A California federal court recently granted an employer win in an ERISA excessive fee case when it dismissed a proposed class action brought by an ex-employee of Schenker, Inc., a transportation logistics company.  Partida v. Schenker Inc., No. 22-cv-09192-AMO, 2024 U.S. Dist. LEXIS 58297 (N.D. Cal. Mar. 29, 2024).  In the past few years, hundreds of employers have been hit with proposed class actions challenging their “excessive” retirement plan fees.  Plaintiffs have had mixed results in court.  Here, the court reasoned that, although Plaintiff had established standing, the complaint did not state a claim because it contained no specific allegations to support its conclusory assertions.

Similar to other fee class actions, here an ex-employee alleged that Schenker breached its duties of prudence and loyalty under ERISA by: (1) not investigating available lower fee share classes of identical funds; (2) not removing underperforming investments; (3) not evaluating whether an active management strategy benefitted participants; and (4) misrepresenting material information about Plan options and expenses to participants.  In response, Schenker moved to dismiss.

Failure to State a Claim

Schenker’s motion to dismiss asserted that the complaint did not state a valid claim under ERISA because it rested on conclusory assertions unsupported by detailed factual allegations.  For example, Plaintiff conclusorily asserted that the plan paid an excessively high fee for recordkeeping services, that the plan’s funds “significantly underperformed” compared to comparable investments, and that Schenker “selected and retained investment options despite the high cost” compared to comparable investments.  But Plaintiff (1) did not allege facts showing what services the plan’s recordkeeper performed or that the cost of those services was excessive; (2) did not identify cheaper or more successful funds that had the same aims, risks, or potential rewards as the plan’s investments; and (3) did not allege facts showing that Schenker engaged in a flawed process to select or retain funds for the plan.    

The Court agreed with Schenker, holding that Plaintiff failed to state a claim for imprudence because he did not plead any facts showing how the fiduciaries’ process in selecting and monitoring plan investments was flawed, did not plead any facts showing that the plan’s recordkeeping fees were excessive in relation to the services rendered, and did not identify any specific misrepresentations Schenker made.  Likewise, the court held that Plaintiff did not state a claim for disloyalty because the complaint “include[d] only conclusory allegations” that the fiduciaries had acted in their own self-interest to the detriment of the plan, without identifying any specific acts or harms.  Finally, the court held that Plaintiff did not state a claim for failure to monitor fiduciary conduct because he had not properly alleged any underlying breach of fiduciary duty.  

Takeaways

This case serves as another example of a federal court dismissing an ERISA complaint that relies on conclusory assertions unsupported by specific factual allegations.  Courts remain willing to dismiss substantively empty complaints early in the litigation, barring speculative plaintiffs from unsubstantiated “fishing expeditions” in discovery. 

If you have any questions, the Jackson Lewis ERISA Litigation Practice Group members are available to assist.  Please contact a Jackson Lewis ERISA Litigation team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

A New York federal court recently denied former hospital employees’ request for leave to file a Third Amended Complaint (“TAC”) after dismissing their Second Amended Complaint (“SAC”) for lack of standing and failure to state a claim.  Boyette v. Montefiore Medical Ctr., No. 22-cv-5280 (JGK), 2024 U.S. Dist. LEXIS 63150, at *1 (S.D.N.Y. Apr. 5, 2024). The court reasoned that the proposed amended complaint contained “substantively the same defects” as its predecessor.   

Former Montefiore employees challenged the healthcare center’s management of its 403(b) retirement plan, alleging that plan fiduciaries (1) selected underperforming funds charging excessive management fees; (2) failed to offer the least expensive share classes of funds; and (3) failed to control the plan’s recordkeeping costs.  The court found that Plaintiffs lacked standing and factual support for their claims and dismissed the SAC without prejudice.  Boyette v. Montefiore Med. Ctr., No. 22-cv-5280 (JGK), 2023 U.S. Dist. LEXIS 203442, at *3 (S.D.N.Y. Nov. 13, 2023).

Standing 

First, the court found that Plaintiffs lacked standing to assert recordkeeping claims because they failed to allege they had personally paid excessive recordkeeping fees.  Not all participants in the Montefiore plan paid the same fees because the plan employed an asset-based fee schedule under which recordkeeping fees were charged as a percentage of each participant’s account balance.  Plaintiffs asserted that plan fiduciaries could have negotiated a reasonable recordkeeping fee in the mid-$20 range per participant, but neither of the Named Plaintiffs claimed they personally paid more than this “reasonable” fee.  The court held that because Plaintiffs failed to allege they personally paid unreasonable fees, they had not pleaded any individualized harm and thus lacked standing to bring their claims.

