Insights From Encore Fiduciary on Fiduciary Liability & Other Risk Exposures of Employee Benefit Plans


Insights From Encore Fiduciary on Fiduciary Liability & Other Risk Exposures of Employee Benefit Plans

ICI Defends Revenue Sharing and Higher-Fee Share Classes in the Tenth Circuit Barrick Gold Case

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By Daniel Aronowitz

The key significance of the Barrick Gold excessive fee case is that the district court used evidence outside the misleading complaint to dismiss the case – namely the 15 bps revenue sharing credit back to participants.  The revenue-share credit demonstrated that the recordkeeping and investment fees in the complaint were inflated and inaccurate.

After recent plan sponsor success in the Sixth, Seventh and Eighth Circuits, the plausibility standard for excessive fee cases now moves to the Tenth Circuit.  The appeal of the June 21, 2022 decision granting the motion to dismiss in Matney v. Barrick Gold of North America, Inc. is important because it addresses two key issues in which plan sponsors have often lost in other excessive fee cases, including in the SalesForce and Trader Joe’s Ninth Circuit decisions earlier this year:  (1) whether it is prudent to offer a higher-fee retail share class to participants if revenue sharing is credited back to participants; and (2) whether plan sponsors can use evidence outside the complaint in the motion to dismiss in order to prove that revenue sharing benefited plan participants when the complaint alleges the improper use of retail share class investments.  

The ability to use evidence outside the complaint is critical because many – if not most – excessive fee lawsuits misrepresent the fees of the plans.  If plan fiduciaries cannot correct the record on the motion to dismiss, then plaintiff law firms will unfairly win most cases, because the cost of defense in these lawyer-driven cases almost always outweighs the cost of a strike settlement to make the case and plaintiffs lawyers go away.  But that is why plausibility is a different pleading standard than notice pleading.  Under plausibility pleading, the court must conduct context-specific scrutiny to determine if the complaint is plausible.  In Barrick Gold, the court looked past the inflated recordkeeping and investment fees alleged in the complaint that did not properly discount the 15-bps revenue sharing credit.  Too many courts – like the Ninth Circuit in the Trader Joe’s case – have allowed false fee claims to proceed when plaintiffs have created the appearance of a factual dispute that they caused by misrepresenting the actual fees.  

The case is also noteworthy because Investment Company Institute filed an amicus brief in which they defend the use of revenue sharing and actively managed investment options.  ICI is the co-author of the annual ICI-Brightscope investment study that Capozzi Adler used to benchmark its purported claims of investment imprudence in the Barrick Gold case.  ICI argued that the “adoption of incorrect pleading standards causes plan administrators/fiduciaries, in an attempt to avoid ERISA litigation, to defensively adopt bright-line rules that exclude many classes of investments from plan investment lineups, to the detriment of plan participants.”  It is the best argument that we have seen to date explaining how rampant excessive fee litigation is causing plan fiduciaries to limit their investment choices in retirement plans by avoiding investments with higher potential returns because of the fear of litigation.  ICI argues that defensive investment selection will harm participant outcomes.

The Barrick Gold Excessive Fee Lawsuit

The excessive fee lawsuit against Barrick Gold was originally filed in 2020 by the prolific Capozzi Adler law firm, who filed over forty of the nearly 100 excessive fee cases filed in that year.  The Barrick Gold 401k plan had 4,858 participants in 2018 with $560m in assets, down from $619m in 2017 because of the 2018 market losses.  After the defense filed a motion to dismiss demonstrating that the Barrick Gold lawsuit was a “cut and paste copy of a complaint filed a week earlier” in the Eastern District of North Carolina against Pharmaceutical Product Development, LLC, the Capozzi firm quickly filed an amended complaint.  The amended complaint alleged five excessive fee claims that are common parts of the Capozzi excessive fee lawsuit template:

  1. Plan fiduciaries breached their fiduciary duties in failing to investigate and select lower-cost alternative funds.  The eleven actively managed investment options are compared to the median in the ICI-BrightScope Study for each purported investment type.  For example, the Fidelity Growth K fund at .76% is compared to the ICI median of .52% for Domestic Equity.
  2. Plan fiduciaries failed to utilize lower-fee share classes.  For example, the JP Morgan Smart Retirement R5 target-date funds ranged in fees from .55-.57%, whereas the R6 share class had a lower .44-.47% fee.
  3. Plan fiduciaries failed to investigate lower-cost collective trusts.  Plaintiffs compared the JP Morgan TDFs in the R5 share class again at .54-.57% to the JP Morgan CF CIT share class at .44%.
  4. Plan fiduciaries failed to utilize lower-cost passive and actively managed funds.  JP Morgan R5 TDFs were compared to Fidelity Freedom Index target-date funds that were offered at .12% and American Funds R6 at .36-.42%.  Plaintiffs further argued that the majority of the actively managed investment options did not exceed the five-year performance benchmark of purportedly comparable index funds.  For example, 75.52% of large-cap funds available in the marketplace trailed passive results, as did 91.35% of multi-cap actively managed funds.
  5. Recordkeeping costs were too high and improperly used revenue sharing.  $151-173 per participant prior to revenue sharing was compared to $12 fees in the 401k Averages Book [Euclid note:  without properly disclosing that the plan described in the 401k Averages Book used significant revenue sharing that increased the $12 cost].  Plaintiffs admitted that the plan switched to a per-participant fee of $68, which was again lowered to $53 flat fee, but argued that Fidelity still received a $600,000+ revenue sharing amount that was not credited back to plan participants.


The Utah District Court Dismisses the Barrick Gold Amended Complaint, Primarily Because Plaintiffs’ Claims Ignored the $15 Revenue Sharing Credit for the TDFs

On April 21, 2022, the Utah District Court granted the motion to dismiss the First Amended Complaint with prejudice.  The court first ruled that the plaintiffs had standing to bring the case, even though they had only invested in five of the twenty funds that were challenged.  The court held that plaintiffs had alleged infirmities in the overall decision-making process, and that confers standing to challenge decisions that happened to affect not only their accounts, but other accounts in the plan the fiduciaries managed.  This weak standing requirement is consistent with how most courts have allowed excessive fee standing even for funds in which plaintiffs are not invested.

The ICI Study median is not a meaningful benchmark:  On the first claim of excessive investment fund management fees, the court rejected plaintiffs use of the ICI median as a benchmark against actual expense ratio.  The court held that the ICI Study does not allow a meaningful analysis because the “broad one-size-fits-all investment categories have limited utility, because expense ratios applicable to funds vary within a given investment category.”  The study itself notes that “equity mutual funds have different expense ratios depending on the extent to which they invest in small-cap, mid-cap, or emerging market stocks (which tend to be more expensive to manage) instead of large-cap or developed market stocks (which tend to be less expensive to manage).”  Although not noted by the court, the key reason that ICI investment-category medians are not meaningful benchmarks are that they include both lower-fee passive funds and higher-fee active funds.  The median is thus not fair to compare against any active strategy to the extent the median fee is reduced by including lower-fee passive funds.  

High-Fee Share Classes Justified by 15-basis-point revenue credit:  The court next rejected plaintiffs’ comparison of the funds use of the retail-class R5 share class of the JP Morgan TDFs with the lower-fee, but “identical counterparts” R6 share class.  The court held that the comparison to the lower-fee R6 share class was “problematic” because it “relies on incorrect information about actual fees paid by the Plan’s participants.”  After the court accounted for the 15-basis-point revenue credit that the plan fiduciaries negotiated for the JPMorgan funds’ R5 share class, the Plan’s expense ratio for each JPMorgan R5 fund was actually less than the R6 funds’ expense ratios upon which Plaintiffs rely.  Importantly, the court cites in footnote 11 of the opinion to the Trust Agreement and the 2018 Form 5500 in order to validate that the plan implemented a revenue credit that was not alleged properly in the amended complaint.  [Euclid emphasis:  the court went outside the complaint to evaluate the actual fees; the court did not accept the faulty fee claims by the Capozzi law firm or allow any argument that there is a “factual dispute” that must be litigated in expensive discovery].  

