Huang et al v. TriNet HR III, Inc. et al
Filing
53
ORDER: Defendants' Motion to Dismiss the Amended Complaint (Doc. # 29) is DENIED. Defendants are directed to file their answer to the First Amended Complaint within 14 days of the date of this Order. Signed by Judge Virginia M. Hernandez Covington on 1/10/2022. (SGM)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
SHIQIONG HUANG, et al.,
Plaintiffs,
v.
Case No.: 8:20-cv-2293-VMC-TGW
TRINET HR III, INC., et al.,
Defendants.
_____________________________/
ORDER
This
cause
is
before
the
Court
pursuant
to
the
Defendants’ Motion to Dismiss the Amended Complaint (Doc. #
29), filed on September 10, 2021. Plaintiffs responded on
October 15, 2021 (Doc. # 43), and Defendants replied on
November 4, 2021. (Doc. # 50). For the reasons that follow,
the Motion is denied.
I.
Background
A.
Factual Background
This case involves multiple employer plans (“MEPs”).
(Doc. # 23 at ¶ 38). “At its most basic level, a MEP is a
retirement plan that is adopted by two or more employers that
are
unrelated
for
income
tax
purposes.”
(Id.
at
¶
39)
(internal quotation marks omitted). MEPs “are typically used
by outsourced human resource providers . . . like TriNet.”
1
(Id.
at
¶
38).
Specifically,
TriNet 1
is
a
professional
employer organization (“PEO”) that provides human-resources
expertise, payroll, and employee benefits services to small
and
medium-sized
businesses.
(Id.
at
¶¶
24,
38).
The
retirement plans at issue are the TriNet 401(k) Plan (the
“TriNet III Plan”) and the TriNet Select 401(k) Plan (the
“TriNet IV Plan”) (referred to collectively as the “Plans”).
(Id. at 1). TriNet established the Plans in order to help the
employees
of
retirement.
contribution”
their
(Id.
or
at
client
¶
employers
41).
“individual
The
account”
save
Plans
money
are
401(k)
for
“defined
plans
under
ERISA. 2 (Id. at ¶ 42). By the end of 2018, the TriNet III Plan
had $2.9 billion in assets under management, and the TriNet
IV Plan had $1.1 billion in assets under management. (Id. at
¶ 48).
Defendants TriNet HR III, Inc., TriNet HR IV, Inc., the
Board of Directors of TriNet HR III, Inc., the Board of
Directors of TriNet HR IV, Inc., and the Investment Committee
of TriNet Group, Inc. will be collectively referred to as
“TriNet” unless stated otherwise.
1
The retirement plans at issue in this case are definedcontribution plans, “which provide[] for an individual
account for each participant and for benefits based solely
upon the amount contributed to the participant’s account, and
any income, expenses, gains and losses.” 29 U.S.C. § 1002(34).
Defined-contribution plans offered by for-profit companies
are commonly known as 401(k) plans.
2
2
Plaintiffs are all participants in the Plans. (Id. at ¶¶
17-21). Defendants TriNet HR III, Inc. and TriNet HR IV, Inc.
are the sponsors and fiduciaries of the Plans. (Id. at ¶¶ 1,
24). Defendant Investment Committee of TriNet Group, Inc.
(the “Committee”) is responsible for selecting and monitoring
the
investments
in
the
Plans
and
monitoring
the
Plans’
expenses. (Id. at ¶ 25). Plaintiffs also name as Defendants
the Boards of Directors of TriNet III and TriNet IV because
the companies acted through the Boards. (Id. at ¶ 29).
Plaintiffs purport to bring this case as a class action
for the following proposed class:
All persons, except Defendants and their immediate
family members, who were participants in or
beneficiaries of the Plans, at any time between
September 29, 2014 through the date of judgment[.]
(Id. at ¶ 50).
According
to
Plaintiffs,
Defendants
breached
their
fiduciary duties by failing to adequately review the Plans’
investment portfolio to ensure that each investment option
was prudent, maintained certain funds in the Plan despite the
availability of identical or materially similar investment
options with lower costs and/or better performance histories,
and failed to control the Plans’ recordkeeping expenses. (Id.
at
¶¶
11-12,
57-116).
