“This is one of the most employer-friendly rulings I've seen,” said John Lowell, an actuary and partner at October Three Consulting who has provided expert testimony on other 401(k) excessive fee cases.

“Most ERISA attorneys and litigators would say the Ninth Circuit tends to not be employer friendly, which would have led us to expect a particularly harsh decision here,” added Lowell. “In other circuits, if there is a hint that someone wasn't doing their job as a fiduciary, courts have tended to side with plaintiffs.”

In successfully arguing to have the case thrown out, Chevron avoided what would have potentially been years of costly litigation.

Perhaps more importantly, Chevron avoided the discovery phase of litigation, which has proven vital to supporting initial claims in other landmark 401(k) lawsuits.

“In a lot of cases, plaintiffs have been able to find a smoking gun through discovery, or something they can position as a smoking gun in the process,” said Lowell.

In addressing the core question of what evidence plaintiffs need to support the plausibility of allegations, the three-page opinion from the Ninth Circuit cited case law showing a lawsuit “must allege 'factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'”

Facts presented by the participants in Chevron's plan were “insufficient” to support the plausibility that plan fiduciaries failed their duties of loyalty and prudence under ERISA.

“The allegations showed only that Chevron could have chosen different vehicles for investment that performed better during the relevant period, or sought lower fees for administration of the fund. None of the allegations made it more plausible than not that any breach of a fiduciary duty had occurred,” according to the Ninth Circuit's decision, released in November.

Clarity or confusion on what constitutes a fiduciary breach

While the victory for Chevron is no doubt a coup for employer sponsors of 401(k) plans and their advocates, the decision alone does not necessarily portend a drawback in claims brought against 401(k) plans.

“What does constitute a fiduciary breach? None of us seem to know because so many judges look at these claims differently,” said Lowell. “In some cases, you get judges who are very impressed by what an employer did do, and others left with more of an impression of what an employer did not do.”

Decisions favoring employers have tended to be supportive of the process that fiduciaries had in place, said Lowell. “But then you get a court that says you should have used the cheapest funds,” he added. “From an employer's standpoint, that's the punch line.”

As is noted in an October Three blog post, a claim in Bell v. Anthem alleged a fiduciary breach because an S&P 500 index fund was offered in the plan for 4 basis points, when an alternative option existed in the market for 2 basis points. That claim survived Anthem's motion to dismiss in the Southern District in Indiana.

Still, the Chevron case can be expected to bolster future arguments supporting sponsors' motions to dismiss plaintiff claims.

During the October panel hearing before the Ninth Circuit, Judge Andrew Hurwitz, an Obama appointee, hammered the plaintiff's attorney on the claim that Chevron failed its fiduciary obligations by offering a money market fund as the capital preservation option instead of a stable value fund, which posted higher returns.

“Any employer who included an optional money market fund in its portfolio would have breached its fiduciary duty?” asked Judge Hurwitz, incredulously. “So that everyone in the country that had a money market fund during that period, a complaint can be filed against them that would survive a motion to dismiss?”

Asked if each investment offered in a 401(k) plan must be the best possible option, or merely a prudent option, Michael Wolf, an attorney with Schlichter, Bogard and Denton, conceded that “it need only be a prudent option.”

SCOTUS to the rescue?

The plaintiffs in White v. Chevron have formally petitioned the Ninth Circuit for an en banc review—a rehearing of the appeal before a larger complement of the Circuit's active judges.

Petitions for rehearings are rarely granted. In 2016, of the 816 petitions for en banc review in the Ninth Circuit, 19 were granted.

The Ninth Circuit's ruling in the Chevron case was listed as “not for publication,” but under the Circuit's rules, it can still be cited in other claims.

Ultimately, Lowell expects other appellate courts will overturn motions granted to dismiss cases with claims similar to those brought in White v. Chevron, leading to a circuit split on the interpretation on how much evidence plaintiffs need to state claims in 401(k) suits.

“If others continue to bring these cases, sooner or later the Supreme Court is going to have to weigh in,” said Lowell.

Employers should establish a prudent process

In the meantime, the Chevron case reestablishes the importance of employers setting up a prudent process for building investment menus, and following that process.

“If I'm an employer, I would want to have very specific policies in writing, and an internal or external person who puts themselves on the hook to make sure the policies are followed,” said Lowell.

Monitoring the marketplace for cheaper alternatives, the continued appropriateness of an investment for an employer's population, and the management of chosen funds — is there style drift or manager turnover — are among the specific actions Lowell says sponsors should take.

“I would think that if you develop those policies, followed those policies, and made decisions based on those polices, there is a better chance courts would say you have done your job as a fiduciary,” said Lowell.

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