CITs are not comparable investments to mutual funds Plaintiffs argued that the plan committee breached its fiduciary duty because it failed to identify and select lower cost collective investment trusts to replace mutual funds.  The court rejected this argument because plaintiffs had again ignored the 15-bps revenue credit.  Once the revenue credit is applied, the expense ratios are actually lower than the CIT funds that Plaintiffs use for comparison.  Moreover, the court noted that CITs are not comparable investments because of the substantive differences between mutual funds and CITs.  For example, the regulatory agencies overseeing each investment type are different; CITs are not required to file prospectuses or comply with reporting requirements; and CITs cannot be rolled over if the employee changes employment.  

Comparisons to Actively-Managed and Passively-Managed Funds are not meaningful benchmarks and fail to apply the 15-bps revenue credit The court then rejected plaintiffs’ chart of lower-cost investment options that plaintiffs claimed infer an imprudent investment decision process by the plan committee.  First, plaintiffs had inflated the actual cost of the JPMorgan TDFs by failing to apply the 15 bps revenue credit.  Next, even though the purported alternatives had lower fees, the comparison funds had different investment strategies and thus are not meaningful comparisons.  For example, the actively-managed American Funds Target Date Retirement funds that Plaintiffs selected for comparison have materially different investment strategies than the JPMorgan target-date funds.  

In its conclusion, the court held that plaintiffs’ assertion that the alleged circumstantial facts give rise to an inference of imprudence is flawed.  First, plaintiffs misstated expense ratios of plan funds by ignoring the revenue sharing.  In addition, plaintiffs make “apples to oranges comparisons that do not plausibly infer a flawed monitoring and decision-making process.”  Plaintiffs failed to provide a sound basis for comparison or meaningful benchmark.  The Barrick Gold court summarized that some similarities between funds does not provide a meaningful benchmark upon which to determine whether the plan committee breached its fiduciary duties.  

The Court rejected plaintiffs excessive recordkeeping fee claims based on unsuitable comparisons and unsupported speculation that Fidelity did not credit the revenue sharing payments:  The court rejected all of plaintiffs arguments that the recordkeeping fees paid to Fidelity were excessive.  As noted above, the plan used revenue sharing from 2014 to 2016 with a revenue sharing credit that yielded a $101 per participant fee in 2014 and a lower $85 fee in 2015.  It is not clear what was charged in 2016, but in 2017 the plan transitioned to a per-participant recordkeeping fee of $68, which was reduced to $53 per participant in 2018.  Plaintiffs alleged that the plan still paid a $600,000 revenue sharing fee to Fidelity, and claimed that Fidelity violated its contractual obligation to rebate that amount to plan participants.  But the court rejected that assertion as implausible given that the amendment in 2017 to the trust agreement required Fidelity to allocate amounts collected from revenue sharing, including that $600,00 to eligible participant accounts.  The court did not allow the rank speculation by the plaintiff lawyers to create a false issue of fact.  The court, without much explanation, also rejected the comparison to the 401k Averages Book, because the court held that it does not provide a meaningful benchmark.  In addition, the court held that the plan did reduce its fees to Fidelity over the years.  Finally, the court held that it is only speculation to assume that a formal RFP would have resulted in even lower fees, and nothing in ERISA requires a fiduciary to obtain competitive bids at any regular interval.  

The Euclid Perspective

The key value of the Barrick Gold case is that it presents the opportunity to reverse the damage caused by the Ninth Circuit’s dual decision in Trader Joe’s and SalesForce in which the courts allowed claims of excessive recordkeeping fees based on revenue sharing without allowing evidence of revenue sharing credits that benefited plan participants.  As we discussed in our review of those April 2022 Ninth Circuit reversals [see The Ninth Circuit Reversals of the Salesforce and Trader Joe’s Excessive Fee Cases – Plan Fiduciaries Not Permitted to Defend Revenue Sharing at the Pleadings Stage – Euclid Fiduciary (], the appellate court in the Trader Joe’s case ignored the affidavit of defense counsel that the trust agreement required the plan recordkeeper to credit all revenue sharing that exceeded a $48 per participant amount.  This was even stronger evidence than the Barrick Gold case because it was sworn testimony.  The appellate court nevertheless allowed plaintiffs to create a false factual dispute by relying on the complaint’s excessive fee claims as “true.”  But the excessive fee claims were demonstrably false and contradicted by the trust agreement and defense counsel’s affidavit confirming that the revenue sharing was actually rebated to plan participants.  The Barrick Gold district court dismissed nearly every aspect of the excessive fee complaint by going outside the complaint and reviewing the trust agreement.  It did not allow the Capozzi law firm to create a misleading factual issue by falsely speculating that Fidelity somehow did not comply with the contract.  The Utah court shut down this frequent and dishonest playbook by plaintiff law firms.  