The court found that Plaintiffs lacked standing to bring their investment claims for the same reason.  Because Plaintiffs failed to allege they invested in any of the challenged funds, they had not pleaded individualized harm associated with the funds’ performance, management fees, or higher cost share classes.

Failure to State a Claim

The court then turned to the adequacy of the complaint and found additional grounds to dismiss each claim. 

Relying on its own decision in Singh v. Deloitte LLP, 650 F. Supp. 3d 259 (S.D.N.Y. 2023), the court held that Plaintiffs failed to plausibly allege the Montefiore plan’s recordkeeping fees were excessive “relative to the services rendered.”  The court explained that Plaintiffs’ assertion that all recordkeepers offer the same range of services was no substitute for specific factual allegations.

The court similarly disposed of Plaintiffs’ share class claim, finding that Plaintiffs’ assertion that “[t]here is no good-faith explanation for utilizing high-cost share classes” was undermined by public filings explaining the Montefiore plan’s use of revenue sharing from these investments to offset its expenses.

Finally, the court dismissed Plaintiffs’ investment selection claims because Plaintiffs provided no grounds to infer that the information concerning the funds’ alleged underperformance was available to the fiduciaries at the beginning of the Class Period.

Request for Leave to Amend Denied

Dropping the investment and share class claims, Plaintiffs sought leave to file the TAC to save their recordkeeping claim by alleging a Named Plaintiff paid recordkeeping fees in excess of the “reasonable” range.  But the court held that amending would be futile because Plaintiffs failed to specifically allege the recordkeeping services received by the Montefiore plan and its purported comparators, thereby failing to plead that the Montefiore plan’s fees were unreasonable. 

Takeaways

The initial Boyette decision serves as a reminder for all defendants to scrutinize the standing of Named Plaintiffs in ERISA actions.  And both Boyette decisions swell the ranks of court rulings dismissing claims for breach of fiduciary duty related to recordkeeping fees without specific factual allegations of recordkeeping services. 

If you have any questions, the Jackson Lewis ERISA Litigation Practice Group members are available to assist. Please contact a Jackson Lewis ERISA Litigation team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

The Fourth Circuit affirmed Aon Hewitt Investment Consulting’s trial victory in a 250,000-member class action suit alleging that Aon breached ERISA’s fiduciary duties.

Aon was initially the Lowe’s 401(k) plan’s investment advisor and later was engaged as the plan’s 3(38) delegated fiduciary. The plaintiffs’ fiduciary breach claims alleged that, after being retained as a delegated fiduciary, Aon transferred plan assets to an Aon fund with an unproven track record that underperformed. Plaintiffs also claimed that Aon’s sales efforts to acquire delegated fiduciary work and their recommendation to streamline the Lowe’s 401(k) plan’s investment menu were self-motivated and not in the plan’s best interest. After a five-day trial, the district court ruled in favor of Aon.

The Fourth Circuit affirmed. Regarding Aon’s sales efforts, the Court held that this conduct was not investment advice and could not violate the duty of loyalty. As for Aon’s recommendation to streamline the plan’s investment menu, the recommendation was not motivated by self-interest: Lowe’s requested the meeting to discuss a potential structural change before Aon decided to pursue becoming a delegated fiduciary of the Lowe’s plan, Aon consistently recommended a plan structure that was less likely to lead to the engagement of a delegated fiduciary, and the plan’s committee chose the structural changes after determining that the structure was more straightforward for Plan participants to understand.   The Court agreed with the district court that Aon may have received an incidental benefit from the engagement, but their recommendations were not motivated by self-interest.

Concerning Aon’s selection and monitoring of their proprietary fund after its retention as a delegated fiduciary, the Court found that Aon engaged in a reasoned decision-making process when reviewing comparable funds and continued monitoring the fund upholding their duty of prudence. The Court reiterated that the duty of prudence is based on “process, not results.”

