Amicus Curiae Brief — April Hughes, et al., Petitioners v. Northwestern University, et al.

Supreme Court briefOct 27, 2021

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No. 19-1401

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In The

Supreme Court of the United States

---------------------------------♦--------------------------------APRIL HUGHES, et al.,

Petitioners,

NORTHWESTERN UNIVERSITY, et al.,

Respondents.

---------------------------------♦--------------------------------On Writ Of Certiorari To The

United States Court Of Appeals

For The Seventh Circuit

---------------------------------♦--------------------------------BRIEF FOR EUCLID FIDUCIARY AS AMICUS

CURIAE SUPPORTING RESPONDENTS

---------------------------------♦--------------------------------SAMUEL W. DIEHL

CROSS | CASTLE PLLC

333 Washington Avenue

North

Suite 300-9078

Minneapolis, MN 55401

DANIEL ARONOWITZ

JEFFREY M. KOONANKEIL

EUCLID FIDUCIARY

100 East Street SE

Suite 204

Vienna, VA 22180

JARED R. BUTCHER

Counsel of Record

SHARON A. ROSE

CROSS | CASTLE PLLC

1701 Pennsylvania

Avenue, NW, Suite 200

Washington, DC 20006

(202) 960-5800

jared.butcher@

crosscastle.com

Counsel for Amicus Curiae

October 27, 2021

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COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

TABLE OF CONTENTS

Page

TABLE OF CONTENTS ......................................

TABLE OF AUTHORITIES .................................

iii

INTEREST OF AMICUS CURIAE ......................

INTRODUCTION AND SUMMARY OF THE

ARGUMENT.....................................................

ARGUMENT ........................................................

Implausible ERISA claims are unfairly allowed to proceed against prudent plans

and fiduciaries ...........................................

A. Industry data demonstrates that excessive fee lawsuits have become excessive ..................................................

B. Euclid’s experience demonstrates that

significant numbers of excessive fee

lawsuits are based on implausible allegations ..............................................

1. Implausible claims are allowed to

proceed based on allegations that

are not material to the actual fiduciary process or the investments at

issue ................................................

2. Implausible claims are allowed to

proceed based on allegations of inaccurate or immaterial fee or performance differences ....................... 16

TABLE OF CONTENTS—Continued

Page

II.

The pleading standard for ERISA claims

should weed out the implausible claims by

requiring lower courts to account for the

factors that demonstrate plausible claims

of imprudence ............................................ 20

A. The pleading standard should focus on

comparing the plan at issue with a reliable benchmark of materially identical investments and services ............... 22

B. The pleading standard should be informed by factors that tend to indicate

whether a reliable benchmark plan

charges disproportionately lower fees

compared to the fees charged by the

plan at issue ........................................ 24

1. A reliable benchmark must include

materially identical investments

and services .................................... 24

2. The plan’s fees must be disproportionate to the fees of the reliable

benchmark ...................................... 30

C. Courts should consider plan disclosures

and public financial information when

analyzing excessive fee lawsuits ......... 34

CONCLUSION..................................................... 35

APPENDIX

Motion Picture Industry Pension Plan, Schedule

H (Form 5500), 2019 ........................................ App. 1

iii

TABLE OF AUTHORITIES

Page

CASES:

Alas v. AT&T Servs., Inc., No. 2:17-cv-8106 (C.D.

Cal. Sept. 28, 2021) ........................................... 17, 34

Allison v. Brands, Inc., No. 2:20-cv-6018, 2021

WL 4224729 (S.D. Ohio Sept. 16, 2021)............ 11, 26

Bell Atlantic Corp. v. Twombly, 550 U.S. 544

(2007) ....................................................... 3, 23, 32, 34

Brown v. Daikin Am., Inc., No. 18-cv-11091, 2021

WL 1758898 (S.D.N.Y. May 4, 2021).......................31

Brown-Davis v. Walgreen Co., No. 1:19-cv-05392,

2020 WL 8921399 (N.D. Ill. Mar. 16, 2020) ...... 14, 15

Davis v. Magna Int’l of Am., Inc., No. 20-cv11060, 2021 WL 1212579 (E.D. Mich. Mar. 31,

2021) .................................................................... 9, 10

Davis v. Salesforce.com, Inc., 20-cv-01753, 2020

WL 5893405 (N.D. Cal. Oct. 5, 2020) ......................27

Davis v. Washington Univ. in St. Louis, 960 F.3d

478 (8th Cir. 2020) ........................................... passim

DeBruyne v. Equitable Life Assurance Soc’y, 920

F.2d 457 (7th Cir. 1990) ...........................................20

Divane v. Nw. Univ., 953 F.3d 980 (7th Cir. 2020) .......14

Ferguson v. Ruane Cunniff & Goldfarb Inc., No.

17-cv-6685, 2019 WL 4466714 (S.D.N.Y. Sept.

18, 2019) ..................................................................33

Divane v. Nw. Univ., No. 16-cv-8157, 2018 WL

2388118 (N.D. Ill. May 25, 2018) ................ 12, 17, 32

TABLE OF AUTHORITIES—Continued

Page

Fifth Third Bancorp v. Dudenhoeffer, 573 U.S.

409 (2014) .................................................. 2, 3, 21, 22

Hecker v. Deere & Co., 556 F.3d 575 (7th Cir.

2009) ........................................................................33

Hecker v. Deere & Co., 569 F.3d 708 (7th Cir.

2009) ........................................................................30

Henry v. Champlain Enterprises, Inc., 445 F.3d

610 (2d Cir. 2006) ......................................................6

In re Omnicom ERISA Litig., No. 20-cv-4141,

2021 WL 3292487 (S.D.N.Y. Aug. 2, 2021) .... 10, 25, 26

Jenkins v. Yager, 444 F.3d 916 (7th Cir. 2006) ...........15

Johnson v. PNC Financial Services Group, Inc.,

No. 2:20-CV-01493-CCW, 2021 WL 3417843

(W.D. Pa. Aug. 3, 2021) ...................................... 11, 12

Khan v. Board of Directors of Pentegra Defined

Contribution Plan, Case 7:20-cv-07561-PMH

(S.D.N.Y.) .................................................................19

Klawonn v. Board of Directors for the Motion

Picture Industry Pension Plans, No. 20-cv9194 (C.D. Cal.) ........................................... 18, 19, 34

Kong v. Trader Joe’s Co., No. CV2005790, 2020

WL 7062395 (C.D. Cal. Nov. 30, 2020) ........ 27, 31, 32

Laborers Nat. Pension Fund v. Northern Trust,

173 F.3d 313 (5th Cir. 1999) ........................ 15, 16, 20

Lauderdale v. NFP Retirement, Inc., No. 8:21-cv301 (C.D. Cal.) ............................................. 20, 30, 34

TABLE OF AUTHORITIES—Continued

Page

Loomis v. Exelon Corp., 658 F.3d 667 (7th Cir.

2011) .................................................................... 9, 13

Meiners v. Wells Fargo & Co., 898 F.3d 820 (8th

Cir. 2018) .................................................................27

Miller v. Autozone, Inc., No. 2:19-cv-2779, 2020

WL 6479564 (W.D. Tenn. Sept. 18, 2020) ...............13

Parmer v. Land O’Lakes, Inc., 518 F. Supp. 3d

1293 (D. Minn. 2021) ............................. 11, 26, 27, 34

Patterson v. Morgan Stanley, No. 16-cv-6568,

2019 WL 4934834 (S.D.N.Y. Oct. 7, 2019) ........ 15, 26

Pension Ben. Guar. Corp. ex rel. St. Vincent Cath.

