September 26, 2023

Tenth Circuit Dismisses Claims Related to High-Cost Funds, High Recordkeeping Fees

Holland & Knight Alert
Sara Benson | Tammy Eason | Chelsea Ashbrook McCarthy


  • Following the U.S. Supreme Court's decision in Hughes v. Northwestern University, the U.S. Courts of Appeals have continued to articulate the pleading standards necessary to allege a breach of duty when challenging a 401(k) plan's purportedly excessive fees under the Employee Retirement Income Security Act of 1974 (ERISA).
  • The U.S. Court of Appeals for the Tenth Circuit recently affirmed the dismissal of claims for breach of the duty of prudence relating to high-cost funds and high recordkeeping fees, finding that the plaintiffs did not provide a "meaningful benchmark" demonstrating that comparable plans had cheaper funds available to them or paid less for similar services.
  • The Tenth Circuit's decision highlights that plaintiffs challenging the fees associated with a defined contribution plan cannot raise an inference of imprudence through price disparity without alleging a meaningful benchmark.

The U.S. Court of Appeals for the Tenth Circuit issued its decision in Matney v. Barrick Gold of North America, et al. on Sept. 6, 2023, finding that participants in an employer-sponsored defined contribution retirement plan cannot state a claim for breach of the duty of prudence in relation to high-cost funds or high recordkeeping fees absent allegations about suitable benchmark funds and recordkeeping fees of suitable benchmark plans.


Barrick Gold of North America Inc. (Barrick Gold) sponsors a defined contribution benefits plan (the Plan). The Plan offers employees a collection of retirement investment options, two of which are relevant here: mutual funds and collective trusts.

The plaintiffs – the participants in the Plan – brought a class action against Barrick Gold, its board of directors and its U.S. Subsidiaries Benefits Committee (the Committee) for breach of fiduciary duty and failure to monitor under the Employee Retirement Income Security Act of 1974 (ERISA). The plaintiffs alleged that the Committee breached the duty of prudence by offering high-cost funds and charging high recordkeeping fees, and that Barrick Gold and its board failed to monitor the Committee. To support the allegation of imprudence, the complaint compared the costs of the Plan's investment options against the average fees charged by smaller plans. The cost comparisons alleged that the Plan offered more expensive investment options and charged higher recordkeeping fees despite the availability of cheaper alternatives to the Plan.

The defendants moved to dismiss, asserting that the plaintiffs improperly relied on flawed cost comparisons and conclusory allegations that the Plan's funds were more expensive than allegedly cheaper alternative options and that the operative complaint made "apples-to-oranges" comparisons of recordkeeping services without ever alleging what a reasonable fee would be.

The U.S. District Court for the District of Utah dismissed the case with prejudice, finding that the complaint did not plausibly allege a breach of fiduciary duty, as the duty of prudence allegations failed to raise an inference that a prudent fiduciary in the same circumstances would have acted differently than the defendants.

Tenth Circuit Opinion

On appeal, the plaintiffs argued that the complaint plausibly alleged the Committee's imprudence based on the Plan's higher-cost offerings when cheaper, comparable investment alternatives were available. The defendants argued that the district court correctly determined that the plaintiffs' factual allegations about the actual cost of the Plan's funds were contradicted by documents referenced in the complaint and that the plaintiffs' cost comparisons did not provide a meaningful benchmark.

Resolving this claim required the Tenth Circuit to address the following issue: what a plaintiff must plead to plausibly allege that plan fiduciaries breached their duty of prudence by offering more expensive investment options and charging fees higher than those of other plans. The Tenth Circuit looked to decisions from other circuits for guidance on the pleading burden.

The Tenth Circuit considered recent decisions from the Third, Sixth, Seventh and Eighth Circuits that touched on these issues. Finding these authorities persuasive, the Tenth Circuit chose to adopt the approach articulated by the Eighth Circuit, holding that to raise an inference of imprudence through price disparity, a plaintiff must allege a "meaningful benchmark."

The Tenth Circuit explained that when it comes to comparing investment management fees, a meaningful benchmark will be supported by facts alleging, for example, that the alternative investment options have similar investment strategies, objectives or risk profiles to the plan-at-issue's funds. Likewise, with recordkeeping fees, a comparison will be meaningful if the complaint alleges that the recordkeeping services rendered by the chosen comparators are similar to the services offered by the plan at issue. The Tenth Circuit explained that a court cannot reasonably draw an inference of imprudence simply from the allegation that a cost disparity exists; rather, the complaint must state facts to show the funds or services being compared are, indeed, comparable. The allegations must allow for an "apples-to-apples" comparison.

