A three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit has upheld the dismissal of a 401(k)-plan mismanagement suit brought by plan participants in favor of Home Depot. The ruling affirmed a Georgia federal court’s grant of summary judgment in the suit, in which plan participants claimed that the home improvement retailer violated the Employee Retirement Income Security Act (ERISA) in charging excessive fees and maintaining subpar investments.
This decision adds to a deepening split between the Circuits as to which party must prove loss causation in ERISA claims based on retirement plan mismanagement. The Eleventh Circuit now has joined the Tenth Circuit in rejecting the argument that if the plaintiffs can show that a fiduciary breach of ERISA occurred and that the plan suffered a loss, the burden of proving loss causation should shift to the employer. According to the Eleventh Circuit’s opinion, the Sixth, Seventh, and Ninth Circuits also have ruled that plaintiffs in these suits bear the burden of proving loss causation.
On the other hand, the First, Fourth, Fifth, and Eighth Circuits have ruled that the burden of proving loss causation shifts to the employer defendants once the plan participants show proof of breach and plan loss. The Second Circuit has approved both approaches in published opinions. Furthermore, the U.S. Department of Labor (DOL) supported the burden-shifting theory by filing an amicus brief in the Eleventh Circuit case involving the Home Depot retirement plan. In its brief, the DOL pointed to the trust law principles on which ERISA is based, which give fiduciaries the burden of disproving loss causation once a beneficiary proves trustee breach and loss.
The Eleventh Circuit’s decision avoids the “would have” versus “could have” debate that often occurs in these ERISA fiduciary breach claims. In these cases, the ability of the retirement plan participants to prevail depends on a court deciding whether a fiduciary would have or could have made the same investment decisions. For example, that dispute is currently on appeal at the Second Circuit, where Yale University workers seek to overturn a jury verdict that they were owed zero damages on their ERISA breach claims. The workers are arguing on appeal that the jury erroneously received instructions that Yale could avoid damages if it proved that a prudent fiduciary “could have” made the same investment decisions. According to the workers, the jury should have received instructions telling them to consider whether a prudent fiduciary “would have” made the same decisions.
However, the Eleventh Circuit did not mention the Second Circuit’s Yale case in its decision, relying instead on a 2014 Fourth Circuit case, Tatum v. RJR Pension Investment Committee, which discussed the “could have” versus “would have” issue. The Eleventh Circuit concluded that if the burden remained with the plaintiff, the distinction did not matter, and the debate over “semantics at its worst” was just a “sideshow.”
The Eleventh Circuit decision could lead to a rehearing en banc and, potentially, a petition for a writ of certiorari for the U.S. Supreme Court to hear the case. Although the Supreme Court declined to take up the First Circuit case in January 2020, more Circuits joining the split on the issue may result in the Court hearing the case.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and H.R./employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
Hall Benefits Law, LLC
Latest posts by Hall Benefits Law, LLC (see all)
- October 2024 | Happy HBL-loween! Plan Sponsor Treats Inside - October 31, 2024