First,
3
Plaintiffs
allege
that
Defendants
failed
to
investigate
and
select
lower
cost
alternative funds. (Id. at ¶ 57). Specifically, Plaintiffs
allege
that
Defendants
retained
several
actively
managed
funds in the Plans’ investment options “despite the fact that
these funds charged grossly excessive fees compared with
comparable
or
superior
alternatives[.]”
(Id.
at
¶
61).
Plaintiffs allege that the expense ratios for many funds in
the Plans greatly exceeded the ICI Median. (Id. at ¶¶ 63-66).
Second, Plaintiffs allege that Defendants breached their
fiduciary duty by failing to utilize lower fee share classes
that are available to “jumbo” defined contribution investment
plans. (Id. at ¶¶ 68-77). Plaintiffs allege that “a fiduciary
to a large defined contribution plan such as the Plans [here]
can use its asset size and negotiating power to invest in the
cheapest
share
class
available,”
but
that
the
TriNet
fiduciaries failed to do so on multiple occasions. (Id. at ¶¶
70, 73-77). Third, Plaintiffs allege that Defendants failed
to utilize lower-cost and better performing passively managed
funds in favor of higher-cost actively managed funds.
(Id.
at ¶¶ 85-96).
In addition to their allegations regarding the selected
investments’ costs and performance, Plaintiffs also allege
that Defendants failed to monitor or control the Plans’
4
recordkeeping expenses. (Id. at ¶¶ 97-116). Plaintiffs take
exception with the Plans’ approach of using revenue sharing
to pay for the Plans’ recordkeeping and administrative costs
and with the Plans’ process of identifying and retaining its
recordkeepers. (Id. at ¶¶ 101, 113-16).
Based
on
these
allegations,
Plaintiffs
bring
the
following causes of action: (1) as against the Committee,
breach of the fiduciary duty of prudence under ERISA; and (2)
as against TriNet and the Board, failure to adequately monitor
the Committee, thus breaching their fiduciary duties under
ERISA. (Id. at ¶¶ 117-30).
B.
Procedural History
Plaintiffs initiated this case on September 29, 2020.
(Doc. # 1). In December 2020, the parties filed a joint motion
to stay the case pending the Plaintiffs’ exhaustion of the
administrative remedies set forth in the Plans. (Doc. # 16).
The
Court
granted
the
motion,
requiring
periodic
status
reports. (Doc. # 17). On August 6, 2021, based on the parties’
representation that the appeals administrator had issued a
final decision, the Court reopened the case. (Doc. # 22). The
Plaintiffs filed the operative Amended Complaint on August
20, 2021. (Doc. # 23).
5
All Defendants have now moved to dismiss the Amended
Complaint. (Doc. # 29). 3 The Motion has been fully briefed
(Doc. ## 43, 50) and is now ripe for review. 4
II.
Legal Standard
On a motion to dismiss pursuant to Rule 12(b)(6), the
Court accepts as true all the allegations in the complaint
and
construes
them
in
the
light
most
favorable
to
the
Defendants also filed an unredacted version of its Motion
to Dismiss and certain exhibits under seal in order to protect
confidential and commercially sensitive pricing information
of non-parties to the litigation.
3
The Court also solicited the parties’ positions on whether
this matter should be stayed in light of the Supreme Court’s
pending decision in Hughes v. Northwestern University, 2021
WL 2742780, at *1 (July 2, 2021). (Doc. # 47). The parties
both opposed a stay, although for differing reasons. Upon
careful review, the Court has determined that a stay is not
appropriate in this case for two reasons. First, in the
absence of guidance from the Eleventh Circuit, it is persuaded
that the approach taken by the Third, Eighth, and Ninth
Circuits is the correct one. See Garcia v. Alticor, Inc., No.
1:20-CV-1078, 2021 WL 5537520, at *4 (W.D. Mich. Aug. 9, 2021)
(“The Third, Eighth, and Ninth Circuits have held that
allegations regarding imprudent investment selections and
excessive fees, such as the ones presented by Plaintiffs here,
may state a claim for violation of ERISA. . . . The Seventh
Circuit disagrees, but a petition for certiorari has been
granted in the Seventh Circuit case. Absent guidance from the
Supreme Court or the Sixth Circuit, the Court finds the
majority view to be more persuasive than the Seventh Circuit’s
position.” (citations omitted)). Second, the Court agrees
with Plaintiffs that, no matter the Supreme Court’s ruling on
the pleading standard required in cases such as these, “no
courts disagree that discovery must be taken on the actual
process undertaken by a plan’s fiduciaries.” See (Doc. # 51
at 3).
