Fifth Circuit Revives ERISA Imprudence Lawsuit Over Investments and Recordkeeping Fees

In Perkins v. United Surgical Partners International, Inc., et al., No. 23-10375, 2024 WL 1574342 (5th Cir. Apr. 11, 2024), Plaintiffs are participants of a defined contribution plan established by United Surgical Partners International, Inc. They sued United and other Plan fiduciaries, alleging that the defendants violated their fiduciary duties under ERISA in the management of the plan’s investments and costs. The district court dismissed the Amended Complaint under Rule 12(b)(6) for failure to state a claim. Considering the Supreme Court’s decision in Hughes v. Northwestern University, 595 U.S. 170, 142 S. Ct. 737 (2022), the Fifth Circuit reversed the judgment of the district court.

Plaintiffs allege that the Committee United tasked with overseeing the Plan’s administration violated their duty of prudence by implementing a flawed process for selecting the Plan’s investment options and by failing to monitor and mitigate the Plan’s recordkeeping costs. Plaintiffs allege that the Committee’s inclusion of expensive retail shares instead of cheaper institutional shares was the product of mismanagement. Here, it is undisputed that the Plan’s retail shares and institutional shares are identical in all ways except cost. Though the Committee offered one plausible explanation for United’s decision to include retail shares, the court found that another plausible explanation is that the Committee included retail shares in the Plan due to mismanagement. The court concluded that Defendants failed to refute Plaintiffs’ allegations about the more expensive retail shares and that Plaintiffs sufficiently allege a plausible breach of the duty of prudence.

With respect to recordkeeping costs, the court concluded that Plaintiffs’ allegations about the Plan’s costs in comparison to other similar plans is sufficient to survive dismissal. Other plans in the relevant time period paid individual record-keeping costs somewhere between $22 to $38. The Plan here was paying about $83 per participant. Plaintiffs are not required to include allegations about the specific services rendered in exchange for fees. “Here, although the Plaintiffs point to industry-wide averages, they also compare the Plan’s recordkeeping costs with the costs for similar recordkeeping services provided to a similar number of plan participants.” The district court erred by dismissing this claim at an early stage in litigation.

Lastly, the court concluded that the district court should consider in the first instance whether Plaintiffs’ duty to monitor claim satisfies Rule 12(b)(6) in light of the reinstatement of the other claims.