Med. Centers Ret. Plan v. Morgan Stanley Inv.

Mgmt. Inc., 712 F.3d 705 (2d Cir. 2013) .............. 8, 21

Reichert v. Juniper Networks, No. 4:21-cv-6213

(N.D. Cal.) .................................................... 13, 28, 34

Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir.

2011) ........................................................................23

Rosen v. Prudential Ret. Ins. & Annuity Co., No.

15-cv-1839, 2016 WL 7494320 (D. Conn. Dec.

30, 2016) ..................................................................27

Sacerdote v. NYU, 9 F. 4th 95 (2d Cir. 2021) ..............29

Sweda v. Univ. of Pennsylvania, 923 F.3d 320 (3d

Cir. 2019) ................................................... 7, 8, 14, 20

White v. Chevron Corp., 752 F. App’x 453 (9th Cir.

2018) ........................................................................23

TABLE OF AUTHORITIES—Continued

Page

White v. Chevron Corp., No. 16-cv-0793, 2016 WL

4502808 (N.D. Cal. Aug. 29, 2016) .................... 27, 33

Young v. Gen. Motors Inv. Mgmt. Corp., 325 F.

App’x 31 (2d Cir. 2009) ............................................31

OTHER AUTHORITIES:

Daniel Aronowitz, Pleading Standard for Excessive Fee Lawsuits, Euclid Specialty Managers

(Aug. 2021), https://bit.ly/3jpXti4 ....................... 6, 31

DOL, A Look at 401(k) Plan Fees (Sept. 2019),

https://bit.ly/3fP8vuH .............................................30

DOL, Frequently Asked Questions about the

2009 Form 5500 Schedule C (July 2008),

https://bit.ly/3nrB1Gr .............................................17

Euclid Fiduciary, Analyzing the BrightScope Defined Contribution Plan Data in the Context

of Excessive Fee Lawsuits (Sept. 14, 2021),

https://bit.ly/2ZdX37I ..............................................13

Heather Salko, ERISA Litigation Targets Higher

Education Retirement Plans, United Educators, https://bit.ly/3yWhjYm......................................7

Jacklyn Wille, Spike in 401(k) Lawsuits Scrambles Fiduciary Insurance Market, Bloomberg

Law (Oct. 18, 2021), https://bit.ly/3CjnTK5 ......... 6, 7

Kate Stalter, Chasing Performance Is a Quick

Way to Disaster, U.S. News & World Report

(Feb. 8, 2017), https://bit.ly/3hEs1Lk .....................16

vii

TABLE OF AUTHORITIES—Continued

Page

Lars Golumbic, et al., 2020 ERISA Litigation

Trends Hint At What’s Ahead This Year,

Law360 (Jan. 3, 2021), https://bit.ly/2TeiodS ...........7

Lee Barney, Excessive Fee Lawsuits Expected to

Continue to Rain Down on Plans, PLANADVISER (June 11, 2021), https://bit.ly/

3vzkLam ....................................................................7

Lockton Financial Services Claims Practice, Fiduciary Liability Claim Trends (Feb. 2017),

https://bit.ly/3viCsd2 .................................................8

Proskauer Rose, ERISA Fest (Oct. 7, 2021),

https://bit.ly/3m1O2af ...............................................7

Robert Rachal, Myron D. Rumeld & Tulio D.

Chirinos, Fee Litigation 2019 Round-Up: Recent Developments and Best Practices to Mitigate Risk, Benefits Law Journal, Spring 2020,

Vol. 33, Issue 1 ...........................................................6

Sarah Holden, The Economics of Providing

401(k) Plans: Services, Fees, and Expenses,

2020, ICI Research Perspective (June 2021),

https://bit.ly/3juJhVa ..............................................30

Vanguard, Quantifying the Impact of Chasing Fund Performance (2014), https://bit.ly/

3mjGZu5 ..................................................................16

INTEREST OF AMICUS CURIAE

Amicus Curiae Euclid Fiduciary (Euclid)1 has an

interest in describing how the current ERISA caselaw

permits implausible claims to proceed against prudent

plans and fiduciaries. As a leading provider of fiduciary liability insurance for America’s employee benefit

plans, including many of the nation’s largest and most

sophisticated plans, Euclid has underwritten fiduciary

liability insurance for thousands of plans and fiduciaries across the country. Euclid has considerable expertise analyzing issues of prudence using the same

information that is frequently available to courts at

the motion to dismiss stage. Its singular focus on fiduciary liability has cultivated a deep understanding of

the industry best practices that allow plans and fiduciaries to provide quality investment options and services to participants without imprudent risks and

costs.

Euclid’s expertise is applying fiduciary liability

standards to insure prudently managed plans. When

underwriting defined contribution plans, Euclid underwriters analyze each plan’s disclosures required by the

Department of Labor (DOL). These include the Form

5500, the financials attached to the Form 5500, the

participant Rule 404a5 fee disclosure, and the

recordkeeper’s Rule 408b2 fee disclosure. Using these

Pursuant to Supreme Court Rule 37(6), amicus states that

no one other than amicus and its counsel authored this brief in

whole or part or contributed money intended to fund the preparation or submission of this brief. All parties have consented to the

filing of this brief in blanket consents on file.

disclosures, Euclid underwriters analyze various factors regarding whether the plan and its fiduciaries follow prudent processes. Based on this review, Euclid

quotes insurance for plans and plan sponsors that

comply with fiduciary best practices. Despite its best

fiduciary underwriting, however, Euclid has seen purported excessive fee cases being filed against plans

with quality fiduciary processes, and it believes that

further guidance to the lower courts is necessary to ensure that such cases are resolved under a uniform and

predictable pleading standard.

---------------------------------♦---------------------------------

INTRODUCTION AND

SUMMARY OF THE ARGUMENT

The pleading standard for excessive fee lawsuits

ought to “readily divide the plausible sheep from the

meritless goats.” Fifth Third Bancorp v. Dudenhoeffer,

573 U.S. 409, 425 (2014). Instead, industry data and

Euclid’s own experience demonstrate that, all too often, the lower courts fail to distinguish the two, improperly permitting meritless goats to proceed in

expensive and burdensome litigation against prudent

plans and fiduciaries. The chance for a windfall recovery has spawned hundreds of excessive fee lawsuits

over the past five years, already resulting in dozens of

meritless claims avoiding dismissal and extracting

large settlements. The pleading standard should be

clarified and further guidance should be given to better

equip the lower courts to weed out these claims.

Plaintiffs employ two primary tactics to avoid dismissal of excessive fee claims: improper benchmarking

and incomplete or inaccurate descriptions of the fees

at issue. They improperly allege benchmarks with different sizes, investment strategies, levels of activity,

target dates, asset allocations, and levels of services

(among other factors) to create the façade of a reliable

benchmark with lower fees. They also allege inaccurate or immaterial fee differentials by cherry-picking

data from fee disclosures and public financials to exaggerate the plan’s fees and by claiming that even minor

fee differences—in one example, only .0003 higher—

suffice to allege a plausible claim.

Applying the familiar standards of Twombly and

Iqbal, Dudenhoeffer confirmed the importance of a

“context specific” inquiry and “careful judicial consideration of whether the complaint states a claim that

the defendant has acted imprudently.” Dudenhoeffer,

573 U.S. at 425. But the complexities of modern plans

and investment strategies, and the associated services and fees, require more guidance than to be “careful” when analyzing claims. The lower courts need

direction regarding what factors to consider when

determining whether a plaintiff has plausibly alleged

excessive fees.

