Funds invested. Id., PageID 563. The complaint alleges that an ordinary investor

would have considered this “significant” turnover before investing in the funds. Id., PageID

563–64. The complaint adds that “[t]he average turnover for all of the funds in the Focus Fund

series was 90 percent,” which it describes as “astoundingly high” even for actively managed

funds. Id., PageID 564. By comparison, all target-date funds had an average turnover of 23.5%

in 2010. Id.

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 27

I will address each of these three allegations in turn, starting with Johnson’s primary

claim.

C. Do the Allegations of Relative Underperformance Support an Imprudence Claim?

The complaint relies on the Focus Funds’ relative underperformance to suggest that

Parker-Hannifin violated ERISA’s duty of prudence by keeping them in the Plan. To evaluate

this theory, we should distinguish a substantive question of ERISA law from a procedural

question of pleading law. As a matter of substance: When can one security’s underperformance

as compared to another security help show a violation of ERISA’s duty of prudence? My

answer: This fact—without more—is irrelevant. So that leads to the procedural question: Can

this relative underperformance nevertheless help allege a breach of the duty of prudence at the

pleading stage? My answer: Likely not—but at least not without showing that the other security

represents a “meaningful benchmark.”

1. When can one security’s underperformance as compared to another security

help show a violation of ERISA’s duty of prudence?

This question (like all statutory questions) begins with ERISA’s text. Recall that it

compels administrators to monitor investments “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)(B). And recall that the Supreme Court has told us to interpret

this text using the common law of trusts. See Tibble, 575 U.S. at 528–29. But the Court has

been less than clear on the relevant time for identifying the common-law rules. Tibble cited

common-law authorities from as far back as the 1800s to as recent as 2009. See id. Yet one

might think we should focus on the common law as it existed in 1974 when Congress passed

ERISA. Cf. Pasquantino v. United States, 544 U.S. 349, 360–61 (2005). That said, ERISA also

directs fiduciaries to use the “then prevailing” “care, skill, prudence, and diligence” in their

decisionmaking. 29 U.S.C. § 1104(a)(1)(B) (emphasis added). Perhaps this text could be read to

change the nature of the legal rules as the common law develops. Cf. Jam v. Int’l Fin. Corp.,

586 U.S. 199, 209–11 (2019). Or maybe the text tells us to keep the rules “fixed” but to apply

them to changed facts. Kimball v. Whitney, 123 N.E. 665, 666 (Mass. 1919). For example, even

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 28

if prudent managers avoided stocks at one time, those managers commonly include them in a

balanced portfolio today. See Trustee’s Duties Regarding Investments, 4 Real Prop. Prob. & Tr.

J. 604, 613 (1969); Restatement (Second) of Trusts § 227 cmt. m. Either way, I am not sure this

difference matters in this case.

What does the common law say about prudent investments? Historically, different States

followed different rules. See Gilbert Thomas Stephenson, Estates and Trusts 247 (3d ed. 1960).

Some identified the specific investments that trustees could (and could not) make; others

followed a general “prudent” investor rule first established in Harvard College v. Amory, 26

Mass. 446, 460–61 (1830). See Stephenson, supra, at 247–50; Mayo Adams Shattuck, The

Development of the Prudent Man Rule for Fiduciary Investment in the United States in the

Twentieth Century, 12 Ohio St. L.J. 491, 499–504 (1951). ERISA unambiguously adopted the

latter approach—consistent with the clear “trend” in 1974. 3 Austin Wakeman Scott & William

Franklin Fratcher, The Law of Trusts § 227.5, at 442 (4th ed. 1988); see also John H. Langbein &

Richard A. Posner, Market Funds and Trust-Investment Law, 1976 Am. Bar Found. Res. J. 1, 3–

6.

Under this prudent-investor rule, I have not found authorities suggesting that an

investment might be “imprudent” simply because it has a lower rate of return than some other

option. For three reasons, I would hold that these relative rates of return by themselves tell us

nothing useful about an administrator’s prudence either in buying a security or in keeping it.

Reason One: The common law’s duty of prudence imposes “standards of conduct” on

trustees, not standards “of performance” on investments. Amy Morris Hess et al., Bogert’s The

Law of Trusts and Trustees § 612, Westlaw (database updated July 2024) (emphasis added); see

In re Morgan Guar. Tr. Co. of N.Y., 396 N.Y.S.2d 781, 784–85 (N.Y. Surrogate’s Ct. 1977); In

re Comstock’s Will, 17 N.W.2d 656, 661 (Minn. 1945). Trustees must act with “care,” “skill,”

and “caution” when making investment decisions. See 3 Scott, supra, §§ 227.1–227.3, at 435–

39. The duty of care requires them to investigate a security’s “safety” and “probable income”

using sources on which prudent investors typically rely. Restatement (Second) of Trusts § 227

cmt. b. And the duty of skill requires them to analyze the data with at least the expertise of an

ordinary prudent investor. Id. § 227 cmt. c. So when deciding whether a trustee has breached

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 29

the duty of prudence by buying securities, courts evaluate the “extent of the investigation made

by the trustee before investing” in them. George G. Bogert & George T. Bogert, Handbook of

the Law of Trusts § 106, at 388 (5th ed. 1973). And when deciding whether a trustee has

breached the duty of prudence by keeping securities, courts ask whether the trustees made an

adequate “inspection” to ensure that they remained prudent. Id. § 107, at 393; see Restatement

(Second) of Trusts § 231 cmt. b; 3 Scott, supra, § 231, at 536–37. If trustees investigate and

monitor their investments, though, courts do not hold them liable just because the securities “fall

in value.” 3 Scott, supra, § 231, at 538–39.

