The U.S. District Court for the Northern District of Georgia has ruled on a set of dismissal motions in an Employee Retirement Income Security Act (ERISA) lawsuit targeting Home Depot and its retirement plan services providers.
The plaintiffs in the case allege a broad range of claims against a number of defendants—including Home Depot, Inc.; the administrative committee of the Home Depot Futurebuilder 401(k) Plan; the plan’s investment committee; Financial Engines Advisors; Alight Financial Advisors; and some 30 or more individuals from these firms.
The sweep of the claims included in the 98-page complaint is extensive, echoing the language of the numerous excessive fee and failure to monitor ERISA litigation cases that have been filed in recent years. Plaintiffs here suggest Home Depot has selected multiple poorly-performing funds for its 401(k) plan, allowed investment advisers to charge its employees unreasonable fees, and turned a blind eye to what amounts to a kickback scheme between an investment adviser and the plan’s recordkeeper.
The Court’s ruling addresses respective motions to dismiss filed by Alight Financial Advisors, Financial Engines Advisors and the Home Depot defendants. In short, the court has granted the Alight and Financial Engines motions to dismiss, in which the defendants argued they are not, given their contracted roles and inability to set their own compensation levels as service providers, liable for the fiduciary breach claims alleged in the suit. The dismissal motion filed by the fiduciary Home Depot defendants, on the other hand, has been denied.
As to why the Home Depot motion was denied, the Court finds the plaintiffs have specifically and sufficiently alleged that Home Depot’s process in managing the plan “was faulty and tainted by imprudence because the decision-making process allowed for the retention of chronically poor performing investments when there were better investments available to the plan. Although plaintiffs have not identified the specific flaws in Home Depot’s decision-making process, the Court acknowledges that plaintiffs would likely have no access to Home Depot’s particular decision-making process at this stage of the litigation. In circumstances such as this, courts have held that plaintiffs may rely on circumstantial factual allegations to show a flawed process— particularly one that involves the fiduciaries management of underperforming investments.”
Taking into consideration all of the circumstantial factual allegations surrounding Home Depot’s retention of Financial Engines Advisors and Alight Financial Advisors, the Court finds that plaintiffs have alleged sufficient facts to support an inference of an imprudent process.
In their respective motions to dismiss, Financial Engines Advisors and Alight Financial Advisors contend that they cannot be held liable for any fiduciary breach with regard to their fees because they did not act as fiduciaries with respect to negotiating or collecting their fees.
“Here, plaintiffs do not allege that [Financial Engines Advisors and Alight Financial Advisors] functioned as fiduciaries in any capacity other than by providing investment advice,” the decision states. “Yet, they fail to allege facts sufficient to show that [the advisers] breached their fiduciary duties to provide investment advice. Instead, plaintiffs allege fiduciary breaches arising out of [the advisers’] negotiation and collection of their fees. Such allegations are insufficient. It is well established that a service provider does not become a fiduciary simply by negotiating its compensation in an arm’s-length bargaining process—particularly where, as here, the service provider is not alleged to have had the ability to determine or control the actual amount of its compensation.”
The court similarly ruled in favor of the advisers’ motions to dismiss claims alleging prohibited transactions.
The full text of the order is available here.
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