401(k)

The 6^th Circuit recently heard a case in which participants in a TriHealth (“Defendants”) 401(k) fund (“Plan”) alleged that the administrators of the Plan breached their fiduciary duty to the participants by offering costly mutual fund options. The 6^th Circuit revived one of the class claims, though affirmed the lower court’s dismissal of other claims brought under ERISA. This case was brought by the named Plaintiff, Danielle Forman, and included allegations that TriHealth breached its fiduciary duties under ERISA by charging high fees to participants, providing funds that underperformed their counterparts, and offering expensive actively managed options. The decision to dismiss these claims relied heavily on the precedent set in Yosaun Smith v. CommonSpirit Health et al. (follow the link to see a summary of CommonSpirit: https://www.mehrfairbanks.com/blog/sixth-circuit-affirms-dismissal-of-erisa-case-holding-that-plan-management-was-not-imprudent/).

However, one of the claims against TriHealth was not governed by the CommonSpirit decision. The 6^th Circuit panel of judges stated that “[t]he gist [of the claim] is this: 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.” Therefore, “The plaintiffs in this last respect have stated a plausible claim that TriHealth acted imprudently.”

Forman’s attorney argued that the differences between the fees charged for the respective funds were “sort of a bulk purchase discount”, and that “[s]hare classes that were in the fund lineup were simply more expensive than other share classes of the same fund that were available to the Defendants for years.” This argument weighed into the panel’s decision to uphold this particular claim while dismissing the others. They further rejected arguments made by the Defendants that the Plaintiffs hadn’t provided a comparable plan to demonstrate that the retail share classes’ returns were lower than other options available to the Defendants. The Court stated, “Unlike a claim premised on an imprudent choice between two different mutual funds that perform differently over time, a claim premised on the selection of a more expensive class of the same fund guarantees worse returns.”