The Eighth Circuit’s decision in Braden v. Wal-Mart Stores, Inc., No. 08-3798 (8th Cir. 2009) is noteworthy, since it illustrates how to state a claim for relief, that will at least survive a motion to dismiss the case, when a 401(k) plan’s fiduciary is alleged to have breached its fiduciary duty by causing the plan to have excessive fees. In this case, under Wal-Mart’s Profit Sharing and 401(k) Plan (the “Plan”), a participant could invest his or her account in a number of investment options. These options included ten mutual funds, a common/collective trust fund, Wal-Mart common stock, and a stable value fund. The options were selected by Wal-Mart’s Retirement Plans Committee.
The plaintiff, Jeremy Braden, filed this lawsuit on March 27, 2008, alleging a number of causes of action against Wal-Mart and its executives serving on or responsible for overseeing the Retirement Plans Committee (the “defendants”). The gravamen of the complaint is that the defendants failed to adequately evaluate the investment options made available under the Plan, including the failure to properly consider Plan trustee Merrill Lynch’s interest in making available funds that shared their fees with Merrill Lynch (commonly called “revenue sharing), resulting in excessive fees being charged to the Plan. The District Court dismissed the case, and the plaintiff appealed.
The major question facing the Court was whether the plaintiff had adequately stated a claim of breach of fiduciary duty under ERISA upon which relief could be granted, so as to be able survive a motion to dismiss the case. As to this question, the Court said that a complaint states a plausible claim for relief if, taking the plaintiff’s factual allegations as true, its factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The facts pled must give the defendant fair notice of what the claim is and the grounds upon which it rests, and allow the court to draw the reasonable inference that the plaintiff is entitled to relief. Analyzing the plaintiff’s complaints along those lines, the Court found that the plaintiff had stated the following claims upon which relief could be granted:
— breach of the fiduciary duties of prudence and loyalty imposed by ERISA: This breach involves a faulty process of selecting plan investments. The complaint alleged that (1) the Plan comprises a very large pool of assets, the 401(k) marketplace is highly competitive, and retirement plans of such size consequently have the ability to obtain institutional class shares of mutual funds, but despite this ability, each of the ten funds made available for investment under the Plan offers only retail class shares, which charge significantly higher fees than institutional shares for the same return on investment; (2) seven of the Plan’s ten mutual funds charge 12b-1 fees from which participants derive no benefit; (3) the defendants did not change the Plan’s investment options even though most of them underperformed the market indices they were designed to track; and (4) the funds made available for investment under the Plan made revenue sharing payments to the Plan’s trustee. If these allegations are substantiated, the process by which the defendants selected the Plan’s investments would have been tainted by the failure of effort, competence, or loyalty.
–breach of fiduciary duty of loyalty, stemming from the failure to adequately disclose to participants complete and accurate material information about the fees being charged to the Plan, including the revenue sharing with the Plan’s trustee: The plaintiff alleged sufficient facts to support an inference that nondisclosure of details about the fees charged to the Plan and the amount of the revenue sharing payments would mislead a reasonable participant in the process of making an adequately informed decision regarding his or her selection of investments in the Plan.
Based on the above, the Court vacated the District Court’s dismissal of the plaintiff’s claims, and remanded the case back to the District Court.