4
6
plaintiff. Jackson v. Bellsouth Telecomms., 372 F.3d 1250,
1262 (11th Cir. 2004). Further, the Court favors the plaintiff
with all reasonable inferences from the allegations in the
complaint. Stephens v. Dep’t of Health & Human Servs., 901
F.2d 1571, 1573 (11th Cir. 1990). But,
[w]hile a complaint attacked by a Rule 12(b)(6)
motion to dismiss does not need detailed factual
allegations, a plaintiff’s obligation to provide
the grounds of his entitlement to relief requires
more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action
will not do. Factual allegations must be enough to
raise a right to relief above the speculative
level.
Bell
Atl.
Corp.
v.
Twombly,
550
U.S.
544,
555
(2007)
(citations omitted). Courts are not “bound to accept as true
a legal conclusion couched as a factual allegation.” Papasan
v. Allain, 478 U.S. 265, 286 (1986).
III. Analysis
Before the Court can address the merits of the Motion to
Dismiss, there are several threshold arguments that it must
address.
A.
Standard of Review
Defendants contend that this Court should review the
administrative decision denying relief to Plaintiffs under a
six-step process enunciated in Blankenship v. Metropolitan
Life Insurance Co., 644 F.3d 1350 (11th Cir. 2011). (Doc. #
7
29 at 8). Defendants argue that, using this standard, the
administrator’s decision should be affirmed because it was
not de novo wrong, nor was it arbitrary and capricious. (Id.
at 8-10, 24-25). Plaintiffs counter that Blankenship does not
apply here because that case involved a plan administrator’s
denial of an individual employee’s claim for benefits. (Doc.
# 43 at 24). They argue that “the Eleventh Circuit’s test
does not provide for an administrator’s denial of claims
brought on behalf of a class of plan participants [and] the
representative
claims
here
require
assessment
before
a
federal district court.” (Id.).
As Plaintiffs note, Blankenship was a case outlining a
“multi-step
framework”
district
courts
should
utilize
in
reviewing “an ERISA plan administrator’s benefits decision.”
644 F.3d at 1354 (involving an appeal of the defendant’s
denial
of
plaintiff’s
claim
for
long-term
disability
benefits). As such, it is silent on the standard of review
courts should use when analyzing putative class action claims
brought on behalf of a defined contribution retirement plan
for breach of ERISA’s statutory duty of prudence.
In 1989, the Supreme Court held that “[t]rust principles
make a deferential standard of review appropriate when a
trustee
exercises
discretionary
8
powers”
under
an
ERISA
benefits plan. Firestone Tire & Rubber Co. v. Bruch, 489 U.S.
101, 111 (1989). In the intervening years, federal courts of
appeals have split as to whether this deferential standard
applies to breach-of-fiduciary-duty cases. See Tussey v. ABB,
Inc.,
746
F.3d
327,
335
(8th
Cir.
2014)
(“[W]e
see
no
compelling reason to limit Firestone deference to benefit
claims.”); Tibble v. Edison Int’l, 729 F.3d 1110, 1129-30
(9th Cir. 2013) (holding that fiduciary’s actions, in action
alleging breach of fiduciary duty, were subject to arbitrary
and capricious standard of review), vacated on other grounds
by Tibble v. Edison Int’l, 575 U.S. 523 (2015); Hunter v.
Caliber Sys., Inc., 220 F.3d 702, 711 (6th Cir. 2000) (finding
“no barrier” to applying a deferential standard to a case
“not involving a typical review of denial of benefits”). But
see John Blair Commc’ns, Inc. Profit Sharing Plan v. Telemundo
Grp., Inc. Profit Sharing Plan, 26 F.3d 360, 369 (2d Cir.
1994)
(declining
to
apply
the
arbitrary
and
capricious
standard beyond the “simple denial of benefits”).
The Eleventh Circuit has not opined on this issue and,
in any event, the Court agrees with Plaintiffs that the Court
cannot address the administrator’s decision at this juncture
without
additional
fact
discovery.
Defendants
have
not
pointed this Court to any breach-of-fiduciary-duty ERISA case
9
in which a matter was terminated on a motion to dismiss based
only upon the record developed in administrative proceedings.
The cases that advocate for a deferential standard in such
breach-of-fiduciary-duty
procedural
posture.