Given this common-law backdrop, courts have read ERISA to impose “largely a process-

based” duty of prudence requiring administrators to adequately investigate before deciding

whether to buy or keep a security. CommonSpirit, 37 F.4th at 1164; see Pizarro v. Home Depot,

Inc., 111 F.4th 1165, 1173 (11th Cir. 2024); Matousek v. MidAmerican Energy Co., 51 F.4th

274, 278 (8th Cir. 2022); Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret.

Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 716 (2d Cir. 2013); Donovan v.

Cunningham, 716 F.2d 1455, 1467 (5th Cir. 1983); 29 C.F.R. § 2550.404a-1(b)(1)(i). And

courts judge an administrator’s conduct based only on the facts that existed at the time of a

decision—not on facts that occur later. See CommonSpirit, 37 F.4th at 1164; Renfro v. Unisys

Corp., 671 F.3d 314, 322 (3d Cir. 2011). So they will not impose liability just because an

investment has poor “results.” Matousek, 51 F.4th at 278; Pizarro, 111 F.4th at 1173; see

Morgan Stanley, 712 F.3d at 721.

This focus on “process” poses a problem for Johnson. The complaint alleges that Parker-

Hannifin violated its duty of prudence by keeping the Focus Funds because of the funds’

“significant and persistent underperformance” as compared to three top-performing target-date

funds from 2013 to 2017 (and the S&P target-date benchmark from 2013 to 2014). Compl.,

R.20, PageID 568–69. But the complaint alleges no facts about the investigation that Parker-

Hannifin undertook when deciding whether to keep the Focus Funds from 2015 to 2019. Did

Parker-Hannifin have “regular semi-annual or annual reviews” of the portfolio? Bogert,

Handbook, supra, § 107, at 393. Did Parker-Hannifin consider the Focus Funds’ performance?

Did it learn of and evaluate any “change of circumstances” about the Focus Funds?

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 30

Restatement (Second) of Trusts § 231 cmt. a. We do not know. The complaint says nothing

about Parker-Hannifin’s “conduct” and instead talks mainly about the Focus Funds’

“performance.” Hess, Bogert’s The Law of Trusts, supra, § 612. It thus flips the common-law

duty of prudence on its head.

Reason Two: The common law’s duty of prudence does not require trustees to seek the

highest return at all costs. Quite the contrary. A trustee’s investment choices must balance two

duties: the duty to “preserve the trust property” and the duty “to make the trust property

productive.” Restatement (Second) of Trusts §§ 176, 181; see 3 Scott, supra, § 227, at 431.

These duties often conflict. On the one hand, a trustee might best protect trust funds by locking

them away in a safe. But this zero-risk option (at least in times of no inflation) has zero reward:

the funds would earn no income. See Restatement (Second) of Trusts § 181 cmt. c. On the other

hand, a trustee might obtain the greatest return by investing the funds in a “speculative” start-up

with a small chance of an astronomical gain and a large chance of a bankruptcy filing. Id. § 227

cmt. e. But this high-reward option would ignore the grave risks to the principal. See id. Both

extremes are imprudent because they implement only one of these duties at the expense of the

other.

Trustees instead must choose investments that have a reasonable ratio between the “risk

of loss” and the “opportunity for gain.” Id. How should trustees identify the optimal ratio? The

common law generally deemed some unusually risky investments (such as starting and operating

the trustee’s own business) as imprudent. See, e.g., id. § 227 cmt. f. Otherwise, no uniform

answer exists to this question because the right ratio rests on “subjective judgments” about the

“appropriate degree of risk” and “all of the relevant trust and beneficiary circumstances.”

Restatement (Third) of Trusts § 90 cmts. e, k (Am. L. Inst. 2007); see 3 Scott, supra, § 227.12, at

475–79. If anything, the traditional duty of caution required trustees to give “primary

consideration” to ensuring the safety of the principal at the expense of the returns. Restatement

(Second) of Trusts § 227 cmt. e. It thus required trustees to obtain only “income” that was

“reasonable in amount,” not the maximum amount. Id. (emphasis added); see Restatement

(Third) of Trusts § 90 cmt. e (“reasonable” return); King v. Talbot, 40 N.Y. 76, 86 (1869)

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 31

(“just” return). So trustees “[o]rdinarily” could “invest in government securities” even though

these securities often underperform equities. Restatement (Second) of Trusts § 227 cmt. f.

Courts interpreting ERISA’s duty of prudence have recognized the same risk-return

conflict between minimizing loss and maximizing gain. As the Supreme Court has noted, an

administrator’s investment decisions will “implicate difficult tradeoffs,” so courts must respect

the “range of reasonable” choices that administrators can make. Hughes, 595 U.S. at 177; see 29

C.F.R. § 2550.404a-1(b)(2)(i). Administrators “likely” can choose from “many objectively

prudent” investments that all have different risk-reward ratios. Pizarro, 111 F.4th at 1176. As a

matter of law, then, administrators may choose between actively managed and passively

managed funds without violating the duty of prudence either way. CommonSpirit, 37 F.4th at

1165.

Indeed, this notion that there is no single prudent investment adds another requirement

for plaintiffs who seek to recover “losses to the plan” allegedly “resulting from” breaches of the

duty of prudence. 29 U.S.C. § 1109. Administrators must not only have committed a process

error; that error must have caused a plan to invest in a substantively “improvident” security.

Kuper v. Iovenko, 66 F.3d 1447, 1460 (6th Cir. 1995), abrogated on other grounds by

Dudenhoeffer, 573 U.S. at 425. “[A]s then-Judge Scalia vividly put it,” Pizarro, 111 F.4th at

1176, an incompetent administrator who relies on “astrology” to invest has not caused a loss if

that process led it to buy “a highly regarded ‘blue chip’ stock” (even if the stock later loses

value), Fink v. Nat’l Sav. & Tr. Co., 772 F.2d 951, 962 (D.C. Cir. 1985) (Scalia, J., concurring in

part and dissenting in part).