The pleading standard and the factors that inform

it should focus on three elements: (i) that no prudent

fiduciary would have agreed to the allegedly excessive

fees based on (ii) a comparison of a reliable benchmark

of materially identical investments and services with

(iii) disproportionately lower fees during the relevant

time period.

The first element focuses on what a prudent fiduciary would not have done, rather than trying to discern whether the plan should have been more prudent

than it was. Claims should be dismissed unless plaintiffs plausibly allege that the challenged fees are too

high to be the result of a fiduciary’s prudent decisions.

The second and third elements acknowledge that

any allegation of “excessive” fees begs the question of

compared to what. Rather than permitting plaintiffs to

cherry-pick lower-cost benchmarks, courts ought to

apply a uniform set of factors to ensure that plaintiffs allege appropriate benchmarks with sufficient information from which the courts can ascertain whether

the challenged fees are excessive, rather than merely

different. Allegations omitting material facts about the

benchmark or the fees are not plausible.

Courts can and should make use of the relevant

plan disclosures, including the DOL-required fee

disclosures and public financial information, when

analyzing excessive fee claims. This information is

available to plaintiffs and is often incorporated into

complaints to establish their own preferred benchmarks and to support allegations about the fees at issue. Likewise, Euclid’s own underwriting uses this

information to determine whether to insure plans and

fiduciaries. In Euclid’s experience, it is useful to distinguish the sheep from the goats through the underwriting process, during which time Euclid, like most

district courts, does not have access to the additional

facts that would be provided in discovery.

The alternative proposed by Petitioners and DOL

is unworkable. Merely requiring a benchmark that is

substantially similar (not materially identical) to the

challenged plan improperly overlooks material dissimilarities. Because plans have a wide variety of prudent investment options and services available, lower

courts must do more than compare “apples to apples”;

they must compare McIntosh to McIntosh and Red Delicious to Red Delicious. Moreover, the plan’s entire

mix of investments should be considered, even if plaintiffs challenge only a few of the investment options as

imprudent, lest ERISA become a de facto requirement

to chase short-term returns, to the detriment of the

plan’s long-term investment strategy. Lastly, assuming

a proper benchmark is alleged, another problem arises

from the overly simplistic approach permitting claims

to proceed simply because the benchmark’s investment

options and services are available at “a lower cost.”

U.S. Br. 12. This ignores that some differences in fees

among materially identical plans are likely to exist in

a free market, which means that plaintiffs often will be

able to point to lower-cost options elsewhere. ERISA

does not require plans and fiduciaries to continually

chase the lowest costs.

---------------------------------♦---------------------------------

ARGUMENT

Implausible ERISA claims are unfairly allowed to proceed against prudent plans

and fiduciaries.

“The aim of ERISA is to make the plaintiffs whole,

but not to give them a windfall.” Henry v. Champlain

Enterprises, Inc., 445 F.3d 610, 624 (2d Cir. 2006). Over

the past five years, however, excessive fee claims have

proliferated, taking advantage of under-developed

pleading standards to avoid dismissal and extract

windfall settlements. Industry data and Euclid’s own

experience confirm that many of these claims are

based on implausible allegations.

A. Industry data demonstrates that excessive fee lawsuits have become excessive.

Over 300 excessive fee lawsuits have been filed in

the last five years, with well over one billion in settlements and several hundred million in payouts to plaintiffs’ counsel.2 Last year alone, nearly 100 excessive fee

suits were filed, marking a 500 percent increase from

the year before.3 And an estimated 70 percent of those

See Daniel Aronowitz, Pleading Standard for Excessive

Fee Lawsuits 3, Euclid Specialty Managers (Aug. 2021),

https://bit.ly/3jpXti4; Robert Rachal, Myron D. Rumeld & Tulio D.

Chirinos, Fee Litigation 2019 Round-Up: Recent Developments

and Best Practices to Mitigate Risk, Benefits Law Journal, Spring

2020, Vol. 33, Issue 1.

See Jacklyn Wille, Spike in 401(k) Lawsuits Scrambles

Fiduciary Insurance Market, Bloomberg Law (Oct. 18, 2021),

cases proceed into discovery.4 It is now routine “in numerous other lawsuits” for “a plaintiff ’s attorney, seeking a large fee,” to “target a plan that holds abundant

assets,” in the hope of a large settlement. Sweda v.

Univ. of Pennsylvania, 923 F.3d 320, 341 (3d Cir. 2019)

(Roth, J., concurring in part and dissenting in part).

Furthermore, plaintiffs have increasingly attacked

smaller plans with less than $100 million in assets and

fewer than 1,000 participants,5 and have also shifted

their focus to universities, filing a dozen copycat lawsuits against large universities.6 This, in turn, has

made it harder for plans and fiduciaries to obtain the

insurance coverage necessary to operate in today’s litigious environment, threatening the availability of retirement benefits and services to employees.7

Petitioners contend that skyrocketing litigation

serves ERISA’s remedial purposes. Pet. Br. 47. But

they ignore the in terrorem effects of the low and

https://bit.ly/3CjnTK5 (reporting approximately 140 cases filed in

2020 and 2021, as compared to only 20 in 2019).

See Proskauer Rose, ERISA Fest 6 (Oct. 7, 2021), https://

bit.ly/3m1O2af.

See Lars Golumbic, et al., 2020 ERISA Litigation Trends

Hint At What’s Ahead This Year, Law360 (Jan. 3, 2021), https://

bit.ly/2TeiodS (“The biggest driver of the explosion of ERISA class

actions in 2020 was a dramatic increase in the number of smaller

plans facing these lawsuits. . . .”).

See Resp. Br. 11; see also Golumbic, supra n.5; Heather

Salko, ERISA Litigation Targets Higher Education Retirement

Plans, United Educators, https://bit.ly/3yWhjYm.

See Lee Barney, Excessive Fee Lawsuits Expected to Continue to Rain Down on Plans, PLANADVISER (June 11, 2021),

https://bit.ly/3vzkLam.

undeveloped pleading standard applied to such suits,

which forces even successful plans (and the employees

who volunteer to serve as fiduciaries) to incur the burdens and costs of protracted litigation. Plaintiffs’ strategy “has substantial consequences for fiduciaries of

these plans, particularly at universities,” by putting

them in an untenable position, forcing them to pay the

ransom demanded by plaintiffs. Sweda, 923 F.3d at 341

(Roth, J., concurring in part and dissenting in part).

“This reality demands that cases such as this one be

carefully scrutinized in order not to permit implausible

allegations to result in a large settlement, under which

a substantial portion of the funds that are to be reimbursed to retirement plans are instead diverted to attorneys’ fees.” Id.

B. Euclid’s experience demonstrates that

significant numbers of excessive fee

lawsuits are based on implausible allegations.

For years, lower courts have permitted significant

numbers of implausible excessive fee lawsuits to proceed, inflicting “probing and costly inquiries and document requests” on prudent plans and fiduciaries.

Pension Ben. Guar. Corp. v. Morgan Stanley Inv. Mgmt.

Inc., 712 F.3d 705, 719 (2d Cir. 2013); see also Lockton

Financial Services Claims Practice, Fiduciary Liability

Claim Trends 1 (Feb. 2017), https://bit.ly/3viCsd2 (reporting estimated $2.5 to $5 million in discovery costs).

1. Implausible claims are allowed to

proceed based on allegations that are

not material to the actual fiduciary

process or the investments at issue.

