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The Department of Labor and the US Solicitor General have recently, at the Supreme Court’s request, filed amicus briefs with respect to certiorari petitions in two key ERISA fiduciary prudence cases, Pizarro v. The Home Depot and Johnson v. Parker-Hannifin Corporation. In a change of position/prior policy, the briefs support the sponsor fiduciaries, and in Pizarro v. The Home Depot reverse a position taken in earlier amicus briefs to the Court.
In what follows, we are going to provide notes on the issues at stake in each of these cases and conclude with some brief observations on DOL’s new position on ERISA prudence litigation.
Pizarro v. The Home Depot
The issue before the Supreme Court: “Whether a plaintiff alleging a breach of fiduciary duty under [ERISA] bears the burden to prove that the alleged breach caused a loss to the plan.”
We provide a detailed review of the facts and the lower court’s holding in Pizarro v. The Home Depot at the link above. Briefly, plaintiffs argued that (quoting the court):
Home Depot Defendants engaged in an imprudent process in retaining the BlackRock TDFs in three principal ways: (1) they relied exclusively on BlackRock’s custom benchmark as their only benchmark for the BlackRock Funds; (2) they failed to investigate the BlackRock TDFs’ supposed consistent underperformance and make a “reasoned decision” to keep the Blackrock Funds, and (3) they failed to consider other TDFs despite that underperformance.
The district court dismissed this claim (in 2022). The Eleventh Circuit affirmed (in 2024). As the Eleventh Circuit decision explains: “The district court found an issue of material fact on that duty-of-prudence question for all but one of the plaintiffs’ claims. But on the second element, loss causation, the answer was different – the court decided that the plaintiffs had not met their burden for any claims.” (Emphasis added.)
Oversimplifying somewhat, while “loss causation” is one of the elements of a fiduciary claim, the Circuit Courts are split on whether the plaintiff bears that burden proving it, or whether, the plaintiff having shown a fiduciary breach, the burden shifts to the defendant fiduciary to show that the breach did not cause a loss. This issue is somewhat abstract and is sometimes reformulated as “whether a prudent fiduciary [could] or [would] have made the choice the defendant fiduciary made,” with whether the right test is “could” or “would” becoming a disputed issue among the Circuit Courts.
DOL’s position with respect to Supreme Court review is a little unusual. The plaintiffs lost below and would like the Supreme Court to review (and reverse) the lower court’s decision – this is their certiorari petition. Defendant sponsor/sponsor fiduciaries would like the Supreme Court to decline review and let the lower court’s decision stand. DOL is requesting that the Supreme Court accept plaintiffs’ petition for review but affirm the lower court’s decision in favor of defendants and its holding that the plaintiff bears the burden of proving loss-causation. By doing so, the Court would make that approach to ERISA fiduciary breach litigation applicable in all jurisdictions (including those that currently impose this burden on the defendant fiduciary).
Johnson v. Parker-Hannifin Corporation
The issue before the Supreme Court: “Whether pleading an imprudent-investment claim under ERISA, based on how the investment’s returns compared to some performance benchmark, requires allegations showing that the benchmark is a sound comparison for that investment.”
We provide a detailed review of the facts and the lower court’s holding in Johnson v. Parker-Hannifin Corporation at the link above.
Briefly, in Parker-Hannifin the Sixth Circuit (reversing the district court) held that, while “[a] meaningful benchmark may sometimes be one part of an imprudence pleading, but it is not required.” And that in this case plaintiffs had adequately alleged that defendants had imprudently retained a suite of target date funds (the Northern Trust Focus Funds) in the 401(k) plan’s fund menu, based on the “underperformance” of those funds relative to the “S&P target date fund benchmark.”
In its brief supporting Supreme Court review, DOL identifies two issues with respect to the Sixth Circuit’s decision:
First, the [Sixth Circuit] panel majority erred to the extent that it suggested that “a meaningful benchmark is not required to plead a facially plausible claim of imprudence” predicated on relative underperformance. … Second, by characterizing a “market index” as “inherently a meaningful benchmark,” … the court sidestepped the “careful, context-sensitive scrutiny of a complaint’s allegations” required in ERISA cases.
The dissent in the Sixth Circuit decision, which DOL quotes copiously, was especially critical of the use as a comparator the “S&P target date fund benchmark”:
The complaint offers no details about [the S&P target-date benchmark]. … [A]s the district court recognized, the benchmark is not a “fund” that administrators can select for retirement plans. … And the complaint includes no details about the benchmark’s hypothetical contents. Another court suggested that it represents a hypothetical composite of target-date funds with different strategies and risk profiles.
Many regard the Sixth Circuit’s decision in this case as a step back from its position in Smith v. CommonSpirit Health, et al.that, with respect to a claim of “underperformance,” an appropriate comparator benchmark must have similar goals and strategies.
A change of position by DOL
It is interesting that the Supreme Court requested briefs from DOL with respect to both certiorari petitions and that DOL is now taking an explicitly pro-sponsor position. Indeed, in Home Depot the position it is arguing for – that the plaintiff bears the burden of showing loss-causation – is a reversal of the position it had taken in two previous amicus briefs to the Court.
No doubt this reflects a more aggressive position by the Administration on litigation gatekeeping. In its briefs DOL cites concerns about excessive litigation resulting in “increased costs,” decreased “efficiency” and “predictability,” and a reduction in “investment choices.”
While these briefs were submitted at the request of the Court, it will also be interesting to see whether DOL decides to intervene in other, lower court fiduciary litigation to argue for tighter plaintiff pleading standards and a more pro-defendant fiduciary legal position.
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We will continue to follow these issues.