This risk-return principle also conflicts with Johnson’s theory that the Focus Funds’

underperformance shows Parker-Hannifin’s imprudence. For one thing, the complaint says

nothing about the Focus Funds’ “risk and return objectives[.]” Restatement (Third) of Trusts

§ 90(a). Did the Focus Funds have similar “risk-return profiles” and so pose a similar “risk of

loss” to the comparators? Pizarro, 111 F.4th at 1180; 29 C.F.R. § 2550.404a-1(b)(2)(i). Or did

the Focus Funds include more bond holdings to reduce the risk of loss in a bear market? The

complaint’s naked return allegations (without any risk allegations) do nothing to show whether

the Focus Funds fell outside the “range of reasonable” options. Hughes, 595 U.S. at 177. For

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 32

another thing, Johnson alleges no facts about how the Focus Funds performed in absolute terms.

For all we know, they generated an average return of 9% a year (compared to, say, a 10% return

for the top performers). I doubt many would call this “return” “[un]reasonable,” Restatement

(Third) of Trusts § 90 cmt. e, or treat the funds as “objectively [im]prudent” as a result, Renfro,

671 F.3d at 322. Administrators do not breach the duty of prudence just because they do not

pick the “best performing fund.” Meiners v. Wells Fargo & Co., 898 F.3d 820, 823 (8th Cir.

2018).

Reason Three: The common law’s duty of prudence requires trustees to diversify trust

property across a range of investments to reduce the harm that loss from one security can cause.

See Restatement (Second) of Trusts § 228; 3 Scott, supra, § 228, at 501. Trustees thus must

choose “each investment not as an isolated transaction but in its relation to the whole of the trust

estate.” 3 Scott, supra, § 227.12, at 477; see Restatement (Third) of Trusts § 90(a). To evaluate

the propriety of a single investment, then, courts consider how it fits in with “the portfolio as a

whole[.]” 3 Scott, supra, § 227, at 435. Something that looks excessively risky alone might look

reasonable when held together with conservative investments. See Langbein, supra, 1976 Am.

Bar Found. Res. J. at 26; Bevis Longstreth, Modern Investment Management and the Prudent

Man Rule 156–57 (1986). But courts should not take this principle too far. Trustees cannot

avoid liability for imprudent investments by setting off losses from those investments against

gains from prudent ones. Restatement (Second) of Trusts § 213 & cmt. b; 3 Scott, supra,

§ 231.1, at 301–04.

ERISA’s duty of prudence adheres to this framework too. Indeed, Congress itself

adopted the diversification requirement. ERISA generally instructs administrators to “diversify[]

the investments of the plan so as to minimize the risk of large losses[.]” 29 U.S.C.

§ 1104(a)(1)(C). Courts thus must evaluate the prudence of an investment against “the portfolio

as a whole.” Morgan Stanley, 712 F.3d at 716–17. A prudent administrator, for example, would

not hastily discard the riskier parts of a “well-constructed portfolio” simply because of

“disappointing short-term losses” during a downturn. CommonSpirit, 37 F.4th at 1166. Just like

common-law courts, though, the Supreme Court in Hughes added that administrators may not

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 33

insulate themselves from imprudent investments solely by including prudent choices in a plan.

See 595 U.S. at 176.

Yet again, Johnson’s theory ignores this principle. The complaint tries to make out an

imprudence claim using a one-to-one comparison between the Focus Funds and other target-date

funds without considering the Plan’s other investments. In fact, the complaint does not discuss

the nature of those other options at all. Compare Compl., R.20, PageID 555–75, with Plan, R.47-

2, PageID 1276–80. It thus asks us to evaluate the prudence of the Focus Funds “in isolation”

rather than as part of the Plan’s entire “portfolio” of options. Morgan Stanley, 712 F.3d at 716–

17.

In sum, the Focus Funds’ relative underperformance—without more—would not help

Johnson prove at trial that Parker-Hannifin violated its duty of prudence by retaining the funds.

2. Can an investment’s relative underperformance nevertheless help allege a

plausible breach of the duty of prudence?

But this case remains at the pleading stage. So we must also ask whether the Focus

Funds’ relative underperformance can at least help allege an imprudence claim to allow Johnson

to seek discovery. That distinct question starts with the pleading rules in the ERISA context. As

I have explained, ERISA serves competing goals. The duty of prudence serves one of them:

protecting beneficiaries. See Cent. States, 472 U.S. at 569–70. But we must also account for

Congress’s desire to encourage the formation of these plans. See Conkright, 559 U.S. at 517.

And courts would undercut that goal if they oversaw ERISA cases in a way that generated high

“litigation expenses” even for meritless claims. Id. (citation omitted). As an “important

mechanism” to implement this competing goal, the Supreme Court has told us to weed out

frivolous claims by giving “careful, context-sensitive scrutiny” to a complaint. Dudenhoeffer,

573 U.S. at 425.

In this ERISA context, therefore, the Court has carefully applied its “plausibility” test for

evaluating complaints. See id. at 425–30. Under that test, courts must ignore “legal

conclusions” or “[t]hreadbare recitals of the elements of a cause of action”—such as a generic

claim that an administrator imprudently retained an investment. Ashcroft v. Iqbal, 556 U.S. 662,

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 34

678 (2009). They then must ask whether the remaining well-pleaded facts “plausibly give rise to

an entitlement to relief.” Id. at 679. And the complaint will not meet this test if the facts

suggest, at most, a “mere possibility of misconduct[.]” Id.

When evaluating an ERISA complaint against these standards, courts must remember that

the duty of prudence turns on an administrator’s “conduct” (not on a security’s “performance”).