When it comes to ERISA plans, “[c]omparing apples and oranges is not a way to show that one is better

or worse than the other.” Davis v. Washington Univ. in

St. Louis, 960 F.3d 478, 485 (8th Cir. 2020). This is especially true given that plan participants have different financial goals, requiring options with “different

aims, different risks, and different potential rewards

that cater to different investors.” Id.; see also Loomis v.

Exelon Corp., 658 F.3d 667, 673-74 (7th Cir. 2011) (noting “the absence from ERISA of any rule that forbids

plan sponsors to allow participants to make their own

choices”). Unfortunately, the lower courts sometimes

permit excessive fee lawsuits to rely on contrived

benchmarks to accuse an “apple” plan of imprudently

paying more fees than an “orange” plan.

a. Improperly comparing large plans

to small plans

One strategy employed by Plaintiffs is to use small

plans as benchmarks for large plans, relying on publications like the 401k Averages Book even though it

does not analyze fees for large plans.8 See Davis v.

The 401k Averages Book provides average cost information

for 401k plans, beginning at the level of 10 participants / $100,000

in assets and ending at 2,000 participants / $200,000,000 in

assets. See 401k Averages Book 1 (21st ed. 2021); see also

https://www.401ksource.com/.

Magna Int’l of Am., Inc., No. 20-cv-11060, 2021 WL

1212579, at *9 (E.D. Mich. Mar. 31, 2021) (alleging a

benchmark of a 2,000 participant / $200 million asset

plan against a 26,000 participant / $1.6 billion asset

plan); In re Omnicom ERISA Litig., No. 20-cv-4141,

2021 WL 3292487, at *15 (S.D.N.Y. Aug. 2, 2021) (noting that the Averages Book “evaluated recordkeeping

fees for plans much smaller than” the challenged plan).

Defendants’ arguments about the impropriety of

using small-plan statistics to judge large-plan fees

tend to fall on deaf ears. In Omnicom, the court found

that plaintiffs’ alleged average recordkeeping fees for

small plans were sufficient for benchmarking, reasoning that the larger plan should have used its greater

bargaining power to negotiate even lower fees—in

other words that the Averages Book set the ceiling for

fees that a large plan should pay. See In re Omnicom

ERISA Litig., 2021 WL 3292487, at *15. Plaintiffs’

amended complaint focused exclusively on comparing

the plan’s alleged $46 per-participant fee with the alleged benchmark of $14-21. Id. ECF 17 ¶¶50-51. Plaintiffs did not allege—and the court did not analyze—

whether the plan’s recordkeeping services were comparable to the services that allegedly could have been

obtained at the lower rate. Id. 2021 WL 3292487, at

*15. More importantly, plaintiffs obscured the actual

costs at issue by using the $35 average recordkeeping

cost for small plans with 100 participants and $5 million in assets (Amd. Compl., ECF 17 ¶50), even though

the Averages Book indicates that total participant cost

(TPC) for these plans is $604.9 Based on plaintiff ’s own

allegations, the plan’s TPC was approximately $418,

over 30% lower than the purported benchmark.10 This

distortion of small-plan data is a recurring feature of

ERISA complaints. See, e.g., Allison v. Brands, Inc., No.

2:20-cv-6018, 2021 WL 4224729, at *8 (S.D. Ohio Sept.

16, 2021) (following Omnicom despite fact that the

plan was “much larger than the ones evaluated in the

Averages Book”); Parmer v. Land O’Lakes, Inc., 518

F. Supp. 3d 1293, 1299 (D. Minn. 2021) (using Averages

Book and similar sources to benchmark large plan

with “over $1.4 billion” in assets).

By contrast, in Johnson v. PNC Financial Services

Group, Inc., the district court rejected plaintiffs’ bald

assertion that a large plan’s fees must be lower than

the “average” fees for small plans, concluding that imprudence cannot “be inferred from the comparison between the direct recordkeeping and administrative

costs of smaller plans with the record keeping and administrative fees Plan participants pay.” No. 2:20-cv01493, 2021 WL 3417843, at *4 (W.D. Pa. Aug. 3, 2021).

Other factors, including revenue sharing, showed that

“smaller plans pay much more.” Id. Additionally, the

court rejected another common plaintiffs’ tactic—i.e.,

See 401k Averages Book 56 (21st ed. 2021) (“Total Plan Cost

per participant is $604.”). The lower recordkeeping fees for

smaller plans are more than offset by their higher asset-based

fees.

Plaintiffs alleged the plan had 36,807 participants, $2.8

billion in assets, and TPC from 0.53% to 0.55% of its total assets.

Amd. Compl., ECF 17 ¶¶4, 55. Simple math ($2.8 billion x 0.55%

÷ 36,807) yields a TPC of $418 per participant.

citing inconclusive and incomplete data from other

plans’ Form 5500 filings, without accurately comparing

the services provided by those plans. Id. (noting that

alleged benchmark was “premised on unspecified

recordkeeping services provided by Fidelity to other

plans . . . without any comparison to the services provided to the Plan”).

Undeterred, the PNC plaintiffs amended their

complaint to rely on the purported lower recordkeeping fees of other large plans. But this, too, was defective

because plaintiffs used the Form 5500 direct compensation data in lieu of the DOL-mandated Rule 408b2

disclosure, which provides the accurate recordkeeping

total. No. 2:20-CV-01493, ECF 42 at 15 ¶46; 29 C.F.R.

§ 2550.408b-2. Nor did plaintiffs allege any facts to

support their assumption that the other plans and services were sufficiently comparable to be proper benchmarks. See PNC, No. 20-CV-01493, ECF 42 at 15-17

¶¶46-49.

b. Improperly comparing active funds

to passive funds

Another issue is the use of a passive fund to

benchmark active funds, alleging that the higher

fees associated with active investment strategies are

“excessive” simply because they exceed the passive

fund’s fees. Petitioners themselves used a passive Vanguard index fund as a benchmark for active funds in

Respondents’ plans. Divane v. Nw. Univ., No. 16-cv8157, 2018 WL 2388118, at *4 (N.D. Ill. May 25, 2018).

They offered no materially identical benchmark to

properly assess the fee differential—just an inapposite

passive index fund that failed to account for the different strategies and associated fees of active funds. See

Loomis, 658 F.3d at 669-70; Davis, 960 F.3d at 485 (rejecting use of “index funds as a potential benchmark”

for actively managed funds).

In the same vein, plaintiffs challenge isolated active investments for which fiduciary prudence can only

be evaluated in the context of the entire investment

portfolio. In Miller v. Autozone, Inc., the court declined

“to rule on the reasonableness of comparing activelymanaged funds to passively-managed index funds” and

denied the motion to dismiss even though plaintiffs alleged no actively managed funds to benchmark the allegedly excessive fees. No. 2:19-cv-2779, 2020 WL

6479564, at *4 (W.D. Tenn. Sept. 18, 2020). Likewise,

the plaintiffs in Reichert v. Juniper Networks challenged two active investments but ignored the fact that

the plan offered 44 low-cost index options. No. 4:21-cv6213, ECF 1 (N.D. Cal.).11

Appellate courts have given conflicting guidance

on this issue. The Third Circuit recognized that “a fiduciary breach claim must be examined against the

backdrop of the mix and range of available investment

options,” but in the next breath, opined that even “a

meaningful mix and range of investment options” does

The case is described by Euclid in its whitepaper Analyzing the BrightScope Defined Contribution Plan Data in the Context of Excessive Fee Lawsuits (Sept. 14, 2021), https://bit.ly/

2ZdX37I.

not “insulate[ ] plan fiduciaries from liability for breach

of fiduciary duty,” (Sweda, 923 F.3d at 330), leaving unresolved the question of what other factors should inform the analysis of the mix of options. The mix may

not be dispositive, but if it matters at all, then the

lower courts should be told how to account for it in the

Rule 12 analysis.

c. Improperly comparing funds with

different target dates or asset allocations

A third strategy employed by plaintiffs is to challenge target-date funds by comparing benchmarks

with different target dates, ignoring the funds’ asset

allocations, which change as the target date draws

closer. Divane v. Nw. Univ., 953 F.3d 980, 984 (7th Cir.