See,
cases
were
e.g.,
decided
Tussey,
746
on
F.3d
a
later
at
330
(involving motion filed after 16-day bench trial); Hunter,
220 F.3d at 706 (involving summary judgment). Thus, the Court
will treat this matter as it would any other motion to dismiss
and will not apply the Blankenship framework for resolving
it.
B.
Documents Considered
Here, Defendants filed voluminous records in support of
their Motion. See (Doc. # 30). Typically, on a motion to
dismiss, the Court limits its consideration to well-pleaded
factual allegations, documents central to or referenced in
the complaint, and matters judicially noticed. La Grasta v.
First Union Sec., Inc., 358 F.3d 840, 845 (11th Cir. 2004).
The Eleventh Circuit has recognized the incorporation by
reference doctrine which permits courts to consider documents
attached to a motion to dismiss without converting the motion
into one for summary judgment, but only if the attached
documents
are
central
to
the
10
plaintiff’s
claims
and
undisputed. Horsley v. Feldt, 304 F.3d 1125, 1134 (11th Cir.
2002).
In the Motion to Dismiss, Defendants point to portions
of the administrative record to argue that:
(1)
“Plaintiffs’ claim that the expense ratios of
the Plans’ investment options exceeded the ICI
Median is plagued by errors – indeed, the
administrative
record
establishes
that
plaintiffs allege erroneous expense ratios for
all but one of the challenged investments in
the TriNet 401(k) Plan. . . . [Relying on the
“correct” expense ratios], it is readily
apparent that almost all of the challenged
funds charged fees well below the ICI Median.”
(2)
“In 2020, the Plans invested in the lowestcost share class for six of the nine
challenged investments. And the difference in
cost for the other three investments was
entirely attributable to a ‘revenue sharing’
credit that the ‘higher-cost’ share classes
made
available
to
defray
recordkeeping
costs[.] . . . Plaintiffs’ claim that
defendants
failed
to
select
lower-cost
investments fails at every level and must be
dismissed.”
(3)
Defendants use the documents to outline the
RFP and RFI process used to select the Plans’
recordkeeper and underscore how their process
for doing so fails to show imprudence or a
failure to monitor.
(Doc. # 29 at 11-12, 15-17, 18-23).
In other words, Defendants primarily dispute the facts
alleged in the operative Complaint, relying on the multiple
exhibits
attached
to
their
Motion.
11
Plaintiffs
appear
to
object to the Court taking judicial notice of these documents.
(Doc. # 43 at 6 n.6).
Defendants
documents
as
argue
part
that
of
its
the
Court
review
of
may
rely
on
these
the
administrator’s
decision or may take judicial notice of them. For the reasons
explained
above,
the
Court
does
not
believe
that
it
is
appropriate, at least at this juncture, to undertake a review
of
the
administrator’s
decision.
And
the
Court
further
declines to take judicial notice of nearly 1,000 pages of
submitted
documents.
Courts
documents
when
facts
the
may
take
therein
judicial
are
“not
notice
of
subject
to
reasonable dispute in that it is either (1) generally known
within the territorial jurisdiction of the trial court or (2)
capable of accurate and ready determination by resort to
sources whose accuracy cannot reasonably be questioned.” Fed.
R. Evid. 201(b). Here, many of the documents submitted by
Defendants are precisely the sort of evidence that might be
submitted at summary judgment or at trial and subject to the
typical rules for admission. For example, Defendants submit
letters of engagement with third parties, presentations on
the recordkeeper RFP process, agreements and service fee
schedules
with
the
Plans’
recordkeepers,
and
performance
information on various investment funds, all in an effort to
12
undercut Plaintiffs’ factual allegations. See, e.g., (Ex.
3(P), (Q-5), (T), (W), (Z), (NN), (RR-4)).
The
Court
Defendants’
Shahar
v.
declines
submitted
Bowers,
(recognizing
that
to
take
documents,
120
F.3d
judicial
judicial
with
211,
notice
214
is
one
notice
of
exception.
See
(11th
a
Cir.
“highly
1997)
limited
process” because “the taking of judicial notice bypasses the
safeguards which are involved with the usual process of
proving facts by competent evidence in district court”).
Because they are cited by and relied on in the Amended
Complaint, the Court will take judicial notice of the ERISA
Plans at issue in this litigation. See Cervantes v. Invesco
Holding
Co.