With this decision, the Fourth Circuit reiterates that, despite many plaintiffs’ successes in earlier litigation stages, a prudent process for selecting and monitoring investments can win the day for fiduciary breach claims. In addition, the opinion is noteworthy for delegated fiduciaries – and the plan sponsors and fiduciaries that engage them – because the Fourth Circuit declined to hold that a plan service provider that is a fiduciary retains that fiduciary status when cross-selling a new product or service to the plan. Other circuits had held that initial contract negotiation and sales efforts were not fiduciary conduct, but applying those conclusions to an existing fiduciary relationship is novel. 

If you have any questions, the Jackson Lewis ERISA Litigation Practice Group members are available to assist. Please contact a Jackson Lewis ERISA Litigation team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

The Third Circuit refused to enforce a mandatory arbitration clause with a class action waiver in an ESOP, finding that the class action waiver deprived participants of statutory rights. The ESOP plan added the clause at issue in 2017. When plaintiffs filed a putative class action in 2019 asserting fiduciary breach and prohibited transaction claims, Defendants moved to dismiss on the grounds that the plan document required arbitration. The district court refused to enforce the ESOP’s arbitration clause, finding that mandatory arbitration requires consent. There was no evidence that the plaintiff or plan participants consented to add the arbitration provision in the plan document.

Defendants appealed, and the Third Circuit affirmed the district court’s holding on alternative grounds. Specifically, the Third Circuit concluded that the class action waiver within the arbitration agreement was unenforceable because it waived statutory remedies—namely, the right to seek plan-wide relief under ERISA § 502(a)(2). Because the class action waiver was not severable, the Third Circuit concluded the entire provision was void. Notably, the court expressly did not take a position on whether the Plan or its participants must consent to arbitration for such a clause to be valid.

With this decision, the Third Circuit joins the list of circuit courts – the Second, Sixth, Seventh, and Tenth Circuits – refusing to enforce arbitration provisions. In fact, the Ninth Circuit is the only appellate court to have compelled arbitration based on an arbitration clause found in an ERISA plan document.

Jackson Lewis continues to monitor further developments in plan arbitration clauses. If you have any questions, the Jackson Lewis ERISA Litigation Practice Group members are available to assist. Please contact a Jackson Lewis ERISA Litigation team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

Is a new wave of ERISA fiduciary litigation targeting group health plan sponsors on the horizon? There have already been a few examples of health plan fee cases, such as claims challenging the billing practice between insurers and their subcontractors or challenging commissions paid in connection with multi-employer plans. Recent advertisements by the class action plaintiffs’ firm Schlichter Bogard soliciting current participants in particular companies’ health plans relating to the fees they are being charged in those plans suggest the trend is continuing. 

The Consolidated Appropriations Act of 2021, or CAA, created new disclosure requirements for entities providing brokerage and consulting services to ERISA-covered group health plans. The CAA amended section 408(b)(2) of ERISA to require certain service providers of group health plans to disclose specified information to a plan fiduciary, including the compensation the service provider expects to receive in service of the plan. Additionally, the CAA requires a determination of “reasonableness” for vendor fees and services for healthcare plan providers. Similar disclosure requirements enacted for defined contribution plans in 2012 kicked off the current wave of defined contribution plan fee litigation, and the CAA’s new regulations prompted questions as to whether group health plans are the next targets. 

Schlichter’s advertisements for potential plaintiffs for this new round of litigation are yet another sign of what’s to come. While nothing has been filed yet, and representatives from Schlichter have represented that they are conducting targeted investigations only, group health plan sponsors and fiduciaries should remain vigilant and review their and their service providers’ compliance with section 408(b)(2)’s requirements. 

Jackson Lewis will continue to closely monitor these types of cases and this new trend in ERISA litigation. Please contact a Jackson Lewis ERISA Litigation team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

An ERISA action alleging breaches of fiduciary duty recently cleared the pleadings stage in Minnesota district court, narrowly avoiding a complete dismissal. See Schave v. CentraCare Health Sys., No. 22-cv-1555 (WMW/LIB), 2023 U.S. Dist. LEXIS 13786 (D. Minn. Jan. 27, 2023).

In Schave, a CentraCare employee challenged the healthcare provider’s handling of its 401(k) and 403(b) retirement plans. Specifically, Plaintiff accused CentraCare Health System, its board members, and retirement plan administrators of breaching their ERISA duties of prudence and loyalty by:

  1. investing in funds charging excessive management fees;
  2. failing to monitor and replace underperforming funds;
  3. engaging in improper revenue sharing; and
  4. failing to invest in less expensive share classes.