2020). In Brown-Davis v. Walgreen Co., the court denied a motion to dismiss claims alleging poor performance of funds by benchmarking them against two

indexes and three target-date funds with low 6 bps

fees. No. 1:19-cv-05392, 2020 WL 8921399, at *1 (N.D.

Ill. Mar. 16, 2020). Plaintiffs were dissatisfied with the

return of 7.96% compared to the returns of Fidelity

(9.30%), TRP (9.93%), and the S&P 500 (8.42%). Id.

ECF 1 at 15 ¶54. But the challenged funds had materially different allocations. The 2025 funds held 46%

equities compared to 61-65% in the alleged benchmark, and the 2045 funds held 82% equities compared

to 89-93% in the alleged benchmarks. Id. Mot. to Dismiss, ECF 38 at 10. The district court refused to take

judicial notice of the available performance and asset

allocation information published by the benchmark

funds themselves (even though plaintiffs presumably

used that same information to identify returns). See

Walgreen Co., 2020 WL 8921399, at *2.

A related problem arises when plaintiffs attack

quality investments because they lag a purported

benchmark in the short-term (i.e., over the span of a

few years). The Walgreens plaintiffs filed their complaint six years after the challenged funds were added

to the plan in 2013. Id. Mot. to Dismiss, ECF 38 at 3.

But it is not imprudent “to select conservative funds

with long-term growth potential and to stay with those

mutual funds even during years of lower performance.”

Jenkins v. Yager, 444 F.3d 916, 926 (7th Cir. 2006). Nor

does the duty of prudence “compel ERISA fiduciaries

to reflexively jettison investment options in favor of

the prior year’s top performers.” Patterson v. Morgan

Stanley, No. 16-cv-6568, 2019 WL 4934834, at *11

(S.D.N.Y. Oct. 7, 2019). Such shortsightedness only

encourages frequent adjustments to an investment

portfolio, which runs counter to prudent investment

management principles including those based on modern portfolio theory. See Laborers Nat. Pension Fund v.

Northern Trust, 173 F.3d 313, 322 (5th Cir. 1999) (applying modern portfolio principles consistent with

“ERISA policy as expressed by the Secretary’s regulations.”). Prudent investment management prioritizes

long-term diversification across asset classes, with returns achieved by disciplined rebalancing rather than

chasing short-term returns at the expense of the

portfolio’s long-term return and ultimate benefit to

participants.12

A prudent fiduciary should consider several factors regarding the plan’s investment options, including

diversification by asset class, an appropriate time

horizon based on the proximity of participants to retirement, the plan’s liquidity needs, and legacy investments that may pose material penalties to liquidate, to

name a few. See Northern Trust, 173 F.3d at 317.

2. Implausible claims are allowed to

proceed based on allegations of inaccurate or immaterial fee or performance differences.

In addition to improper benchmarking, Euclid has

found that most excessive fee complaints include inaccurate or incomplete data. These claims must rely on

plan disclosures and public financial information to

compare plans to purported benchmarks. Complaints

cannot plausibly allege that plans’ fees are “excessive”

in a vacuum; rather, they must identify at least one

benchmark with lower fees, which necessarily requires

reliance on information outside the complaint. Too often, complaints assert incomplete or distorted information.

Kate Stalter, Chasing Performance Is a Quick Way to Disaster, U.S. News & World Report (Feb. 8, 2017), https://bit.ly/

3hEs1Lk; Vanguard, Quantifying the Impact of Chasing Fund

Performance (2014), https://bit.ly/3mjGZu5.

Petitioners, for example, relied on direct and indirect compensation numbers from the plan’s Form 5500.

Divane, No. 16-cv-8157, ECF 1, Compl. ¶¶66-67. But

those numbers do not represent an accurate recordkeeping fee because they include transaction fees that

are not plan administration costs.13 Petitioners also

failed to allege any benchmark for their claim that $35

per participant is plausible or even available in the

market. They included examples of five universities

that allegedly negotiated lower fees, without identifying the actual fees of those plans for comparison to the

Northwestern plan. Id. Amd. Compl. ECF 38 ¶¶93-101

(discussing Loyola Marymount, Pepperdine, Purdue,

CalTech, and Notre Dame). The lower courts properly

rejected Petitioners’ inflationary tactics, but many

other courts have allowed distorted allegations to proceed.

The examples are abundant. In the excessive fee

litigation against AT&T’s retirement plan, plaintiffs

alleged a false $61 recordkeeping fee, which was exposed at summary judgment when the undisputed

facts showed a market-low recordkeeping fee. See Alas

v. AT&T Servs., Inc., No. 2:17-cv-8106, ECF 215, Order

at 19-20 (C.D. Cal. Sept. 28, 2021) (finding “no factual

dispute exists as to whether [defendants] breached

their duty of prudence in evaluating and monitoring

the recordkeeping fees paid to Fidelity. . . .”); id. ECF

See DOL, Frequently Asked Questions about the 2009 Form

5500 Schedule C at Q4 (July 2008), https://bit.ly/3nrB1Gr (identifying “fees relating to administration” as one of multiple reportable categories of compensation).

81, 3d Amd. Compl. ¶60. The court found that the plan

had a diligent process to monitor recordkeeping and

administrative expenses, including hiring outside experts to benchmark fees, negotiating lower fees with

Fidelity, obtaining fee reductions, and even negotiating

a “most favored customer” provision to ensure the lowest fee. Id. ECF 215 at 19-20. That the Plaintiffs did

not dispute these facts suggests the suit should have

been dismissed earlier. Instead, plaintiffs avoided

dismissal by repeatedly claiming an “excessive” recordkeeping fee of $61 compared to an alleged $30 benchmark. Id. ECF 81 ¶61. Plaintiffs buttressed their claim

with public financial information showing fees charged

by the Home Depot plan ($28) the FedEx plan ($23-30),

the HCA plan ($24-30), the Costco plan ($35-38), and

the Bank of America plan ($14-30). Id. ¶62. The fact

that AT&T’s fees were comparable could have been

verified from the Rule 404a5 disclosure form provided to every plan participant including the plaintiffs. Instead, AT&T undoubtedly expended significant

resources to exonerate its diligent fiduciary process

through discovery and summary judgment briefing, all

because the district court permitted the case to proceed

based on inaccurate fee allegations.

Other cases have followed the same pattern. In

Klawonn v. Board of Directors for the Motion Picture

Industry Pension Plans, Plaintiffs alleged “astronomical” fees “averaging 1.18% per year, four to five times

higher than the average plan of similar size,” allegedly

making the plan “one of the five most expensive plans

in the country.” No. 20-cv-9194, ECF 56, 2d Amd.

Compl. ¶10 (C.D. Cal.). Plaintiffs’ allegation of $46 million in excess fees, however, contradicted the Form

5500, showing a total of $14,901,268 in fees paid for

investment advisory and management services, well

short of the $46 million allegation.14 The alleged 1.18%

investment expense was contrived from whole cloth to

avoid dismissal and exaggerate damages to leverage a

settlement.