(US),
Inc.,
No.
1:18-cv-02551-AT,
2019
WL
5067202, at *11-12 (N.D. Ga. Sept. 25, 2019) (taking judicial
notice
of
a
401(k)
plan
due
to
plaintiff’s
“multiple
references to the Plan and reliance on its contents” but
declining to take judicial notice of defendant’s submitted
account statements and fee disclosures).
C.
Merits arguments
Under the Employee Retirement Income Security Act of
1974 (“ERISA”), 29 U.S.C. § 1104, a plan fiduciary is required
to meet a standard of “prudence” in administering the plan
holding the participant’s retirement assets in a defined
13
contribution
plan.
29
U.S.C.
§
1104(a)(1)(B)
(requiring
fiduciaries to discharge their duties “with the care, skill,
prudence,
and
diligence
under
the
circumstances
then
prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims”).
“An ERISA fiduciary’s duty is derived from the common
law of trusts.” Tibble v. Edison Int’l, 575 U.S. 523, 528
(2015).
“A
trustee
(and
thus
an ERISA fiduciary)
has
a
continuing duty to monitor . . . investments and remove
imprudent ones. This continuing duty exists separate and
apart
from
the
trustee’s
duty
to
exercise
prudence
in
selecting investments at the outset.” Id. (internal citations
and quotation marks omitted). This monitoring “is to be done
in
a
manner
that
is
reasonable
and
appropriate
to
the
particular investments, courses of action, and strategies
involved.” Id. (internal
citations
and
quotation
marks
omitted). ERISA empowers a plan participant or beneficiary to
sue plan fiduciaries for breach of fiduciary duties. 29 U.S.C.
§ 1132(a)(2).
Here, Defendants argue that the Amended Complaint must
be dismissed because it fails to state a claim of imprudence
for
three
reasons.
First,
14
according
to
Defendants,
Plaintiffs’ “inaccurate and inapt fee comparisons” do not
permit an inference of imprudence. (Doc. # 29 at 10-17).
Second,
Defendants
“hindsight
argue
performance
that
the
allegations”
Amended
do
not
Complaint’s
permit
an
inference of imprudence. (Id. at 17-18). Third, they claim
that Plaintiffs do not plausibly allege that the Plans’
fiduciaries failed to monitor the recordkeeping fees. (Id. at
18-24).
1.
Fees, expense ratios, and investment performance
First, Defendants quibble with the accuracy of the fee
information pled in the Amended Complaint and argue that,
when the “correct expense ratios” are used, the challenged
funds actually charged fees below the ICI Median. (Id. at 1213). Moreover, Defendants take issue with Plaintiffs using
the ICI Median as a comparator, arguing that because the ICI
Median looks to both actively and passively managed funds,
it’s
an
inapt
comparison.
(Id.
at
13-14).
Similarly,
Defendants decry Plaintiffs’ comparison of certain Plan funds
to “cherry picked” Vanguard index funds because index funds
are fundamentally different from actively managed funds, with
concomitantly different fee structures. (Id. at 14-15).
Second,
Defendants
claim
that,
in
2020,
the
Plans
invested in the lowest-cost share class for six of the nine
15
investments
challenged
by
Plaintiffs
and,
further,
the
difference in cost of the remaining three investments is
attributable to permissible revenue sharing. (Id. at 15-17).
Third,
Defendants
argue
that
Plaintiffs
incorrectly
use
hindsight to plead the underperformance of certain funds and
that they are required only to be prudent, not omniscient.
(Id. at 17-18).
As
the
Eighth
Circuit
has
explained,
the
prudence
inquiry is “fact intensive.” Tussey, 746 F.3d at 336. The
arguments raised by Defendants implicate fact issues that are
not appropriate for resolution on a motion to dismiss. See
McCool v. AHS Mgmt. Co., Inc., No. 3:19-CV-01158, 2021 WL
826756, at *5 (M.D. Tenn. Mar. 4, 2021) (rejecting similar
arguments on a motion to dismiss because such claims “require
examination of particular circumstances, specific decisions
and the context of those decisions” and, accordingly, “the
appropriate inquiry on these claims involves issues of fact,
which cannot be determined on a motion to dismiss”); see also
Nicolas v. Trustees of Princeton Univ., No. 17-3695, 2017 WL
4455897, at *5 (D.N.J. Sept. 25, 2017) (holding that an
inquiry
into
suggest[]
are
“whether
apt
the
alternative
comparisons”’
is
a
funds
Plaintiff[s]
question
unsuitable for resolution on a motion to dismiss).