Although it dismissed three of the four claims, the court ultimately declined to dismiss the “share classes” cause of action, allowing the lawsuit to eke past the pleadings stage. 

Standing

As an initial matter, Defendants argued Plaintiff lacked standing to challenge investment options in which she did not enroll.  The Court, relying on Eighth Circuit precedent, took the position that an ERISA plaintiff has standing to challenge a defined contribution plan even if the relief sought is broader than the plaintiff’s own injury.

Failure to State a Claim

The court then turned to the adequacy of the complaint and dismissed three of Plaintiff’s four fiduciary breach claims.  Relying on Matousek v. MidAmerican Energy Co., 51 F.4th 274, 279 (8th Cir. 2022), the Court dismissed claims one-by-one for failure to provide adequate comparators.

Finding comparisons between actively managed and passively managed funds unpersuasive, the court dismissed Plaintiff’s breach-of-fiduciary-duty claim based on excessive management fees.

Plaintiff’s “investment performance” angle met a similar end. Plaintiff claimed that other, cheaper investments proved more successful over a 5-year term. But the complaint identified only a single comparator for each challenged fund. Without alleging how the comparators held “similar securities, [had] similar strategies, and reflect[ed] a similar risk profile,” Plaintiff could not show Defendants failed to replace underperforming funds with cheaper, higher performing alternatives. Schave, 2023 U.S. Dist. LEXIS 13786, at *14.

The court likewise dismissed Plaintiff’s breach-of-fiduciary-duty claim premised on “improper revenue sharing.” Here, the complaint contained only a single case-specific allegation: some of the funds in the challenged plans shared revenue with Fidelity, a service provider. Noting that the remainder of the allegations “merely describe[d] ‘revenue sharing’ in general,” the court dismissed the claim for failing to “connect the dots” that show imprudence. Id.

By contrast, Plaintiff’s “share class” claim survived the motion to dismiss.  Plaintiff alleged that several of the plans’ funds were invested in a more expensive “R5” share class, when a less expensive “R6” institutional share class was available.  Defendants argued that the R5 shares were, practically speaking, less expensive because Defendants negotiated rebates that offset the cost difference.  Still, the court held that the allegations were sufficient, notwithstanding Defendants’ plausible alternative explanation.  This claim proved just strong enough to hoist the complaint over a complete dismissal.

Takeaway

Although the Schave case will proceed to discovery, this decision reinforces the Eighth Circuit’s pleading standard in defined contribution fee class actions, which requires sound comparisons and meaningful benchmarks.

A New York district court recently summarily dismissed, with prejudice, a 401(k) plan participant’s putative class action complaint alleging breaches of fiduciary duty.  Falberg v. Goldman Sachs Grp., Inc., No. 19-cv-9910, 2022 U.S. Dist. LEXIS 167064 (S.D.N.Y. Sep. 14, 2022).  The Plaintiff alleged that the Plan fiduciary-Defendants breached their duties of prudence and loyalty under the Employee Retirement Income Security Act of 1974 (“ERISA”) by (1) failing to adopt an Investment Policy Statement (“IPS”), and (2) making decisions regarding the choice to remove or retain certain underperforming investment options based on their own self-interest. The Plaintiff further alleged that Plan fiduciary-Defendants engaged in a prohibited transaction by failing to claim “fee rebates” in the form of revenue sharing on behalf of the Plan. 

First, the Court rejected Plaintiff’s claim that the Plan’s lack of an IPS was a breach of the fiduciaries’ duty of prudence.  To the contrary, the Court found that the Defendants had robust policies and procedures in place for monitoring and evaluating the Plan’s investment options.  In doing so, the Court reiterated that not adopting an IPS is not a per se ERISA violation.  