Also in Khan v. Board of Directors of Pentegra Defined Contribution Plan, Defendants moved to dismiss,

arguing the plan’s fee disclosure confirmed that plaintiffs “have wildly overstated the Plan’s investment

fees” and seeking judicial notice of the disclosures.

Case 7:20-cv-07561, ECF 93-1 at 18 (S.D.N.Y.). Among

other problems, the disclosures confirmed that plaintiffs had improperly compared the plan’s total fees to

the partial fees of other plans, based on a chart in the

complaint alleging that the plan’s fees were “9,233%

more expensive than the identical lower-cost alternatives,” without disclosing the sources of the purported

alternatives. Id. at 15, 18. These allegations were exposed by public data, which showed, for example, that

one of the challenged funds had an annual operating

expense ratio of .02%—exactly what plaintiffs claimed

it should be. Id. at 18.

The expense information appears at page 4 of Schedule H

to the plan’s Form 5500 (attached in the appendix to this brief ).

For 2019, the plan reported total administrative expenses of

$30,529,413, which is still significantly less than what plaintiffs

alleged. The full Form 5500 is available on DOL’s website at

https://www.efast.dol.gov/5500search/.

Finally, Plaintiffs often sue over immaterial fee or

performance differences that do not justify litigation

and inappropriately second-guess the fiduciary process. In Lauderdale v. NFP Retirement, Inc., No. 8:21cv-301 (C.D. Cal.), plaintiffs made a series of such allegations, comparing challenged funds against purported benchmark funds with slightly lower costs

(ECF 1, Compl. ¶¶70, 82-83, 93-94), including alleging

that a difference of only 3 bps (5 vs 2) was imprudent.

Id. ¶111. (Plaintiffs also ignored the plan’s Rule 408b2

disclosure showing that for each listed active investment option the plan offered a low-cost index fund option.) The fact that plaintiffs felt they could state a

claim based, in part, on a mere .0003 difference in fees

confirms that guidance is needed to weed out lawsuits

alleging immaterial differences.

II.

The pleading standard for ERISA claims

should weed out the implausible claims by

requiring lower courts to account for the

factors that demonstrate plausible claims

of imprudence.

ERISA judges fiduciaries on their “process rather

than results.” Sweda, 923 F.3d at 329; see also DeBruyne v. Equitable Life Assurance Soc’y, 920 F.2d 457,

465 (7th Cir. 1990) (ERISA “requires prudence, not

prescience.”). “A prudently made decision is not actionable . . . even if it leads to a bad outcome.” Davis, 960

F.3d 478, 482 (8th Cir. 2020); see also Northern Trust,

173 F.3d at 317 (“ERISA’s test of prudence . . . is one

of conduct and not a test of the result of performance

of the investment.” (citation omitted)). Courts recognize that “the prospect of discovery in a suit claiming

breach of fiduciary duty is ominous” and causes “an in

terrorem increment of the settlement value.” Pension

Ben. Guar. Corp., 712 F.3d at 719. But these principles

are often accompanied only by the less-than-helpful

proposition to take “particular care” in analyzing allegations of imprudence. Id. at 718.

There is little definitive guidance regarding how

to take “particular care” in the context of an excessive

fee case. Plaintiffs’ claims frequently assert some version of the following: the plan should have negotiated

lower fees because (in hindsight) the allegedly comparable plan(s) paid lower fees. This line of attack requires plausible allegations about the comparator

plans and fees, so plaintiffs rely on plan disclosures

and public financial data to contend that the comparator plans really are comparable and that the differential in fees really is excessive. But the lack of a welldeveloped pleading standard unfairly tips the Rule 12

scale by bestowing inferences of truth on plaintiffs’ allegations about the data, no matter how one-sided or

inaccurate, and by failing to articulate the factors that

lower courts should use to evaluate allegations regarding what is a proper benchmark and whether an alleged fee is excessive. The already difficult task of

“weeding out meritless [ERISA] claims,” Dudenhoeffer,

573 U.S. at 425, becomes harder still when plaintiffs

are permitted to stack the deck with incomplete or distorted information.

A. The pleading standard should focus on

comparing the plan at issue with a reliable benchmark of materially identical

investments and services.

With hundreds of excessive fee lawsuits pending,

this is an opportune time to clarify the pleading standard. As explained below, the Court may find it useful to

account for the following factors as it considers the

proper articulation:

To properly allege whether a plan’s fees are

excessive, plaintiffs must plausibly allege that

(i) no prudent fiduciary would have agreed to

those fees based on (ii) a comparison of a

reliable benchmark of materially identical

investments and services15 with (iii) disproportionately lower fees during the relevant time

period.

This standard builds upon Dudenhoeffer, where

the Court considered, inter alia, whether there were

alternatives available that “a prudent fiduciary in the

same circumstances would not have viewed as more

likely to harm the fund than to help it.” 573 U.S. at 410.

Dudenhoeffer does not prevent a fiduciary from exercising judgment about the range of available prudent

investment options and services that suit the plan’s

needs and objectives, notwithstanding differences in

the available options and the associated fees. The

There are two types of fees to consider: management fees

expressed as an expense ratio and administrative fees, including

recordkeeping fees, paid on a per-participant basis or included in

the expense ratio. Resp. Br. 8-9.

question is not, as plaintiffs would have it, whether a

prudent fiduciary could have found a lower-fee option,

but whether the fees were so high that no prudent fiduciary would have agreed to them. See Renfro v.

Unisys Corp., 671 F.3d 314, 322 (3d Cir. 2011) (no hypothetical prudent fiduciary would have made the

same objective choice).

This approach aligns with the rule that allegations that are “merely consistent with” unlawful behavior—but are also “just as much in line with” lawful

behavior—fail to state a claim. Bell Atlantic Corp. v.

Twombly, 550 U.S. 544, 554, 557 (2007). It cannot be

sufficient to allege that some of the plan’s investment

options charged excessive fees or performed inadequately. Rather, the appropriate inquiry is whether

plaintiff ’s allegations show that a prudent fiduciary in

like circumstances would not have selected those options and paid those fees. Allegations that are consistent with a course of action a prudent fiduciary

would have taken fail to state a claim. See White v.

Chevron Corp., 752 F. App’x 453, 455 (9th Cir. 2018)

(insufficient to allege only that “Chevron could have

chosen different vehicles for investment that performed better . . . or sought lower fees for administration of the fund”).

B. The pleading standard should be informed by factors that tend to indicate

whether a reliable benchmark plan

charges disproportionately lower fees

compared to the fees charged by the

plan at issue.

It is one thing to agree that fiduciaries may consider all options on the menu of prudent investments

and services, notwithstanding cost differentials. The

harder task is identifying factors for analyzing whether

a plaintiff has plausibly alleged that a fiduciary’s

choice was not on that menu. In many ways, a lower

court’s task is akin to the process that Euclid follows

when it underwrites plans. Euclid is not involved in

the plan’s investment selection process or ongoing

monitoring. It makes underwriting decisions based

on the same DOL-mandated disclosures and public financial information that plaintiffs rely on in their

complaints, which it uses to assess two categories:

benchmarking factors regarding the material features

of the plan and its proper comparators, and disproportionality factors regarding the degree of difference between the fees of the plan and those of its comparators.

1. A reliable benchmark must include

materially identical investments and

services.