Hess, Bogert’s The Law of Trusts, supra, § 612; see CommonSpirit, 37 F.4th at 1164. Yet

plaintiffs typically will not know the conduct that administrators undertook when keeping

securities in a plan. See Meiners, 898 F.3d at 822. So complaints often will not “directly” allege

that administrators engaged in improper acts (say, ignoring the portfolio for years). Morgan

Stanley, 712 F.3d at 718. Johnson’s complaint proves this point since it alleges no facts about

Parker-Hannifin’s acts. Instead, ERISA complaints typically rely on “circumstantial factual

allegations” to suggest that the administrators acted imprudently. Id.; see also Meiners, 898 F.3d

at 822.

Can an investment’s relative underperformance as compared to another security create a

“circumstantial” case that the administrator behaved imprudently? Given all that I have said, I

am skeptical that this comparison could ever state an imprudence claim. To plead a process

problem using circumstantial factors, one might think the test should at least require plaintiffs to

plead facts plausibly suggesting that the investment itself was what then-Judge Scalia called a

“patently unsound” investment. Fink, 772 F.2d at 962 (Scalia, J., concurring in part and

dissenting in part); see Pizarro, 111 F.4th at 1176; Kuper, 66 F.3d at 1460. And I would think

that securities with healthy returns year after year could fall within the “range of reasonable”

options even if they underperformed a top-performing security or a benchmark. Hughes, 595

U.S. at 177. Is it really the case that all securities that fall below the top (which seemingly could

cover most securities) or some average (which seemingly could cover half) are substantively

imprudent? Cf. Davis v. Wash. Univ. of St. Louis, 960 F.3d 478, 486 (8th Cir. 2022). As one

early source suggested, if a fund meets its own disclosed investment objectives, “the fact that [it]

is outperformed by many others will have little bearing in a court test of prudence.” Bruce W.

Marcus, The Prudent Man: Making Decisions Under ERISA 77 (1978); see Pizarro, 111 F.4th at

1180–81.

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 35

At the least, a complaint’s allegations that one security underperformed another are

meaningless unless the complaint includes enough details about the two options to suggest that

they are interchangeable in all material respects but their returns. Indeed, we have already held

that this type of comparison cannot act as a “building block” for an imprudence claim unless the

comparator qualifies as a “meaningful benchmark” to the challenged security. CommonSpirit, 37

F.4th at 1167 (quoting Meiners, 898 F.3d at 822). Without such details, an “obvious alternative

explanation” exists for the underperformance: the challenged fund has a lower risk (and so a

lower chance of a higher return). Id. (quoting Twombly, 550 U.S. at 567).

This meaningful-benchmark requirement dooms Johnson’s reliance on the Focus Funds’

underperformance. The complaint does not plead facts to suggest that any of the purported

comparators qualify as meaningful benchmarks. Start with the three target-date funds that the

complaint calls the “top performers”: the Vanguard Target Retirement Trust Plus Funds, the

TIAA-CREF Lifecycle Index Funds, and the T. Rowe Price Retirement Funds. Compl., R.20,

PageID 560–63. The complaint’s own allegations disqualify the T. Rowe Price funds. Id.,

PageID 562. Although the Focus Funds followed a passive strategy by investing in index funds,

the complaint alleges that T. Rowe Price followed an unidentified “actively managed” approach.

Id. And we have held that complaints cannot treat active and passive funds as comparable

because they follow different investment strategies. See CommonSpirit, 37 F.4th at 1166–67.

More importantly, the complaint’s omissions disqualify all three funds as comparators.

As noted, the complaint does not identify the relevant “risk profiles” of either the Focus Funds or

the three comparator funds. Id. at 1167. We have no idea what assets the Focus Funds held. So

we do not know their mix of conservative nonequity investments (with lower risks and lower

potential returns) and aggressive equity investments (with higher risks and higher potential

returns). Nor does the complaint tell us the mix of assets in any comparator. See Matousek, 51

F.4th at 281. In addition, the complaint does not describe the other options the Plan offers to

beneficiaries. Are some of these options risky, which might call for a more conservative target-

date fund? We do not know. For its part, Parker-Hannifin says that we may look at outside-the-

complaint information revealing that the Focus Funds had a much more conservative portfolio

made up of more non-equities. Appellees’ Br. 30–31. And Parker-Hannifin says that the entire

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 36

Plan included a risky investment option that primarily invested in the company’s own individual

stock. Id. at 8, 33. We need not decide whether we may look at this information now because

Johnson bore the burden of pleading a meaningful benchmark. The complaint’s silence does not

cut it.

Turn to the other comparator: the S&P target-date benchmark. The complaint offers no

details about this benchmark. It first alleges that the Focus Funds “significantly underperformed

industry-accepted target date benchmarks” that professionals use. Compl., R.20, PageID 557.

The complaint then suggests: “The S&P target date fund benchmark is one such benchmark.” Id.

It goes on to compare the Focus Funds’ performance to this benchmark from 2010 to 2014. Id.,

PageID 557–59, 567. Yet, as the district court recognized, the benchmark is not a “fund” that

administrators can select for retirement plans. See Johnson v. Parker-Hannifin Corp., 2023 WL

8374525, at *6 (N.D. Ohio Dec. 4, 2023). And the complaint includes no details about the

benchmark’s hypothetical contents. Another court suggested that it represents a hypothetical

composite of target-date funds with different strategies and risk profiles. Hall v. Cap. One Fin.

Corp., 2023 WL 2333304, at *2, *7 (E.D. Va. Mar. 1, 2023). Given this diverse composition,

Parker-Hannifin has cited outside-the-complaint materials calling the benchmark “all but

useless” in helping investors evaluate a fund’s performance. Johnson, 2023 WL 8374525, at *6

(quoting Selecting a Target-Date Benchmark, Morningstar, at 1 (2017)); Appellees’ Br. 34–35.