Second, the Plaintiff argued that the Defendants breached their duty of loyalty when they allegedly (1) failed to acknowledge an alleged conflict of interest; (2) retained certain underperforming investment funds; (3) gave preferential treatment to certain investment funds; and (4) removed investment options to avoid litigation.  The Court summarily dismissed this claim, holding that there was no conflict of interest with the Plan offering investment options managed by the Defendants’ asset management group. Specifically, the Plaintiff had the burden of establishing that the Defendants acted for the purpose of providing benefits to themselves or someone else.  The Court held that no Defendant committee member had a personal financial incentive to prefer the investment funds held by Defendants’ asset management group and there was no evidence that the Defendants applied a different standard to the investment funds held by Defendants’ asset management group.  Likewise, the Court found unpersuasive the Plaintiff’s argument that the inclusion of the allegedly underperforming investment funds amounted to a breach of the duty of loyalty.  This is because the court found that the company had well-vetted and unbiased processes to evaluate investment options, including an established investment option rating system, monthly and quarterly performance reports, quarterly and ad hoc meetings to discuss the Plan’s investment options, and that the Defendants reasonably relied on their retained investment advisors.  In addition, the Court found no merit in the allegation that the removal of investment options to avoid litigation amounted to an ERISA violation.   

Third, the Court analyzed Plaintiff’s argument that the Plan’s failure to collect fee rebates in the form of revenue-sharing payments on every investment option constituted a prohibited transaction.  Having noted that the Plan’s recordkeeper was ineligible to receive revenue sharing payments from the subject investment funds, the Court found that the Plan was treated no less favorably than similarly situated plans with respect to fee rebates, and dismissed Plaintiff’s prohibited transaction claim. 

Finally, the Court held that the claim for breach of the duty to monitor was not viable because duty of loyalty claims are derivative in nature, and that Plaintiff could not maintain any of the underlying fiduciary breach claims.

This decision is important because the Court points to specific practices and aspects of the Plan’s management that allowed Goldman to prevail in the lawsuit.  Employers can adopt such practices to avoid or combat the wave of more than 220 similar class action lawsuits that have been filed around the country since 2020. 

A New York federal court recently held that a service provider for employer-sponsored retirement plans was not liable as a fiduciary under the Employee Retirement Income Security Act (“ERISA”) when it used participant information to encourage certain plan participants to roll over assets into its more expensive managed account program.  Carfora v. Teachers Ins. Annuity Ass’n of Am., No. 21 Civ. 8384, 2022 U.S. Dist. LEXIS 175613 (S.D.N.Y. Sept. 27, 2022).

Plaintiffs are participants in defined contribution retirement plans for which Defendant Teachers Annuity Association of America and TIAA-CREF Individual & Institutional Services, LLC (“TIAA”) provides recordkeeping and administrative services.  TIAA also offers managed account services for an additional fee through a program called Portfolio Advisor.  According to Plaintiffs, TIAA used their personal information to encourage them to roll over assets from their employer-sponsored plans into Portfolio Advisor.  Portfolio Advisor, despite being more expensive, allegedly performed worse than the employer-sponsored plans.

Plaintiffs allege that TIAA acted as an ERISA fiduciary and violated its fiduciary duties by using Plaintiffs’ personal information to encourage them to switch to TIAA’s more expensive Portfolio Advisor product.  The District Court did not reach the question of whether TIAA breached any fiduciary duties because the Court held that TIAA was not an ERISA fiduciary in the first instance.

Under ERISA, one may become a fiduciary in one of two ways.  First, one may be specifically named a fiduciary in the plan document.  Second, one can be a de facto or functional fiduciary if he acts in a fiduciary capacity by, for example, rendering investment advice for a fee on a regular basis, or holding discretionary authority in the management or administration of the plan.

Plaintiffs argued that TIAA was a de facto fiduciary.

Plaintiffs first argued that TIAA was equitably estopped from arguing that it was not a fiduciary, based on a representation in a 2012 marketing brochure that it would “meet[] a fiduciary standard” in providing investment recommendations.  The District Court rejected this argument because Plaintiffs did not allege that they personally relied upon TIAA’s representations in the decade-old brochure.  Noting that equitable estoppel is only appropriate in “extraordinary circumstances,” the District Court concluded that the doctrine did not apply.

Plaintiffs next argued that TIAA could be held liable as a de facto fiduciary because it “render[ed] investment advice for a fee” and “on a regular basis” when it encouraged Plaintiffs to roll over assets to Portfolio Advisor.  Complicating this argument was the Department of Labor’s evolving and conflicting guidance on the matter.  In 2005, the DOL issued an opinion letter which stated that advice regarding distributions does not constitute “investment advice.”  In 2020, the DOL rescinded this letter and issued a contrary opinion that rollover advice is investment advice and can be advice “on a regular basis,” a requirement to create a fiduciary relationship.  The Court ultimately concluded that TIAA was not a fiduciary by virtue of its rollover advice, declining to give retroactive effect to the DOL’s 2020 opinion.

