Eighth Circuit: Plaintiffs Can’t Prove Fiduciary Imprudence of Investment Selections Without a Meaningful Benchmark

On Aug. 3, 2018, in Meiners v. Wells Fargo & Company, et al. No. 17-2397 (8th Cir., Aug. 3, 2018), the U.S. Court of Appeals for the Eighth Circuit (the Court) ruled in favor of retirement plan fiduciaries, requiring plaintiffs to meet a high bar in order to prove imprudent selection of investment funds (which is a violation of ERISA’s rules for fiduciaries).

As background, the plaintiffs in this class action case alleged that their plan sponsor had breached their ERISA fiduciary duties of loyalty and prudence by offering twelve of Wells Fargo’s Target Date Funds (TDFs) for investment in the plan. The plaintiffs alleged that these funds were more expensive (due to higher fees) and underperformed compared to other funds available to the plan. Specifically, they pointed to other funds offered by Vanguard and Fidelity which were less expensive, and identified one of the Vanguard funds that performed higher than the Wells Fargo TDFs.

Before the case came before the Court, the Federal District court had granted Wells Fargo’s motion to dismiss the case. On review, the Court agreed with the District court, and upheld the dismissal of the plaintiffs’ claim of imprudence on Wells Fargo’s part. Essentially, the Court concluded that the plaintiffs failed to sufficiently plead facts indicating that Wells Fargo’s TDFs were underperforming.

In fact, the court noted that it was not enough that the plaintiffs pointed to the one Vanguard fund that outperformed the Wells Fargo TDFs, especially when the District Court found that the Vanguard fund in question had a different investment strategy. Additionally, the Court reasoned that the mere existence of cheaper funds was not proof of imprudence. Ultimately, the Court held that the plaintiffs failed to offer a meaningful benchmark of funds that would prove the offering of the Wells Fargo TDFs to be imprudent.

This case makes it clear that plaintiffs who want to claim imprudence based on investment fund offerings that are proprietary, more expensive or underperforming must meet the burden of providing a meaningful benchmark by which to measure the funds in question. While this case was adjudicated in favor of the employer, retirement plan sponsors should also consider their own fiduciary responsibilities and whether or not their choices of investment funds would be considered prudent.

Meiners v. Wells Fargo »