But again, we need not decide whether we can consider these materials. Johnson bore the burden

of pleading the details showing that this benchmark qualifies as a meaningful comparator. He

should not get a ticket to discovery by saying nothing on the subject. Cf. Dudenhoeffer, 573 U.S.

at 425.

Regardless, the complaint does not even allege that the Focus Funds underperformed this

S&P target-date benchmark in 2015 or later. Rather, it alleges underperformance as against this

benchmark only through 2014. Compl., R.20, PageID 557–59, 566–67. After that date, the

complaint alleges that the Focus Funds underperformed only the three comparator funds. Id.,

PageID 569. So we do not even know whether the Focus Funds underperformed this benchmark

during the time that Parker-Hannifin allegedly acted imprudently by keeping those Funds.

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 37

My colleagues fail to convince me otherwise. First, they assert that plaintiffs do not need

to plead a meaningful benchmark. If they mean to suggest that plaintiffs need not identify such a

benchmark when relying on an investment’s relative underperformance, they depart from our

law and create a circuit split. We have twice rejected complaints that have alleged imprudence

claims using “available alternatives” because the complaints did not show that the alternatives

resembled the challenged funds. Forman v. TriHealth, Inc., 40 F.4th 443, 449 (6th Cir. 2022);

see CommonSpirit, 37 F.4th at 1167. And other courts have adopted this “meaningful

benchmark” test. Matousek, 51 F.4th at 278 (citation omitted); see Matney v. Barrick Gold of N.

Am., 80 F.4th 1136, 1148–49 (10th Cir. 2023); Albert v. Oshkosh Corp., 47 F.4th 570, 581–82

(7th Cir. 2022).

That said, I agree that our pleading test does not require a meaningful benchmark in all

cases. Plaintiffs must show that an alternative investment materially resembles a challenged

fund only if their complaint tries to make out a case of imprudence based on the alternative’s

superior returns. But the complaint can try to make out an imprudence claim in other ways. If,

for example, plaintiffs assert direct allegations of imprudence (say, a government investigation

revealed that the administrators did not review their portfolio for years), those allegations might

suffice.

Second, my colleagues suggest that the S&P target-date benchmark qualifies as a

“meaningful” one. As I have said, though, the complaint pleads no details about this benchmark.

What is its risk profile? What is its bond to equity ratio? Does it follow a passive or active

strategy? None of these omissions matter to my colleagues because they suggest that Northern

Trust designed the Focus Funds to match this benchmark. I cannot find this allegation. The

complaint says that the Focus Funds were “index funds designed to meet [unidentified] industry-

recognized benchmarks.” Compl., R.20, PageID 560. It does not say that Northern Trust

developed the funds to match the S&P target-date benchmark in particular. In fact, the

complaint does not identify any benchmark that the Focus Funds were designed to match or even

identify their investments (apart from the claim that they invested in index funds). Id., PageID

556. So Johnson does not ask us to decide whether “apples” are better than “oranges,”

CommonSpirit, 37 F.4th at 1166; he asks us to guess whether one mystery fruit is better than

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 38

another mystery fruit. Such “speculative” claims do not entitle plaintiffs to discovery. Twombly,

550 U.S. at 555.

Third, my colleagues suggest that the Eighth Circuit has allowed a plaintiff to use a

similar benchmark to plead an investment’s imprudence. But they overread the decision on

which they rely: Braden v. Wal-Mart Stores, Inc., 588 F.3d 585 (8th Cir. 2009). The plaintiff

there alleged that Wal-Mart, the administrator, violated its duties of loyalty and care by keeping

low-return funds in its plan so that Merrill Lynch, its trustee, could receive excessive fees. Id. at

589–90. Yet the complaint made “specific comparisons” to “allegedly similar” “index funds”

“available in the market” that performed better and charged lower fees. Id. at 590. It also

alleged that the challenged funds “underperformed the market indices they were designed to

track” and that the better alternative funds tracked the same indices. Id. at 596, 598. Unlike my

colleagues, I would not read Braden as suggesting that the complaint sufficed solely because the

funds underperformed these indices. Indeed, the court itself suggested that its “ultimate

conclusions rest on the totality of the specific allegations.” Id. at 596 n.7. And unlike the

plaintiff in Braden, Johnson identifies no funds comparable to the Focus Funds. Besides, as I

have said, Johnson’s complaint also does not allege that the Focus Funds were designed to track

the S&P target-date benchmark.

Confirming my reading, the Eighth Circuit has since rejected efforts to rely on an

industry benchmark like the S&P target-date benchmark as a comparator. See Matousek, 51

F.4th at 281–82. In Matousek, the plaintiffs argued that the challenged funds performed worse

(and had higher fees) than the averages in their relevant peer groups. See id. But the court

rejected the use of these peer-group averages because of the lack of information about both the

challenged funds and “the funds in each peer group.” Id. at 281. This concern matches my own.

We have little information about the Focus Funds’ objectives and risk profiles or about the S&P

target-date benchmark. If anything, then, my colleagues’ reliance on this benchmark conflicts

with Matousek.

In sum, the complaint’s performance allegations are irrelevant. I would ignore them

when deciding whether the complaint plausibly suggests that Parker-Hannifin violated its duty of

prudence by retaining the Focus Funds in the portfolio between 2015 and 2019.

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 39

D. Do Johnson’s Other Allegations Plausibly Establish this Imprudence Claim?

This conclusion leaves Johnson’s backup allegations. He claims that the Focus Funds

lacked an adequate performance history and had a high turnover rate. Neither theory works.