Plaintiffs further argued that TIAA’s use and access to plan participants’ confidential information created a fiduciary relationship.  The Court rejected this argument, concluding that plan participants’ data are not “plan assets,” and that TIAA’s actions did not create a fiduciary relationship.

Finally, the Court opined that the plan sponsors, who contracted with TIAA for recordkeeping services, were the proper fiduciaries under ERISA, and that Plaintiffs cannot transform “a grievance they might have against their plans for utilizing TIAA into a claim that TIAA was itself a plan fiduciary.”

Takeaways  

Although the Court declined to impose ERISA’s fiduciary obligations onto TIAA, the decision proved informative.  First, the plaintiffs’ bar is targeting service providers, and potentially plan sponsors, for representations and fees relating to rollovers.  Second, much of the Court’s reasoning was based on whether to apply retroactive effect to current DOL guidance, and had that guidance applied, the outcome may have been different.  Employers may be well served by reviewing service agreements and participant communications with ERISA counsel.

Plaintiffs must plead a “sound basis for comparison—a meaningful benchmark” — to sustain their claims of imprudent investment and excessive fee against a 401(k) plan, the federal appeals court in St. Louis has held, dismissing a class action lawsuit for breached of fiduciary duties under ERISA. Matousek v. MidAmerican Energy Co.No. 21-2749 (8th Cir. Oct. 12, 2022).

Click here to read the full article on our website.

The U.S. Court of Appeals for the Eighth Circuit recently affirmed a District Court’s finding that Principal Life Insurance Company (“Principal”) did not breach its fiduciary duties regarding its stable value contract for 401(k) plans.  Rozo v. Principal Life Ins. Co., No. 21-2026, 2022 U.S. App. LEXIS 24803 (8th Cir. Sept. 2, 2022).

In Rozo, the plaintiff, on behalf of retirement plan participants who invested in Principal’s Principal Fixed Income Option (“PFIO”), sued under ERISA asserting that Principal breached its fiduciary duty of loyalty by setting low interest rates for participants, and engaged in a prohibited transaction by using the PFIO contract to make money for itself.  The PFIO is an annuity that Principal offers and manages.  In managing the PFIO, Principal sets a guaranteed interest rate, which it calculates by subtracting “deducts” from the return it expects to earn on the assets.  Principal is only compensated for the positive spread between the amount it promises to participants and what its investments actually yield. 

Breach of Fiduciary Duty Claim

To prevail on its breach of fiduciary duty claim, the plaintiff needed to show that the Principal acted as a fiduciary, breached its fiduciary duties, and caused a loss to the plan. To make such a showing, plaintiff asserted that Principal acted at least in part to advance its own interests by increasing profits, thereby breaching its fiduciary duty.  In evaluating this argument, the Eighth Circuit acknowledged that it had yet to set forth factors for determining whether plan administrators acted “solely in participants’ interests” and noted the importance of identifying each of the parties’ interests when making conflict of interest determinations. 

To do that, the court adopted the First Circuit’s analysis in Ellis v. Fid. Mgmt. Tr. Co., 883 F.3d 1, 9 (1st Cir. 2018) and agreed with the District Court that a “tension” existed between the parties’ interests; the higher the deducts, the lower the rate paid to participants, and the higher Principal’s revenue from the PFIO.

Due to the inherent conflict, the court scrutinized Principal’s actions more closely, but nevertheless found the district court did not err in finding (1) Principal set the deducts in the participant’s interest and (2) the “deducts were reasonable and set by Principal in the participant’s interest of paying a reasonable amount for the PFIO’s administration.”  In reaching these conclusions, the court highlighted that tension does not inevitably result in the type of conflict of interest that establishes a breach of the duty of loyalty and “ERISA does not create an exclusive duty to maximize pecuniary interests.”

Prohibited-Transaction Claim

The court likewise affirmed the dismissal of the prohibited transaction claim because Principal proved that its compensation was reasonable, and therefore it is exempted from liability.

Takeaways

This decision solidifies that companies like Principal, who offer fixed-income investment products, can create fiduciary responsibilities when they deduct from investment returns and set participant rates. Accordingly, companies who offer such investment products must analyze the appropriate factors to ensure compensation is reasonable and the fund is not operated with a profit objective for the company.