The Department of Labor (DOL) continues its efforts in support of employers facing ERISA breach of fiduciary duties litigation. The DOL has filed two amicus briefs (friend of the court) with the Supreme Court, both supporting the plan fiduciary’s argument. In one brief, the DOL acknowledges that its position is the exact opposite of a brief filed in 2023 in the same exact case.
In Pizarro v. Home Depot, the DOL now argues for a higher pleading standard, meaning that plaintiffs must prove every element of their claim for the case to proceed. Lower courts have been split on the pleading standard, with several supporting a lower standard, making it easier for plaintiffs’ cases to move forward.
The lower standard requires the plaintiff to prove two elements of the claim, that a fiduciary breach occurred and that there was loss to the plan as a result of that breach. In these cases, the burden then shifts to the defendant to disprove that the loss was caused by the breach. This lower standard increases the likelihood of the plaintiff’s surviving a motion to dismiss, allowing the case to move forward. The DOL brief supports a higher pleading standard where plaintiffs must still show the breach of fiduciary duty and loss, but also must show that the loss was caused by the breach. The DOL, in supporting the higher standard, said the lower pleading standard may allow plaintiffs to survive motions and press weak claims to trial or settlement.
In Parker-Hannifin Corp. v. Johnson, the DOL also filed an amicus brief in support of the employer. This case is one of many that have focused on what is considered a ‘meaningful benchmark’ for claims of investment underperformance. This is a critical question because if a plaintiff cannot identify a meaningful benchmark for comparison, it will be difficult to prove a loss occurred.
The DOL brief states that “cases against ERISA sponsors and fiduciaries are particularly susceptible to hindsight abuse.” Plaintiffs have the luxury of comparing the selected fund’s returns with the entire universe of funds and pick one with better performance. The brief goes on to note that proof of a ‘meaningful comparison’ is critical, as more conservative funds are expected to underperform in rapidly rising markets, while the opposite is true of aggressive funds that will likely face a sharper decline in negative markets. In a clear message in support of plan fiduciaries, the DOL writes “If courts do not demand correct and plausible allegations of excessive fees or imprudent investments – based on a broad, representative snapshot of the market, not a few cherry picked, unrelated, and dubious comparators selected by plaintiffs’ lawyers – then firms will continue to file meritless cases, and plans and participants will suffer.”
The DOL has stated a desire to remove ‘legislation by litigation’ and is moving toward that goal with these two employer-friendly positions. A similar amicus brief was filed earlier this year, supporting the employer’s use of forfeitures to reduce employer contributions rather than pay plan expenses. New ERISA breach of fiduciary litigation cases continue to be filed at a rapid pace and often result in costly settlements, as defendants often don’t want to undertake the cost and burden of a full defense. Any efforts to weed out frivolous litigation should be applauded.
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