In Matousek v. MidAmerican Energy Co., No. 21-2749, __F.4th__, 2022 WL 6880771 (8th Cir. Oct. 12, 2022), Plaintiffs-Appellants are participants in MidAmerican Energy Company’s 401(k) Plan. They allege that the Plan fiduciaries breached their ERISA-mandated duty of prudence by “saddl[ing] them with unreasonably high costs and low-quality investments.” The district court dismissed their complaint for failing to identify better alternatives. The Eighth Circuit Court of Appeals affirmed the district court’s decision.
MidAmerican hired Merrill Lynch to serve as the Plan’s recordkeeper. Merrill Lynch received $1.9 million to $3.1 million in fees per year, which came out to $326 and $526 per plan participant. Plaintiffs allege that no more than $100 per participant is reasonable. The court noted that the cost of Merrill Lynch’s suite of administrative services ranges between $32 and $48 per participant, and indirect revenue-sharing payments account for no more than $37 per participant. The remainder of its compensation comes from its other non-recordkeeping services which are charged against the individual participants’ accounts rather than on a plan-wide basis. The court found that Plaintiffs failed to state a plausible excessive-fees claim because they did not make a like-for-like comparison against a sound and meaningful benchmark. Plaintiffs rely on industry-wide averages that are not all-inclusive and reflect only basic recordkeeping services. “The point is that neither of these sources tells us much about whether MidAmerican pays too much to Merrill Lynch overall. And without a meaningful benchmark, the plaintiffs have not created a plausible inference that the decision-making process itself was flawed.”
On Plaintiffs’ investment-by-investment duty-of-prudence claims, they allege that the Plan’s committee should have removed five investments from MidAmerican’s lineup since they were either poor performing, cost too much, or both. Plaintiffs compare the performance of three of the five funds to their “peer groups,” then evaluate the expense ratios of all but one fund to the mean and median expense ratios in their groups, and then they analyze the expense and performance of two of the funds against alternative investments. The court found that this approach does not clear the pleading bar. First, the court found that the raw performance data provided for the peer-group comparisons do not provide a meaningful benchmark because there is no way of knowing certain details such as the types of funds in each group, the criteria used to sort them, whether they hold similar securities, have similar investment strategies, and reflect a similar risk profile. Second, the complaint’s mean and median expense-ratio data cannot be relied upon because there is no way to compare the large universe of funds to the risk profiles, return objectives, and management approaches to MidAmerican’s fund lineup. Third, the court found that the Plaintiffs’ proffered individualized benchmarks for two investments was not enough to state a plausible claim because of the different fund strategies, i.e., value versus growth strategies, and the funds are just different. Lastly, the court held that the district court did not abuse its discretion by dismissing the complaint without giving Plaintiffs the chance to amend it. Plaintiffs never requested leave to amend nor submitted an amended complaint.
*Please note that this blog is a summary of a reported legal decision and does not constitute legal advice. This blog has not been updated to note any subsequent change in status, including whether a decision is reconsidered or vacated. The case above was handled by other law firms, but if you have questions about how the developing law impacts your ERISA benefit claim, the attorneys at Roberts Disability Law, P.C. may be able to advise you so please contact us.
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