Applying these principles to the facts at hand, the Tenth Circuit upheld the district court's holding that the complaint failed to state a plausible claim for breach of the duty of prudence.

Investment Management Fees

The plaintiffs alleged that the Committee breached ERISA's duty of prudence because the Plan offered funds with higher investment management fees than other comparable investment options as measured by expense rations. The Tenth Circuit affirmed the district court's observation that the documents attached to the complaint, however, demonstrated that the complaint misstated the actual expense ratios for the funds at issue. Thus, the court refused to accept as true the factual allegations contradicted by these documents and found that the Plan's funds were actually less expensive than the funds the plaintiffs offered in comparison.

The complaint also failed to allege imprudence because it lacked facts showing that the remaining competitor funds were "meaningful benchmarks." The plaintiffs alleged that the Plan's mutual funds, when compared to offerings of collective investment trusts (CITs), were more expensive, thereby raising an inference that the Committee did not act prudently. The district court concluded that there are substantive differences between mutual funds and CITS, so the comparison was not meaningful. The Tenth Circuit affirmed this point as well, holding that the complaint did not sufficiently allege that CITs are meaningfully comparable to the funds the Plan offered. While the complaint did allege that the investments in collective trusts were identical to those held by the mutual fund, this allegation did not include information about the goals or strategies of the various mutual funds or CITs so as to establish their comparability. Without those factual allegations, it was not clear whether the CITs identified in the complaint had different aims, risks or potential rewards.

With respect to the claim that the Committee acted imprudently by not switching to lower-cost, better-performing managed funds, the Tenth Circuit found that absent facts alleging that better-performing funds were similar enough to the Plan's funds, the complaint failed to supply a meaningful benchmark for comparison here as well.

Finally, the Tenth Circuit affirmed the district court's finding that a study offered by the plaintiffs, compiling 2016 data to show the median expense ratio for various investment categories, did not allow for meaningful comparison because the study only accounted for median data about broad categories of investments. Such a comparison, without more, does not provide the meaningful benchmark necessary to satisfy a plaintiff's pleading burden in this context.

Recordkeeping Fees

The Tenth Circuit next turned to the plaintiffs' imprudence claim based on allegedly higher recordkeeping fees. The complaint alleged two examples of imprudence: the Committee's failure to solicit regular Requests for Proposals (RFPs) and a comparison of the Plan's recordkeeping fees with the average recordkeeping fees for smaller defined contribution plans derived from a data source known as the 401k averages book.

The Tenth Circuit held that simply alleging that the Committee needed to conduct regular RFPs does not raise a plausible inference of imprudence. As for the comparison of average fees from against the Plan's recordkeeping fees, the Tenth Circuit determined that the 401k averages book was not a meaningful benchmark and that the complaint made a leap based on averages that were too far removed to create anything more than a mere possibility of misconduct.

The Tenth Circuit held that the relevant comparative data point is the services offered for the price charged. The plaintiffs failed to offer factual allegations about the services provided either by Barrick Gold's Plan or the plans assessed in the 401k averages book. The plaintiffs claimed, without elaboration, that the Plan's recordkeeping services were "ministerial in nature." The Tenth Circuit found that the district court did not have to accept this conclusory statement as true, particularly where the plaintiffs' allegations were contradicted by the master trust agreement. Significantly, the complaint alleged no information about the recordkeeping services offered by the plans analyzed in the 401k averages book. Absent this information, the plaintiffs did not create a plausible inference that the decision-making process itself was flawed.

Duty to Monitor

Finally, because the plaintiffs' duty to monitor claim was derivative of the other fiduciary duty claims, the Tenth Circuit affirmed the dismissal of the duty to monitor claim as well.

Conclusion and Considerations

The Tenth Circuit's recent decision – and the other circuit decisions it cites – reflects that the threshold for pleading breach of fiduciary duty claims in the 401(k) context and how that standard applies to the facts alleged in a particular case continues to be in flux.

If you would like assistance in determining how these lawsuits might impact your plan, evaluating your plan's governance practices or ensuring that your plan complies with ERISA, contact the authors or another member of Holland & Knight's ERISA Litigation Team or Executive Compensation and Benefits Team.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.

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