In Smith v. CommonSpirit Health, No. 21-5964, __F.4th__, 2022 WL 2207557 (6th Cir. June 21, 2022), Plaintiff-Appellant Yosaun Smith, on behalf of herself and other 401(k) plan participants, brought an ERISA breach of fiduciary duty lawsuit under 29 U.S.C. § 1132(a)(2) against her former employer CommonSpirit Health and its 401(k) plan administrative committee for their failure to replace actively managed Fidelity Freedom Funds with passively managed mutual funds with lower costs and better performance. Because ERISA “does not give the federal courts a broad license to second-guess the investment decisions of retirement plans,” and because Smith hasn’t alleged facts from which a jury could plausibly infer that CommonSpirit breached any fiduciary duty owed to the plan participants, the Sixth Circuit affirmed the district court’s dismissal of her complaint.
The court explained that merely offering actively managed funds in its mix of investment options is not by itself an imprudent act. “Offering actively managed funds in addition to passively managed funds was merely a reasonable response to customer behavior. We know of no case that says a plan fiduciary violates its duty of prudence by offering actively managed funds to its employees as opposed to offering only passively managed funds. Several cases in truth suggest the opposite.” CommonSpirit did have a duty to ensure that all funds remain prudent options but Smith did not plausibly plead that the company violated this obligation either. Smith pointed to another investment that performed better in a five-year snapshot of the lifespan of the fund but this does not suffice to plead an imprudent decision. If so, it would mean that every actively managed fund with below-average results over the most recent five-year period would create an ERISA violation. Smith’s comparators—the Fidelity Index Funds—are inapt comparators because each fund has distinct goals and strategies. “A side-by-side comparison of how two funds performed in a narrow window of time, with no consideration of their distinct objectives, will not tell a fiduciary which is the more prudent long-term investment option. A retirement plan acts wisely, not imprudently, when it offers distinct funds to deal with different objectives for different investors.” The court also rejected Smith’s claim that the fees charged for administering the 401(k) plan were too high because she did not plead that the services covered by the fee are equivalent to those provided by plans comprising the average in the industry publication that she cites.
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