Courts agree that plaintiffs “must provide a sound

basis for comparison—a meaningful benchmark.” Davis, 960 F.3d at 484. But investment options exist to

serve all manner of participant preferences and goals;

simply being “meaningful” is arguably insufficient. The

better question is whether the proposed benchmark is

materially identical in terms of its investments and

services. Apples-to-oranges comparisons won’t do (Davis, 960 F.3d at 485), but even apples-to-apples comparisons allow material dissimilarities, suggesting that

more granularity is necessary to account for the wide

variety of prudent investment options and services

available to plans and the many factors that inform the

fiduciary’s decision-making, including the plan’s size,

overall investment objectives, risk tolerance, financial

circumstances, liquidity needs, and participants’ expected retirement timeline. Plan participants have

different tastes and different needs; some may require

or prefer McIntosh, others Red Delicious, and others

Honeycrisp. Thus, the lower courts should compare

McIntosh to McIntosh, not McIntosh to Red Delicious.

Treating all apples the same at the pleadings stage

will encourage more litigation, thereby chilling the

plan’s ability to cater to participants’ preferences.

a. Plan’s size and number of participants

This factor considers whether the plan’s fees are

prudent relative to its size and number of participants.

It is important to consider all the fees, including perparticipant fees, as well as revenue-sharing and other

asset-based fees. No participant would be better off

paying total fees of $604 instead of $418, regardless of

which plan has higher recordkeeping fees (e.g., Omnicom). Conversely, if only one type of fee is at issue, then

only that fee should be analyzed across the plan and

its comparator(s), but still in the context of the plan’s

total fees.

Courts err when they assume that small plan fees

can benchmark large plan fees (e.g., Omnicom and Allison), ignoring that smaller plans pay fees differently

and may have more asset-based fees that are overlooked when comparing fees per participant. Additionally, larger plans may require more investment options

and services, like enhanced participant education, because of their size and number of participants. By analogy, a large corporation may be able to negotiate

favorable business travel rates for its employees, but

those rates may still exceed those offered to small businesses or individuals because of the different requirements and expectations of corporate travelers.

b. Plan’s mix of investment options

This factor considers whether the plan offers a

prudent mix of investment options across both active

and passive funds, which typically have “different

aims, different risks, and different potential rewards

that cater to different investors.” Davis, 960 F.3d at

485. At a minimum, complaints should include allegations regarding the benchmark funds’ holdings, asset

allocations, investment strategies, and risk profiles.

See Patterson, 2019 WL 4934834, at *11 (dismissing

claim that lacked “detail as to the extent of the investment’s shortcomings or why the [alleged comparator]

is a comparable investment”); Parmer, 518 F. Supp. 3d

at 1306 (finding comparators with “different strategies, aims, risks, and potential rewards do not provide

meaningful benchmarks”).

A frequent dispute is whether a plan imprudently

includes active funds. If the entire mix of investments

is at issue, complaints should identify a benchmark

plan with a materially identical mix, rather than asserting ipse dixit that the active funds were imprudent

because passive funds were available. See Davis v.

Salesforce.com, Inc., 20-cv-01753, 2020 WL 5893405, at

*3 (N.D. Cal. Oct. 5, 2020) (“[A]llegations that passively

managed funds are available as alternatives to actively managed funds . . . do not suffice to demonstrate

imprudence.”); Kong v. Trader Joe’s Co., No. 20-cv05790, 2020 WL 7062395, at *4 (C.D. Cal. Nov. 30,

2020) (same). Plans may offer a “concentration of actively managed funds,” particularly if they also “offer[ ]

a variety of investment options that include[ ] low-cost

options. . . .” Rosen v. Prudential Ret. Ins. & Annuity

Co., No. 15-cv-1839, 2016 WL 7494320, at *15 (D. Conn.

Dec. 30, 2016); see also White v. Chevron Corp., No. 16cv-0793, 2016 WL 4502808, at *9 (N.D. Cal. Aug. 29,

2016) (dismissing imprudence claim despite the presence of five actively managed funds).

Plaintiffs may not “dodge the requirement for a

meaningful benchmark by merely finding a less expensive alternative fund or two with some similarity.”

Meiners v. Wells Fargo & Co., 898 F.3d 820, 823 (8th

Cir. 2018). Instead, the focus should be on the asset allocation of the challenged plan’s funds and those of the

benchmark plan(s). It is not sensible to compare funds

with different weights of asset classes (i.e., weighted

more heavily towards equities vs. weighted towards investment-grade bonds). See supra 14-16; Davis, 960

F.3d at 485 (funds with lower percentages of international securities were not proper benchmarks for fund

with higher percentage). A plan that provides an appropriate mix of low-cost options, as well as actively

managed options, has fulfilled its fiduciary obligations.

See Davis, 960 F.3d at 485 (“[I]t is not imprudent to

provide options with differing features from which to

choose. . . .”).16

This principle applies even when complaints target only some of the plan’s investments, rather than

the overall mix. In Juniper Networks, plaintiffs challenged two active investments, ignoring the plan’s 44

low-cost index options (supra 13 & n.11), but an isolated inquisition into a few funds invites hindsight

bias and discourages beneficial long-term investment

strategies. It incentivizes fiduciaries to eliminate the

plan’s worst performers each year—since they will be

the most likely targets of lawsuits—even though

most funds do have years where they underperform

their peers. The better approach is to consider the

challenged funds in the context of a comparator plan

with a materially identical mix of investment options. In all likelihood, that plan too will have some

Lower courts can analyze investment mixes on a case-bycase basis. They are in the best position to determine, based on

proper benchmarks, whether there are plausible allegations of

imprudence because, for example, a plan offered too many higher

cost funds and/or not enough lower cost funds.

underperformers, underscoring the need to avoid an

isolated analysis of individual funds.

Petitioners and DOL, on the other hand, favor an

isolated analysis, arguing that even “a single imprudent investment” could be the basis for a viable claim.

See Pet. Br. 28; U.S. Br. 23-24 (contending that “ERISA

does not permit respondents to offer any imprudent investments in the mix” (emphasis in original)). This position is based on Sacerdote’s unfortunate statement

that “[i]f the prudence of a particular investment offering will become clear only in the context of the portfolio

as a whole, that argument cannot resolve a motion

on the pleadings.” Sacerdote v. NYU, 9 F. 4th 95, 109

(2d Cir. 2021). But this is a standardless standard.

Plaintiffs can easily attack fewer than all of a plan’s investment options and then argue that the imprudence

thereof “will become clear only in the context of the

portfolio as a whole,” which conveniently circumvents

dismissal and increases the opportunity for a large settlement. So much for weeding out meritless claims.17

c. Type of services provided to the

Plan

This factor considers whether the plan pays for

only basic recordkeeping or additional services too.

It is impossible to know whether a plan’s fees were

This approach also elevates results over process. If plaintiffs feel they can only state an imprudence claim by challenging

a few underperforming funds, rather than the overall mix, this

suggests the plan has a prudent process in place.

excessive without knowing what services the plan received for those fees. See Hecker v. Deere & Co., 569

F.3d 708, 711 (7th Cir. 2009) (denying rehearing where

complaint was “silent about the services Deere participants received from the company sponsored plans”);

see also DOL, A Look at 401(k) Plan Fees 1 (Sept. 2019),

https://bit.ly/3fP8vuH (fees should be only “one of

several factors” in fiduciary decision making). For example, recordkeeping fees may include additional administrative services such as investment planning and

education for participants.18 Similarly, a plan may have

to pay more to obtain the most reputable service providers for its participants.

2. The plan’s fees must be disproportionate to the fees of the reliable

benchmark.