16
of
fact
The
only
question
before
the
Court
is
whether
Plaintiffs have pled sufficient facts, taken as true, that
meet the requisite pleading standard. Plaintiffs have met
that burden here. Other courts have found similar factual
allegations sufficient to allege ERISA breach of fiduciary
duties claims. See, e.g., Garcia v. Alticor, Inc., No. 1:20CV-1078, 2021 WL 5537520, at *4 (W.D. Mich. Aug. 9, 2021)
(denying motion to dismiss where plaintiffs made similar
claims challenging the 401(k) plan’s investment selections
and fees imposed and, when viewing the complaint as a whole,
plaintiffs had pled sufficient facts to support a claim that
Defendants
breached
their
fiduciary
duties
under
ERISA);
Jones v. Coca-Cola Consol., Inc., NO. 3:20-cv-00654-FDW-DSC,
2021 WL 1226551, at *4 n.3 (W.D.N.C. Mar. 31, 2021) (“Alleging
that excessively high fees were charged to plan participants
can independently constitute a breach of one’s duties of
prudence and/or loyalty under ERISA.”); In re MedStar ERISA
Litig., No. RDB-20-1984, 2021 WL 391701, at *6 (D. Md. Feb.
4,
2021)
(“[P]laintiffs’
underperformed”
compared
allegations
to
funds
that
specific
tracking
the
funds
market
plausibly stated a breach of fiduciary duty claim); Kruger v.
Novant Health, Inc., 131 F. Supp. 3d 470, 478 (M.C.N.C. 2015)
(“[T]he plaintiff alleged that the plan fiduciaries were
17
utilizing imprudently expensive investment options to the
detriment
Plaintiffs
of
the
have
plan.
stated
Following
enough
of
this
a
logic,
claim
for
present
breach
of
fiduciary duty to survive Defendants’ motion to dismiss.”).
The Third and Eighth Circuits have held that similar
allegations
in
ERISA
breach-of-fiduciary-duty
cases
pass
muster, and the Court finds those cases and their progeny to
be persuasive. In Sweda v. University of Pennsylvania, the
plaintiff
claimed
that
the
University
of
Pennsylvania
selected and retained higher cost retail class shares despite
the availability of lower-cost institutional class shares;
failed
to
solicit
competitive
bids
to
assess
the
reasonableness of Plan recordkeeping fees; and included a
table comparing Plan options with readily available, cheaper
alternatives. 923 F.3d 320, 332 (3d Cir. 2019). The Third
Circuit held that, “[w]hile Sweda may not have directly
alleged how [the University of Pennsylvania] mismanaged the
plan, she provided substantial circumstantial evidence from
which the District Court could ‘reasonably infer’ that a
breach had occurred.” Id. The University of Pennsylvania
argued it employed a prudent process, which the Third Circuit
described as a merits-based argument “misplaced” at the early
motion-to-dismiss stage. Id. at 333.
18
Similarly, the Eighth Circuit has rejected the argument
that a complaint must describe exactly the ways in which the
defendants breached their fiduciary duties. Braden v. WalMart Stores, Inc., 588 F.3d 585, 595–96 (8th Cir. 2009).
“Rather, it is sufficient for a plaintiff to plead facts
indirectly showing unlawful behavior, so long as the facts
pled give the defendant fair notice of what the claim is and
the grounds upon which it rests [] and ‘allow [ ] the court
to draw the reasonable inference’ that the plaintiff is
entitled to relief.” Id.(citations omitted).
The Eighth Circuit held that:
Braden has satisfied these requirements. The
complaint alleges that the Plan comprises a very
large pool of assets, that the 401(k) marketplace
is highly competitive, and that retirement plans of
such size consequently have the ability to obtain
institutional class shares of mutual funds. Despite
this ability, according to the allegations of the
complaint, each of the ten funds included in the
Plan offers only retail class shares, which charge
significantly higher fees than institutional shares
for the same return on investment. . . . The
complaint states that appellees did not change the
options included in the Plan despite the fact that
most of them underperformed the market indices they
were designed to track. . . .
