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Last week, the Supreme Court heard arguments in Cornell University’s retirement plan excessive fee class action lawsuit. On Monday, the justices heard another 401(k) excessive fee lawsuit against Home Depot, in a case in which federal and appellate courts have issued opposing decisions. This time, justices have asked the U.S. solicitor general within the Department of Labor to provide legal input on the case.
There have been a plethora of retirement plan excessive fee lawsuits filed in the last few years, and courts have been divided over whether the retirement plan fiduciary bears the burden of plan losses.
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Now that the Supreme Court sided with employees in the Cornell case, employers and retirement industry groups are responding with deep concerns that the high court’s upcoming final decision could alter the legal landscape governing retirement plan fiduciaries – and open the floodgates for more retirement plan litigation.
In Pizarro et al. v. The Home Depot Inc., lower courts have rendered contrasting opinions over whether a 401(k) plan’s fiduciary or its participants bear the burden of proving that losses are the result of actions taken by plan fiduciaries.
While appellate courts placed the burden of proof on participants, the district courts — and Department of Labor — have held that once a plaintiff has proven a breach of fiduciary duty, as well as related financial losses, under the Employee Retirement Income Security Act, the burden of proof falls on the fiduciary.
However, in this Home Depot case, the Supreme Court has asked DOL’s newly confirmed Solicitor General Dean John Sauer to file a brief “expressing the views of the United States.” In 2023, the DOL filed an amicus brief in this case, arguing that the district court “incorrectly placed the burden of proof on the participants” when it should have placed the burden “on the fiduciary after a plaintiff demonstrates a fiduciary breach and a related loss.”
Related: Supreme Court sides with workers in Cornell University’s ERISA ‘excessive fees’ retirement suit
In the Home Depot case, plaintiffs Jamie Pizarro and Craig Smith, who filed the original class action complaint in 2018, alleging that the home improvement retailer offered “imprudent investment options” for their retirement plans and failed to monitor the investments’ performance, in violation of ERISA, costing participants millions of dollars.
Specifically, the plaintiffs alleged Financial Engines, Home Depot’s investment adviser, offered “cookie cutter” plans with minimal operating costs because it was a “robo adviser” that used a computer program instead of humans – and, as a result, the Home Depot plan had "excessive" fees, in comparison to similar plans.
The suit, which was brought by current and former Home Depot employees who participate in the 401(k) plan, which now has $12 billion in assets and 460,862 participants.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