The Tenth Circuit now has a choice:  follow the Ninth Circuit and allow plaintiff law firms to create false issues of fact with false investment and recordkeeping fees, or review the alleged excessive fees in the correct context of the trust agreement and possible credits and discounts.  Justice for plan fiduciaries under the plausibility pleading standard, which is different than notice pleading, demands that courts must use accurate fees before deciding whether they are excessive.  That did not happen in the Trader Joe’s case, and now the company has to spend millions of dollars to prove that its recordkeeper rebates revenue sharing beyond the agreed contractual amount – something that was already proven by defense counsel at the initial motion to dismiss stage.  

If courts properly apply the plausibility standard at the pleading stage, they must refer to the trust agreement and key fee disclosures in order to evaluate the actual investment and recordkeeping fees charged to the plans – not the fees alleged by plaintiff law firms that are often misleading and wrong.  The track record of plaintiff firms in alleging inflated fees and misleading “benchmarks” like the 401k Averages Book does not justify blind deference.  Too many of the excessive fee lawsuits are based on intentionally fake and misleading evidence.  Courts must thus look beyond the complaint to allow the full context of plan fees. 

ICI Amicus Brief:  Beyond the merits of the revenue sharing defense, the additional value of the Barrick Gold appeal is the spectacular amicus brief filed by the Ropes & Gray law firm on behalf of Investment Company Institute.  Every plan sponsor professional should read the ICI amicus brief.  The ICI brief captures the harm that has been caused by the over 400 excessive fee cases and the incoherent responses by courts in which the plausibility standard is disparately applied.  As ICI states, “[t]he adoption of incorrect pleading standards caused plan administrators/fiduciaries, in an attempt to avoid ERISA litigation, to defensively adopt bright-line rules the exclude many classes of investments from plan investment lineups, to the detriment of plan participants.”  After pointing out that the Capozzi law firm ignored applicable fee credits that reduced costs to Barrick Gold plan participants, ICI continues that: “ERISA requires fiduciaries to consider the all-in costs to investors, as well as other factors such as diversification and returns, when selecting plan investment menus.  There are good reasons why fiduciaries might include actively managed funds and higher-cost share classes rather than limit plan options to index funds, ‘institutional’ share classes, or CITs, even if those other options have lower published expense ratios.”   

The key theme of ICI is that if plan participants can plead a breach of fiduciary prudence by merely observing that a plan’s menu includes funds with share classes or actively managed funds that have lower fees, then plan fiduciaries will exclude most active funds just to reduce litigation risks.  “But so limiting the plan’s investment menu ultimately disadvantages participants by stripping them of the investment choices they need to build a retirement portfolio that best reflects their individual circumstances, including risk tolerance, desire to manage their own portfolio, closeness to retirement, or any number of other factors.”  Moreover, a plan fiduciary must have “flexibility to select a variety of investment options based on a process that considers a wide range of factors, not just expense ratios.”  Citing to Department of Labor Advisory Op. 2006-08A, ICI argues that “ERISA’s fundamental design affords plan fiduciaries ‘broad discretion in defining investment strategies appropriate to their plans,’ rather than dictating plan options by government fiat.”  ICI concludes that “[f]iduciaries of participant-directed individual account plans – not the courts – are best positioned to evaluate the appropriate number, variety, and type of investment options for plan investment menus.”

Plaintiffs Keep Filing Excessive Fees Cases with Claims that Are Being Rejected by Courts

We conclude with one more observation.  The most interesting recent excessive fee trend from our perspective is that plaintiff law firms continue to file excessive fee lawsuits based on claims that are being rejected by the appellate courts.  Plaintiffs remain undeterred by any change in the plausibility standard.

