The Latest Word on 401(k) Fee Litigation: Third Circuit Narrows Plaintiffs' Ability to Bring ERISA Breach of Fiduciary Duty Claims

The U.S. Court of Appeals for the Third Circuit, relying on earlier decisions of the Seventh and Eighth Circuits, has held that a district court can dismiss breach of fiduciary duty claims brought under the Employee Retirement Incomes Security Act (ERISA) alleging that a fiduciary selected a mix of investment options available under a 401(k) defined contribution plan that included funds with allegedly excessive fee profiles, where the fiduciary selected a sufficiently broad range of funds with varying fee characteristics.1

Background Facts

In Renfro v. Unisys Corp., the plaintiffs brought suit against Unisys and the fiduciaries of its 401(k) Plan (the "Plan"), and Fidelity Management Trust Company and affiliated Fidelity entities, on behalf of a putative class of participants in Unisys's 401(k) Plan. The plaintiffs alleged that the Unisys and Fidelity defendants breached their fiduciary duties of loyalty and prudence under ERISA by including, within the range of investment options offered in the Plan, Fidelity retail mutual funds. Plaintiffs specifically contended that the fees associated with the retail mutual funds offered as options in the 401(k) plan were "excessive in light of the services rendered as compared to other, less expensive, investment options not included in the plan"2 and that the Unisys defendants breached their fiduciary duties by failing to either select investment options with lower fees or to use the size of the Plan as leverage to bargain for lower fees on the retail mutual funds in question.

At the time the plaintiffs filed their complaint, Unisys's 401(k) Plan contained 73 different investment options into which Plan participants could direct their contributions. The 73 investment options consisted of a stable value fund, the Unisys [Company] Stock Fund, four different "commingled" pools (one invested in an S&P 500 index, and the other three invested in bonds), and 67 varied individual retail mutual funds. The investment options in the Unisys Plan, including the retail mutual funds, contained a "wide variety of risk and expense ratios."3

After the filing of the complaint, the Unisys and Fidelity defendants moved to dismiss the plaintiffs' claims under Federal Rules of Civil Procedure Rule 12(b)(6). Both groups of defendants argued that they could not be found to have committed a breach of fiduciary duty because a sufficient mix of investment options had been offered to participants under the Plan. The Unisys...