Your ERISA Watch – – Sorry ABBA, No Winner Takes It All In The Case of the Week

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Plaintiffs prevailed in this week’s two notable decisions, but not entirely. In the first decision, the Sixth Circuit allowed a portion of a pension case alleging excessive investment fees to proceed. In the second case, the Fourth Circuit addressed welfare plan vesting and found, under the highly unusual circumstances of the case, some retirees could proceed with their claim for life insurance benefits.
 
In Forman v. TriHealth, Inc., No. 21-3977, __ F. 4th __, 2022 WL 2708993 (6th Cir. Jul. 13, 2022) (Before Circuit Judges Sutton, Kethledge, and Readler), the Sixth Circuit took a fresh look at a breach of fiduciary duty class action challenging the management of defined contribution plans which was dismissed at the pleading stages. Given recent mixed precedent, the result on appeal was also mixed. The Sixth Circuit affirmed in part and reversed in part the district court’s dismissal of the complaint
 
Plaintiffs began with an uphill battle. Recent Sixth Circuit precedent in Smith v. Commonspirit Health, No. 21-5964, __ F. 4th __, 2022 WL 2207557 (6th Cir. Jun. 21, 2022), foreclosed many of plaintiffs’ claims: “that their employer TriHealth should have offered its employees the option of investing their retirement money in actively managed funds, that the performance of several funds was deficient at certain points, and that the overall fees charged for the investment options were too high.”

However, other recent precedent, this time from the highest court in the land, would also lend plaintiffs a helping hand. In Hughes v. Northwestern Univ., No. 19-1401, __ S. Ct. __, 2022 WL 199351 (U.S. Jan. 24, 2022), the Supreme Court rejected the idea that a large enough menu of available funds within a defined contribution plan could shield fiduciaries from imprudence claims challenging any specific fund within the plan which performed poorly or had unreasonably high fees. Taking this premise from the Hughes decision, the Sixth Circuit concluded that plaintiffs adequately stated an imprudence claim with regard to TriHealth’s offering of retail versus institutional share classes, writing that “even if a prudent investor might make available a wide range of valid investment decisions in a given year, only an imprudent financier would offer a more expensive share when he could offer a functionally identical share for less.”
 
Important to the Sixth Circuit’s decision making was the fact that less expensive share classes have a meaningful benchmark built into the claim itself. Unlike most comparators, institutional versus retail share classes make for an easy apple to apple comparison. Plaintiffs are able to plead that the two investment options have identical investment strategies and portfolios, and are offered by the same managers offering the same services. The only difference between the two classes is the cost and the volume discount given to large institutional classes.

While allowing plaintiffs to continue to litigate any aspect of their complaint is always good plaintiff-side news, it does naturally beg the question of whether this idea of a direct comparator many circuits have adopted sets the bar too high for pleading imprudence. And the question that logically follows is this: If the only claims for imprudence plaintiffs can assert at the pleading stage are ones with identical (or nearly identical) comparisons, doesn’t that set most plaintiffs, who are naturally at a disadvantage early on in litigation given their lack of discovery, up for failure? Does it by its nature convert a motion to dismiss into a motion for summary judgment, and doesn’t it then subvert the idea that plaintiffs must simply state a complaint that is plausible on its face?
 
But a silver lining is a pretty thing, and good news is good news. The optimists here at Your ERISA Watch are happy to take and to celebrate victories, be they big or small.
 
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