The district court correctly noted that none of
these allegations directly addresses the process by
which the Plan was managed. It is reasonable,
however, to infer from what is alleged that the
process was flawed. Taken as true, and considered
as a whole, the complaint’s allegations can be
understood to assert that the Plan includes a
19
relatively limited menu of funds which were
selected by Wal–Mart executives despite the ready
availability of better options. . . . If these
allegations are substantiated, the process by which
appellees selected and managed the funds in the
Plan would have been tainted by failure of effort,
competence, or loyalty. Thus the allegations state
a claim for breach of fiduciary duty.
Braden, 588 F.3d at 595–96.
While the Eleventh Circuit has not issued a definite
opinion on this subject, several district courts have weighed
in. For example, one district court has held that “plaintiffs
have
properly
stated
a
claim
that
choosing
retail-class
shares over institutional-class shares is imprudent. . . .
[T]he plaintiffs allege that the defendants did not use their
bargaining power to obtain the lower cost fees and that the
lower cost options are the exact same as the higher cost
shares except for the actual fees charged. The plaintiffs
assert
that
complacent
no
with
reasonable
being
fiduciary
provided
would
choose
retail-class
shares
or
be
over
institutional-class shares.” Henderson v. Emory Univ., 252
F.Supp.3d 1344, 1349-50 (N.D. Ga. 2017) (allowing an ERISA
breach-of-prudence
claim
to
proceed
where
the
plaintiffs
alleged that the defendants imprudently retained historically
underperforming stocks that charged excessive fees when lower
cost
and
higher
performing
investments
20
were
available).
Similarly,
here,
Plaintiffs
have
alleged
that
TriNet’s
decision-making process in managing the Plans was tainted by
imprudence because the decision-making process, or lack of
oversight
thereof,
performing
allowed
investments
for
and
the
retention
investments
of
that
poorly
charged
excessively high fees when other options were available to
the Plans.
While
Defendants
take
issue
with
the
fact
that
Plaintiffs have not pointed to any specific flaw in their
decision-making process, the Court is persuaded that the
Plaintiffs need not do so at this stage of the litigation.
See Pizarro v. Home Depot, Inc., No. 1:18-CV-01566-WMR, 2019
WL 11288656, at *3 (N.D. Ga. Sept. 20, 2019) (refusing to
place a similar burden on plaintiffs at the motion to dismiss
stage, writing that “plaintiffs may rely on circumstantial
factual allegations to show a flawed process—particularly one
that involves the fiduciaries management of underperforming
investments”).
Lastly,
benchmarks
of
Defendants
measuring
argue
the
that
funds’
Plaintiffs’
performance
or
chosen
their
expense ratios is insufficient or inapt. (Doc. # 29 at 1213, 18 n.35). However, the appropriate benchmarking period is
a factual dispute that cannot be resolved at the motion-to-
21
dismiss stage. See Sacerdote v. New York Univ., No. 16-CV6284 (KBF), 2017 WL 3701482, at *10 (S.D.N.Y. Aug. 25, 2017)
(finding question of performance benchmarks raised factual
questions inappropriate for resolution at motion to dismiss
stage and that claim survived because plaintiffs a long record
underperformance along with allegations of inaction).
In sum, the thrust of Defendants’ Motion to Dismiss is
that Plaintiffs’ claims are factually incorrect or rely on
inapt
comparators
and
that
it
complied
with
all
of
its
statutory obligations under ERISA. But as the Eighth Circuit
has explained, “there may well be lawful reasons appellees
chose the challenged investment options [but] it is not
[plaintiff’s] responsibility to rebut these possibilities in
his complaint[].” Braden, 588 F.3d at 596.
disputes
are
better
resolved
at
a
later
Such factual
stage
of
the
litigation.
2.
Recordkeeping Fees
According
to
the
Amended
Complaint,
“recordkeeping”
refers to the administrative services provided by a third
party to a defined contribution plan, such as providing
account statements to participants. (Doc. # 23 at ¶ 98).
Recordkeeping expenses can be paid either directly from plan
assets or indirectly through a process known as revenue
22
sharing. (Id. at ¶ 100). As the Amended Complaint explains
it:
“Revenue
sharing
payments
are
payments
made
by
investments within the plan, typically mutual funds, to the
plan’s recordkeeper or to the plan directly, to compensate
for recordkeeping and trustee services that the mutual fund
company otherwise would have to provide.” (Id.).
