Sixth Circuit Revives 401(k) Mismanagement Claim Against TriHealth

In Forman v. TriHealth, Inc., No. 21-3977, __F.4th__, 2022 WL 2708993 (6th Cir. July 13, 2022), a putative ERISA class action brought by participants of TriHealth Inc.’s 401(k) plan, the participants allege that TriHealth breached its duty of prudence and acted disloyally by failing to monitor the plan’s investments. Specifically, they allege that eight investment options charged higher fees than available alternates and this caused administrative fees that were too high for the plan as a whole. They also alleged that seventeen of the offered mutual funds could have been cheaper institutional shares instead of more expensive retail shares. The district court dismissed the complaint for failure to state a claim. The Sixth Circuit affirmed in part and reversed in part.

The court explained that its recent decision, Smith v. CommonSpirit Health, 37 F.4th 1160 (6th Cir. 2022) largely resolves several of the plaintiffs’ claims. First, the court rejected the claim that TriHealth was imprudent because overall plan fees were almost twice as high as other comparator plans. This is because the employees never alleged that these fees were high in relation to the services that the plan provided. They also did not allege that the fees could not be justified by the plan’s strategic goals relative to the selected comparators. Second, with respect to the costs and performance of other investments, the employees do not plausibly plead that the lower fee alternatives were otherwise equivalent to the selected funds. “Plan administrators, we explained, have considerable discretion in choosing their offerings and do not have to pick the lowest-cost fund of a certain type where the long-run performance of another fund had the reasonable prospect of surpassing it.” Third, the court rejected the claim that the plan violated the duty of loyalty by choosing investments that would unduly profit third-party investment managers since the employees do not claim that the fiduciary’s motive was to further its own interests.

However, the employees here brought one claim not foreclosed by CommonSpirit. The employees allege that “TriHealth violated the duty of prudence by offering them pricier retail shares of mutual funds when those same investment management companies offered less expensive institutional shares of the same funds to other retirement plans.” This alleged failure to take advantage of the cheaper share classes materially decreased the value of their retirement savings. The court found that the employees plausibly allege that TriHealth acted imprudently by failing to offer a functionally identical share for less. “These allegations permit the reasonable inference that TriHealth failed to exploit the advantages of being a large retirement plan that could use scale to provide substantial benefits to its participants.” Even if there are reasonable inferences that could work in the other direction, for example, that the plan has revenue-sharing arrangements in place that make the retail shares less expensive or that benefit plan participants on the whole, the pleading stage is too early to make these judgment calls. The court permitted this claim to proceed.