Performance History. The complaint alleges that Northern Trust created the Focus Funds

in “mid to late 2009” and that these funds lacked a “live performance history” before then.

Compl., R.20, PageID 556. So when “promoting these new funds in 2009 and 2010,” Northern

Trust allegedly used “back-tested” data that rested on an unreliable model about how the Focus

Funds would have performed in prior years if they had existed. Id.

To their credit, my colleagues recognize the problems with this allegation. As for the

first problem, Parker-Hannifin did not select the Focus Funds until February 2014. By then, the

funds had existed for years. Johnson cites no authorities from the common law of trusts or

ERISA that would treat this years-long performance period as inadequate. Cf. Johnson, 2023

WL 8374525, at *9. In fact, the complaint itself does not treat the period as inadequate. It also

alleges that one of the “top performers” (TIAA-CREF’s target-date fund) had “over 5 years of

performance history as of 2015,” giving it a similar creation date in 2009. Compl., R.20, PageID

561; Appellees’ Br. 39–40. If this performance history was long enough for Parker-Hannifin to

invest in the TIAA-CREF funds, how could it be too short for Parker-Hannifin to invest in the

Focus Funds?

As for the second problem, the complaint does not challenge Parker-Hannifin’s selection

of the Focus Funds in February 2014. It challenges Parker-Hannifin’s retention of the funds in

January 2015. Compl., R.20, PageID 568–69, 582. Johnson likely limited the suit in this way to

avoid ERISA’s six-year statute of repose. See 29 U.S.C. § 1113(1). But this choice makes the

imprudence claim even further removed from Northern Trust’s use of back-tested data in 2009

and 2010. All told, the complaint has not “plausibly pleaded” that Parker-Hannifin relied on

hypothetical data rather than real-world data when keeping the Focus Funds. CommonSpirit,

37 F.4th at 1166. Nor does it raise a “reasonable inference” that Parker-Hannifin failed to

adequately investigate before making this retention decision. Morgan Stanley, 712 F.3d at 720.

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 40

High Turnover. The complaint next alleges that Northern Trust switched half of the

index funds that the Focus Funds held in 2013. Compl., R.20, PageID 563. This change led the

Focus Funds to have an “astoundingly high” “average turnover” of “90 percent[.]” Id., PageID

564.

These high-turnover allegations likewise fail to “plausibly plead” that Parker-Hannifin

acted imprudently. CommonSpirit, 37 F.4th at 1166. The complaint alleges that the high

turnover occurred in 2013 when Parker-Hannifin was deciding whether to select the Focus

Funds. But again, Johnson challenges Parker-Hannifin’s decision to keep the funds in 2015. So

the turnover does not qualify as a “change in circumstances” that could render the Focus Funds

“no longer a proper investment.” Restatement (Second) of Trusts § 231 cmt. a. And I fail to see

how preselection information about high turnover alone could allow a jury to “plausibly infer”

that Parker-Hannifin did not adequately monitor the funds later without any allegations of

continued high turnover. CommonSpirit, 37 F.4th at 1162; see Morgan Stanley, 712 F.3d at 721.

To the extent that my colleagues interpret the complaint as alleging that the turnover

continued in 2015, that reading would be mistaken. The complaint’s only “well-pleaded factual

allegations” assert turnover in 2013. Iqbal, 556 U.S. at 679. In a section entitled “Background

of the Northern Trust Focus Funds,” the complaint alleges that Northern Trust switched out five

index funds in 2013 and that the “material changes” caused a 90% turnover. Compl., R.20,

PageID 555, 563–64. In the next section entitled “Defendants Selected the Focus Funds for the

Plan,” the complaint alleges that Parker-Hannifin chose the funds in 2013 for inclusion in 2014.

Id., PageID 564–65. And it describes the turnover “upheaval” as occurring “during the time” of

this selection. Id., PageID 564. In the years after this selection, the complaint asserts that the

Focus Funds “continued to substantially underperform” the S&P benchmark or the three other

funds. Compl., R.20, PageID 566. It alleges no specific facts about turnover during these years.

And my colleagues do not suggest that high turnover in 2013 would alone suffice to

plausibly plead an imprudence claim. Rather, they conclude that we must read these turnover

allegations combined with the underperformance allegations. As I have said, however, I find

those allegations irrelevant because of Johnson’s failure to allege a meaningful benchmark. In

my view, then, Johnson is left with nothing but this allegation of past turnover in 2013. That

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 41

allegation does not state a plausible claim that Parker-Hannifin imprudently retained the Focus

Funds years later.

II. Challenge to Excessive Fees

The complaint also alleges that Parker-Hannifin imprudently selected fund share classes

that had higher fees than other share classes of the same funds. I view this issue as a closer one.

Still, the same chain of reasoning leads me to conclude that these allegations likewise fall short.

Start with Johnson’s allegations. Fund providers often offer different classes of fund

shares that have the same attributes (including returns) and differ only in the annual fees that the

providers charge. Compl., R.20, PageID 571–72. Institutional investors who buy the largest

amounts of a fund generally get the lowest-fee shares. Id. According to the complaint, though,

Parker-Hannifin invested in share classes for several funds that were not the least expensive. It

invested in Class K of the Focus Funds, which charged .07% of the fund assets each year in fees.

Id., PageID 573. But Class J charged only .02% in fees. Id. The complaint also suggests that

Parker-Hannifin picked share classes of three Vanguard funds (the Vanguard Total Bond Market

Index, the Vanguard Extended Market Index, and the Vanguard Total International Stock Index)

that came with higher fees (.05%, .07%, and .10%, respectively) than the fees charged for the

least expensive classes (.04%, .05%, and .07%, respectively). Id., PageID 574. Because the

massive Plan had over $4 billion in assets, the complaint asserts, Parker-Hannifin had

“tremendous bargaining power” to obtain the lowest-fee share classes from Northern Trust and

Vanguard. Id., PageID 538, 572. The complaint adds that “[t]o the extent” Northern Trust or

Vanguard required certain “minimum investment thresholds” to obtain these lower-fee shares,

the providers would have “waived” those thresholds for Parker-Hannifin due to the Plan’s size.