For example, the key premise of the Barrick Gold case is that the JP Morgan R5 share class at .55-57% is justified compared to the .44% R6 lower-fee share class because of the 15-bps revenue credit.  The Utah District Court rejected these claims.  But on November 18, 2022, the Wenzel law firm filed a case against Old Dominion Freight Lines with the exact same excessive fee claim involving the exact same JP Morgan target-date funds with almost the same exact investment fees.  Here is the share-class allegation copied directly from the complaint:

  1. By causing Plan participants to pay more for identical investments, Defendant failed in its statutory ERISA duty to prudently defray costs of the Plan. The chart below demonstrates how much more expensive the share classes in the Plan are than available identical fund better-priced share classes:
Fund in Plan Expense Ratio Lower Cost Share Class of Same Fund Expense Ratio
JPMorgan Smart

Retirement – 2020 Fund R5 (JTTIX)

0.50% JPMorgan Smart

Retirement – 2020 Fund R6 (JTTYX)

JPMorgan Smart Retirement – 2025 Fund R5 (JNSIX) .51% JPMorgan Smart Retirement – 2025 Fund R6 (JNSYX) 0.41%


Fund in Plan Expense Ratio Lower Cost Share Class of Same Fund Expense Ratio
JPMorgan Smart Retirement – 2030

Fund R5 (JSMIX)

0.52% JPMorgan Smart Retirement – 2030

Fund R6 (JSMYX)

JPMorgan Smart

Retirement – 2035 Fund R5 (SRJIX)

0.54% JPMorgan Smart

Retirement – 2035 Fund R6 (SRJYX)

JPMorgan Smart

Retirement – 2040 Fund R5 (SMTIX)

0.55% JPMorgan Smart

Retirement – 2040 Fund R6 (SMTYX)

JPMorgan Smart Retirement – 2045

Fund R5 (JSAIX)

0.55% JPMorgan Smart Retirement – 2045

Fund R6 (JSAYX)

JPMorgan Smart Retirement – 2050

Fund R5 (JTSIX)

0.55% JPMorgan Smart Retirement – 2050

Fund R6 (JTSYX)

JPMorgan Smart Retirement – 2055

Fund R5 (JFFIX)

0.55% JPMorgan Smart Retirement – 2055

Fund R6 (JFFYX)

JPMorgan Smart Retirement – 2060 Fund R5 (JAKIX 0.54% JPMorgan Smart Retirement – 2060 Fund R6 (JAKYX) 0.44%
Russell US Small Cap Equity S


0.96% Russell US Small Cap Equity R6 (RSCRX) 0.83%
American Funds Europacific Growth R5


0.51% American Funds Europacific Growth R6 (RERGX) 0.46%


  1. As of December 31, 2021, Plan participants had nearly $500,000,000 (five hundred million dollars) invested in the above identified imprudent share classes.


We do not know whether revenue sharing reduced the cost of the R5 share class below the R6 share class like in Barrick Gold, but plaintiffs make no effort to address this obvious issue.  Once again, plaintiff law firms do not care about the truth.  But hopefully the court will look outside the complaint to investigate whether there is a rational explanation for the use of retail-share classes, including revenue sharing credits.

The gameplan in this lawyer-driven litigation has not changed.  It is all about misleading the court to create an inference of imprudence based on circumstantial and often incorrect evidence.  If plaintiffs file enough cases, then they can find a sympathetic court to allow them into discovery, from which they can leverage the high cost of litigation to extract a settlement from the plan fiduciary insurance.  That is why the plausibility standard on a motion to dismiss is so critical. 

Disclaimer:  The Fid Guru Blog is intended to provide fiduciary thought leadership and advocacy for the plan sponsor community in areas of complex fiduciary litigation.   The views expressed on The Fid Guru Blog are exclusively those of the author, and all of the content has been created solely in the author’s individual capacity.  It is not affiliated with any other company, and is not intended to represent the views or positions of any policyholder of Encore Fiduciary, or any insurance company to which Encore Fiduciary is affiliated.  Quotations from this site should credit The Fid Guru Blog.  However, this site may not be quoted in any legal brief or any other document to be filed with any Court unless the author has given his written consent in advance.  This blog does not intend to provide legal advice.  You should consult your own attorney in connection with matters affecting your legal interests.

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