Oracle Granted Partial Summary Judgment in 401(k) Fees/Investment Option Case

In Troudt v. Oracle Corporation, No. 16-00175 (D. Colo. March 1, 2019), the district court granted partial summary judgment to Oracle and other alleged fiduciaries of the Oracle Corporation 401(k) plan. The court rejected the plaintiffs’ claims that ERISA’s six-year statute of repose should be tolled because of fraud or concealment, and found no genuine issue of fact that the defendants prudently managed the plan’s recordkeeping fees. The decision adds another victory for defendants in similar recent cases. Although there have been a number of high-profile settlements, defendants increasingly are walking away with judgments in their favor on most, if not all, of the claims asserted.

Statute of Limitations and Repose

Plaintiffs sued in January 2016 and sought a class period from January 1, 2009, (seven years before suit) forward. ERISA has a six-year “statute of repose,” which extinguishes claims for breaches that occurred more than six years before the suit is filed. The plaintiffs argued that an ERISA exception for fraud or concealment applied, in which case the plaintiffs had six years from discovery of the breach to sue.

The plaintiffs argued that Form 5500s concealed that the recordkeeper received revenue sharing and other compensation, and the plan’s 2012 Participant Fee Disclosure inaccurately stated that no plan administrative fees would be deducted from plan accounts. In strongly worded language, the court explained that the plaintiffs “conveniently ignore” much of the document, which indicated that the recordkeeper received both direct and indirect compensation. Further, the named plaintiffs never saw this form: “They can hardly have relied on or been deceived by the form under those circumstances.”

The Participant Fee Disclosure similarly did not conceal anything. The context of the document indicated that the plan did not conceal revenue sharing or indirect fees. The court accordingly held that the fraud or concealment exception did not apply, and the plaintiffs’ claims were limited to the six-year period before the lawsuit was filed.

Plan Fees

With respect to revenue sharing, the court joined a number of others in rejecting the plaintiffs’ challenges. “There is nothing suspect or improper about revenue sharing per se; indeed, it has been described as ‘a common and acceptable investment industry practice[] that frequently inure[s] to the benefit of ERISA plans.’” The committee, with its financial representatives, outside counsel and the recordkeeper, met at least quarterly, and the financial representatives produced quarterly reports with expense ratios for each fund and administrative fees, stated in total and on a per-participant basis. “No reasonable jury could find anything imprudent in this decisionmaking process. If anything, it seems exceptionally careful and well-informed.”

The defendants did not have to engage in a competitive bidding process at regular intervals. The considerable benchmarking material in the market resulting from US Department of Labor fee disclosure regulations arguably alleviates the need for plans to “shop for services” at regular intervals.

The plaintiffs’ duty-of-loyalty claims also failed. The plaintiffs argued that non-fiduciaries discussed how to leverage Oracle’s business relationship with the recordkeeper, but the court stated that “[t]he actions of non-fiduciaries are irrelevant” because there was no evidence that the fiduciaries acted disloyally.

Imprudent Investment Options

In assessing the prudence of investment decisions, the court focused on the steps taken in arriving at the decisions. A fiduciary must, at a minimum, “examine the characteristics of an investment, including its risks characteristics and its liquidity, to ensure that it is an appropriate plan investment, and that it is in the best interests of plan participants.” The plaintiffs challenged three particular funds of the plan’s 32 investment options. The court noted that investment decisions were made pursuant to an Investment Policy Statement that set out detailed standards and procedures. The committee also relied on advisors, who provided reports, benchmarking data and professional analysis. But on balance, at the summary judgment stage, the plaintiffs’ expert provided opinions “to the contrary,” creating a genuine dispute of fact as to two of the challenged funds.

Insight

The Oracle decision continues the judicial push-back on plaintiffs’ theories in 401(k) and 403(b) cases. Plaintiffs have been largely unsuccessful in convincing courts that ERISA requires competitive bidding, that cheapest is best, and that courts should not consider alleged fiduciary actions that were not reflected in meeting minutes. Recent cases have not been kind to many of the plaintiffs’ experts in these cases, who tend to take a narrow view of ERISA fiduciary requirements and often present theories that are contrary to industry standards and customs. Fiduciaries who have a thorough process in place to monitor fees and investment options, and who retain expert advisors to assist with that process, are well positioned to defend against claims of fiduciary imprudence and disloyalty.