Id., PageID 572–73.

Do these allegations plausibly establish that Parker-Hannifin failed to act with the

required “care, skill, prudence, and diligence”? 29 U.S.C. § 1104(a)(1)(B). I will again begin

with the common law of trusts, given the Supreme Court’s instructions. See Tibble, 575 U.S. at

528–29. The common law allows trustees to “incur expenses which are necessary or appropriate

to carry out the purposes of the trust,” but trustees must ensure that the expenses are no “greater”

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 42

“than is reasonable under the circumstances[.]” Restatement (Second) of Trusts § 188 & cmt. f;

see also 3 Scott, supra, § 188, at 52. That is, trustees must be “cost-conscious” when using trust

assets to pay expenses for administering the trust. Restatement (Third) of Trusts § 88 cmt. a.

Courts have extended this logic to ERISA. See Forman, 40 F.4th at 450; see also Mator

v. Wesco Distrib., Inc., 102 F.4th 172, 190–91 (3d Cir. 2024); Hughes v. Nw. Univ., 63 F.4th

615, 627 (7th Cir. 2023); Sacerdote v. N.Y. Univ., 9 F.4th 95, 107–14 (2d Cir. 2021); Davis, 960

F.3d at 483; Tibble v. Edison Int’l, 843 F.3d 1187, 1198 (9th Cir. 2016). So, for example,

administrators would incur unreasonable expenses in violation of ERISA’s duty of prudence if

they negligently selected the highest-fee “retail” share classes (which any individual investor

could buy) rather than cheaper “institutional” classes that they could have chosen given the

plan’s size. See Forman, 40 F.4th at 446–47, 450. At the same time, the common-law duty that

ERISA incorporates requires administrators to act reasonably—not superbly. See Restatement

(Third) of Trusts § 88. Administrators thus do not violate this duty just because they fail to

obtain the “cheapest” fees that only savvy business lawyers could have achieved through

vigorous negotiations. Braden, 588 F.3d at 596 n.7 (citation omitted); see Albert, 47 F.4th at

581.

So what does it take to plead that an administrator negligently incurred the excessive

costs that will assert a plausible violation of the duty of prudence? We addressed this pleading

question in Forman. There, we held that participants in TriHealth’s retirement plan plausibly

alleged that TriHealth had imprudently selected “pricier retail shares” rather than cheaper

“institutional shares” for seventeen mutual funds in its plan. 40 F.4th at 450. Among other

allegations, the complaint explained that the plan had almost $500 million in assets and that the

seventeen mutual-fund providers had offered cheaper share classes to several other retirement-

plan clients. Id. at 450, 453. The complaint also asserted that TriHealth qualified for the

institutional shares. Id. at 453. To be sure, we reasoned that TriHealth might later justify its

retail-share choice on the ground that it could not “qualify for the less expensive” institutional

shares or that it had agreed to a “revenue-sharing arrangement” that made the retail shares

cheaper. Id. at 450. But we saved these theories for discovery because the participants had

plausibly pleaded TriHealth’s “mismanagement.” Id.; see Davis, 960 F.3d at 483. At the same

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 43

time, Forman clarified that this “context-sensitive” “inquiry” depends on each complaint’s

factual allegations. 40 F.4th at 453 (quoting Dudenhoeffer, 573 U.S. at 425). So we clarified

that ERISA plaintiffs cannot obtain a “universal golden ticket” to discovery merely by alleging

that a large plan’s administrators did not obtain all potential “volume-based discounts” for the

plan that a fund provider offered. Id.

In my view, Johnson asks us to award him such a “golden ticket” here. Id. The

complaint alleges that Parker-Hannifin operates a massive Plan with over $4 billion in assets and

thus has “tremendous bargaining power” to seek out good share classes from fund providers.

Compl., R.20, PageID 538, 572. And it alleges that Parker-Hannifin did not receive the cheapest

possible fees for the Focus Funds and for three Vanguard funds. Id., PageID 573–74.

But the complaint does not allege much else. To start, it makes some conclusory

allegations that we need not accept as true. It, for example, suggests that the “[l]ower-cost share

classes” that Parker-Hannifin did not obtain “were readily available.” Compl., R.20, PageID

572. And it suggests that the (unidentified) “investment provider” of the funds in the Plan would

have “waived” any “minimum investment thresholds for the lowest-cost institutional shares[.]”

Id. These allegations strike me as just as conclusory as those the Supreme Court refused to

accept in Twombly and Iqbal. The complaint in Twombly similarly alleged that

telecommunications companies had agreed not to compete in each other’s territories. 550 U.S. at

564 & n.9. But the Court held that these allegations were “merely legal conclusions” that it

disregarded. Id. at 564. And the complaint in Iqbal alleged that public officials had adopted a

policy that discriminated against individuals based on their race and religion. 556 U.S. at 680–

81. But again, the Court held that these allegations were “conclusory and not entitled to be

assumed true.” Id. at 681. The unadorned allegations that the lowest-fee shares were “readily

available” or that the providers would have “waived” minimum investment requirements are

equally conclusory.