Having identified the proper benchmark, the task

shifts to analyzing the difference in fees. Service providers are not monolithic, and neither are their fees. A

standard that allows any difference in fees, no matter

how small, to sustain a claim will permit manipulation

by immaterial differentials, such as the .0003 fee difference alleged to be “excessive” in NFP Retirement.

The better approach is to require a disproportionate

difference in fees between the plan and its benchmark.

See Sarah Holden, The Economics of Providing 401(k)

Plans: Services, Fees, and Expenses, 2020, at 4, ICI Research Perspective (June 2021), https://bit.ly/3juJhVa.

a. Total plan fees

This factor is self-evident: Unless only part of the

plan’s fees is alleged to be excessive, the total fees—

recordkeeping fees, fund expense ratios, and all other

service fees—should be ascertained, and complaints

should be dismissed if they fail to allege sufficient facts

from which to do so. This is clearly the case when plaintiffs allege “no factual support at all for their assertion

that the Plans should pay” lower fees (Kong, 2020 WL

7062395, at *5), or where plaintiffs distort fees through

misleading allegations, as they have in multiple cases

involving AT&T, Walgreens, the Motion Picture Industry, and Pentegra, to name a few.

Allegations also must show “that the fees were excessive relative ‘to the services rendered.’ ” Young v.

Gen. Motors Inv. Mgmt. Corp., 325 F. App’x 31, 33 (2d

Cir. 2009) (quotation omitted). This scenario may arise

where the benchmark plan offers different—or fewer—

services than the plan at issue, in which case some difference in fees is normal. See Daniel Aronowitz, Exposing Excessive Fee Litigation Against America’s Defined

Contribution Plans, Euclid Specialty Managers (Dec.

2020), https://bit.ly/3hNXJaW (“Even plans that have

an identical number of participants and the same total

plan assets may have very different service models.”).

Extra services will result in fees that “exceed those

charged by a simple administrative services provider.”

Brown v. Daikin Am., Inc., No. 18-cv-11091, 2021 WL

1758898, at *8 (S.D.N.Y. May 4, 2021).

Sometimes, plaintiffs also challenge the plan’s

share classes, claiming that the identical funds could

have been obtained at a lower price, but without alleging sufficient supporting facts. This was the problem

in Davis, where the Eighth Circuit agreed that defendants had “identified one plausible inference” of prudence in their selection of share classes because of the

availability of larger revenue sharing payments and

their efforts to shift into institutional shares in proportion to the plan’s overall growth. 960 F.3d at 483. Nevertheless, the court reasoned that “mismanagement is

another plausible inference” and refused to dismiss the

share-class claim (id.), disregarding the fundamental

tenet that claims should be dismissed if the underlying

allegations “are as consistent with lawful conduct as

they are with unlawful conduct.” Divane, 2018 WL

2388118, at *4 (citing Twombly, 550 U.S. at 570). Instead of inferring mismanagement, courts should consider the context and associated trade-offs. See Kong,

2020 WL 7062395, at *5 (“fiduciaries have latitude to

value investment features other than price (and indeed are required to do so)” (citation omitted)).

b. Fee negotiation process

This factor considers whether the challenged fees

are the result of arm’s-length negotiations. A claim

cannot rest on allegations that the plan “could have obtained substantially the same investment opportunities or services at a lower cost,” (U.S. Br. 12), because

some difference in fees among materially identical

plans will exist in a free market and, consequently, a

lower cost will frequently be available elsewhere. But

“nothing in ERISA requires every fiduciary to scour

the market to find and offer the cheapest possible fund”

(Hecker v. Deere & Co., 556 F.3d 575, 586 (7th Cir.

2009)), or to engage in constant negotiations with its

service providers. See Chevron, 2016 WL 4502808, at

*14 (“nothing in ERISA compels periodic bidding”);

Ferguson v. Ruane Cunniff & Goldfarb Inc., No. 17-cv6685, 2019 WL 4466714, at *8 (S.D.N.Y. Sept. 18, 2019)

(“ERISA does not require plan fiduciaries to obtain

competitive bids from plan service providers.”). Requiring disproportionality of fees honors these principles

by reducing the prospect of an excessive fee lawsuit

simply because the plan might have obtained a better

price with more scouring or harder negotiating.

Courts recognize that “[fiduciaries] are [not] required to pick the lowest-cost fund, particularly when

the expense-ratio differences are small. . . .” (Davis,

960 F.3d at 486), but they tend to improperly infer

that defendants either “did not negotiate aggressively

enough”—which ERISA does not require—or were

“asleep at the wheel” and “failed to pay close enough

attention to available lower-cost alternatives.” Id. at

483. Equally plausible inferences of prudent management must be considered—namely that fiduciaries

considered the funds’ fee structure relative to the services obtained, the funds’ diversification and liquidity

requirements, the degree of the fee differences compared to other options, and the range of prudent expenses in light of these factors.

C. Courts should consider plan disclosures and public financial information

when analyzing excessive fee lawsuits.

Plaintiffs already use this data for their complaints,19 and it is integral to excessive fee claims. The

“excessive” element requires comparison to a benchmark, which means plaintiffs must obtain fee and performance data from the challenged plan’s disclosures

and then obtain the same information for their chosen

benchmark(s). Nothing in Twombly or Iqbal permits

plaintiffs to cherry-pick or distort the material features, performance, and fees of the plan or the benchmark(s). Thus, in Motion Picture Industry, a short

review of the plan’s Form 5500 would have confirmed

that plaintiffs exaggerated the alleged fees by 300 percent ($46 million vs. $14 million). Supra 18-19. A similar approach in AT&T would have prevented the case

from proceeding through expensive discovery and

summary judgment based on a fabricated recordkeeping fee that could have been corrected by reviewing the

plan’s disclosures to plaintiffs and the other participants. Supra 17-18. And in NFP Retirement, reviewing

the plan’s disclosures (including its Rule 408b2 disclosure) would have demonstrated the plan’s low total

fees and recordkeeping fee, as well as the plan’s investment mix, which included a low-fee alternative

AT&T Servs., Inc., No. 2:17-cv-8106, ECF 81 ¶¶62, 78, 102

(Form 5500s); Juniper Networks, No. 4:21-cv-6213, ECF 1 ¶¶121,

208 (Form 5000s, financial statements, plan description, fee disclosures); NFP Retirement, No. 8:21-cv-301, ECF 1 ¶¶58, 113

(Form 5500s, financial statements); Parmer, 518 F. Supp. 3d at

1302 (considering public prospectuses and the Form 5500).

juxtaposed with each active investment option. Supra

20.

Allegations of imprudence should be assessed

based on all the material features of the challenged

plan and its fees and services. DOL-mandated disclosures and public financials are the consistent and reliable source for this data. The Court should make clear

that allegations regarding “excessive” fees and purported benchmarks are implausible if they materially

omit or contradict the data.

---------------------------------♦---------------------------------

CONCLUSION

The Court should uphold the Seventh Circuit’s decision, clarify the pleading standard for excessive fee

lawsuits, and identify the factors that lower courts

should use to weed out meritless suits.

Respectfully submitted,

JARED R. BUTCHER

Counsel of Record

SHARON A. ROSE

CROSS | CASTLE PLLC

1701 Pennsylvania Avenue, NW, Suite 200

Washington, DC 20006

(202) 960-5800

SAMUEL W. DIEHL

CROSS | CASTLE PLLC

333 Washington Avenue North

Suite 300-9078

Minneapolis, MN 55401

(612) 429-8100

Counsel for Amicus Curiae

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.