Plaintiffs allege that the Plans at issue in this matter
utilized revenue sharing to pay recordkeeping expenses.
(Id.
at ¶ 101). They allege that Defendants failed to prudently
manage the Plans’ recordkeeping costs by failing to obtain
lower costs than what was being charged, pointing to other
defined contribution plans’ recordkeeping expenses. (Id. at
¶¶ 105-09, 112).
While Plaintiffs concede that Defendants “did seek out
proposals from various recordkeepers in 2015 and again in
2018, the process they used was clearly deficient” because
those searches resulted only in proposals from recordkeepers
owned by insurance companies, and it is “well known in the
industry
that
insurance
based
recordkeepers”
are
not
appropriate for large institutional investors like the Plans.
(Id. at ¶¶ 113-15). Accordingly, Plaintiffs allege that “[a]
prudent fiduciary would have observed the excessive fees
being paid to the recordkeeper and taken corrective action.
23
Defendants’ failures to monitor and control recordkeeping
compensation cost the Plans millions of dollars per year and
constituted breaches of the duty of prudence.” (Id. at ¶ 116).
Pointing to their submitted evidence, Defendants argue
that the Plans participated in a “competitive” request for
proposal (“RFP”) process in 2015 and a request for information
(“RFI”)
process
in
2018
in
order
to
find
qualified
recordkeepers. (Doc. # 29 at 18-19). Further, once it narrowed
the
field
to
three
potential
recordkeepers,
the
Plans
“thoroughly analyzed” the finalists’ services and pricing
before selecting Transamerica as the recordkeeper for the
TriNet 401(k) Plan and MassMutual for the TriNet Select 401(k)
Plan. (Id. at 19). Since, according to Defendants, Plaintiffs
do not and cannot challenge the thoroughness of the process
used to select the recordkeepers, they instead focus on a
comparison of their “estimate of the Plans’ recordkeeping
fees to two industry-wide surveys of single-employer plans.”
(Id. at 20). This is inappropriate, Defendants argue, because
recordkeeping fees must be evaluated in light of the specific
services that were rendered. (Id.).
Defendants
also
argue
that
the
recordkeeping
fees
included in the Amended Complaint are wrong, that the Amended
Complaint misconstrues the very surveys it relies on, and,
24
moreover, “there is no legal support for the allegation that
insurance-based recordkeepers are per se imprudent, and it
cannot be the case that 13% of plans with over $1 billion in
assets (and 49.5% of all plans) have breached their fiduciary
duties merely by hiring insurance-based recordkeepers.” (Id.
at 22-23).
These arguments, once again, raise factual questions
that are not appropriate for this Court to resolve at the
motion to dismiss stage. See Cassell v. Vanderbilt Univ., 285
F. Supp. 3d 1056, 1064 (M.D. Tenn. 2018) (“The question
whether it was imprudent to pay a particular amount of recordkeeping fees generally involves questions of fact that cannot
be resolved on a motion to dismiss.”); see also Santiago v.
Univ. of Miami, No. 1:20-CV-21784, 2021 WL 1173164, at *4
(S.D. Fla. Mar. 1, 2021), report and recommendation adopted,
No. 1:20-CV-21784, 2021 WL 1165441 (S.D. Fla. Mar. 26, 2021)
(pointing out the “fact-intensive inquiries” necessary to
resolve the parties’ dispute around recordkeeping fees and
refusing to take up such a dispute on a motion to dismiss).
Furthermore, Defendants’ argument that Plaintiffs failed
to plead which specific services were offered to the Plans
has been rejected by other courts. See Kruger, 131 F. Supp.
3d at 479 (“While Defendants claim that Plaintiffs have not
25
alleged facts regarding why the amount of the recordkeeping
fees are excessive, the services provided, or how the fees
charged to the Plan were excessive in light of those services,
this court finds that those are the types of facts warranting
discovery, and, therefore, dismissal at this stage is not
appropriate.”).
Accordingly, it is
ORDERED, ADJUDGED, and DECREED:
Defendants’
Motion
to
Dismiss
the
Amended
Complaint
(Doc. # 29) is DENIED. Defendants are directed to file their
answer to the First Amended Complaint within 14 days of the
date of this Order.
DONE and ORDERED in Chambers, in Tampa, Florida, this
10th day of January, 2022.
26
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