What “well-pleaded facts” support these conclusions? Id. at 682. The complaint leaves

out most details. Did Parker-Hannifin (like the administrators in Forman) select the expensive

“retail” classes? 40 F.4th at 450. One might plausibly think such a large plan was “asleep at the

wheel” if it chose shares that even a first-time investor could have obtained by buying a share or

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 44

two. Davis, 960 F.3d at 483. Or did Parker-Hannifin invest in much cheaper institutional

classes, if not the cheapest class? Under that scenario, the inference that Parker-Hannifin

negligently missed this cost-saving possibility looks a lot less reasonable. Apart from share

classes, what minimum investment amounts did Northern Trust and Vanguard impose on

investors to obtain the cheaper institutional-share classes? And how close were the Plan’s own

investments to these qualifying amounts? Did the Plan already “qualify” for the cheapest class

or fall just a small amount short? Forman, 40 F.4th at 453. Or did the Plan need to invest tens

of millions of dollars more to become eligible for the minimums? Again, the first possibility

would make it much more plausible that Parker-Hannifin committed acts of “mismanagement”

than the second one. Davis, 960 F.3d at 483. If minimum amounts existed, did Vanguard and

Northern Trust give any other retirement-plan “clients” waivers of those minimums? Forman,

40 F.4th at 453. Under what circumstances did they do so? Solely because the plans were large?

Or did the clients have to give up something substantial in return? The complaint says nothing

about any of these facts.

At most, the complaint asserts two specific allegations to support its conclusion that the

lowest-fee classes were “available” to Parker-Hannifin and that the fund “provider” would have

“waived” any minimum investment amounts. Compl., R.20, PageID 572. It first cites a district

court’s decision in another case for the proposition that mutual funds often waive the investment

minimums for institutional-share classes if large plans seek the waivers. See id., PageID 572–73

(citing Tibble v. Edison Int’l, 2010 WL 2757153, at *9 (C.D. Cal. July 8, 2010)). This unusual

factual allegation—tied to the facts in another opinion—does not change things. As the district

court explained, Tibble concerned waivers to avoid the highest-fee retail-share class—not

waivers to move in between institutional-share classes. See Johnson, 2023 WL 8374525, at *11.

And for all we know from the complaint, Parker-Hannifin obtained less-expensive (if not the

least-expensive) institutional shares. Tibble also involved different mutual funds—not funds

issued by Northern Trust or Vanguard. Tibble, 2010 WL 2757153, at *21, *29–30. It says little

about Vanguard’s practices and even less about the Focus Funds, which were “collective

investment trusts” rather than mutual funds. Compl., R.20, PageID 555–56.

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 45

The complaint next cites a Vanguard document from the SEC’s website. Id., PageID 573

& n.21. This document says that Vanguard “reserves the right to establish higher or lower

minimum amounts for certain investors.” Id., PageID 573; Vanguard Plans, R.47-5, PageID

1367–69. If anything, this sentence contradicts the complaint’s earlier conclusion that the

cheapest share classes were “readily available” to Parker-Hannifin. The document instead

suggests that Vanguard did impose minimum requirements to obtain them. And something is not

“readily” available if one must negotiate to obtain it. Regardless, the document offers no details

about when Vanguard might waive these requirements. It includes one waiver example (when a

plan is “expected to quickly achieve eligibility levels”) that does not suggest any broad waiver

practice. Vanguard Plans, R.47-5, PageID 1370. And it is not obvious why a fund provider

would waive an income stream simply because a large plan has large amounts of money invested

elsewhere. In my mind, these two specific allegations (about a different case and a Vanguard

document) do not “plausibly” suggest that Parker-Hannifin negligently overlooked an

opportunity to obtain shares with cheaper fees so as to state an imprudence claim. Twombly, 550

U.S. at 557.

Indeed, the complaint’s reliance on the Vanguard document leaves me wondering why it

did not say more. According to Parker-Hannifin, Johnson had plenty of public information

available to answer some of the questions that I have asked. Appellees’ Br. 13–15. The same

document suggests that Vanguard requires $5 million in investments to get the (cheaper)

institutional-share fees that the Plan received but much more—$100 million in investments—to

get the (even cheaper) institutional-share-plus fees that Johnson says the Plan should have

obtained. Vanguard Plans, R.47-5, PageID 1352–53, 1368–69. Parker-Hannifin adds that the

Plan includes a fourth Vanguard Fund in the institutional-share-plus class because it has over

$100 million investments. Appellees’ Br. 14 (citing Notice, R.47-2, PageID 1278). And once

one of the three challenged Vanguard funds reached that investment amount, the Plan started

offering this cheapest class for it too. Id. at 15 (citing Notice, R.47-3, PageID 1294). Parker-

Hannifin adds that these public materials are fair game at this stage. See CommonSpirit, 37 F.4th

at 1168–69; see also Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 322–23 (2007);

Lewis v. Governor of Ala., 944 F.3d 1287, 1298 n.7 (11th Cir. 2019) (en banc).

No. 24-3014 Johnson et al. v. Parker-Hannifin Corp. et al. Page 46

I see no need to decide whether we can consider the materials. I would instead hold that

the complaint’s many omissions have left open an “obvious alternative explanation” that would

reveal no negligence—Parker-Hannifin negotiated for the best fees that its investments

permitted. Iqbal, 556 U.S. at 682 (quoting Twombly, 550 U.S. at 567). In authorizing this claim,

by contrast, my colleagues open the door to “speculative” ERISA suits. Twombly, 550 U.S. at

555. Plan administrators in this circuit should be warned: if their plans are big enough and if

they have not obtained the least-expensive shares, they should prepare for “expensive” discovery

no matter the reasons for selecting the share classes that they did. Id. at 558; see Johnson, 2023

WL 8374525, at *12. That outcome upends Congress’s “careful” equilibrium between

protecting beneficiaries and minimizing litigation costs. Dudenhoeffer, 573 U.S. at 424–25

(citation omitted).

For these reasons, I respectfully dissent.