Schissler v. Janus Henderson U.S. (Holdings) Inc.

Full title: SANDRA SCHISSLER, KARLY SISSEL, and DERRICK HITTSON, individually and as a…

Court: United States District Court, District of Colorado

Date published: Sep 7, 2023

Civil Action 1:22-cv-02326-RM-SBP (D. Colo. Sep. 7, 2023)

Opinion

Civil Action 1:22-cv-02326-RM-SBP

09-07-2023

SANDRA SCHISSLER, KARLY SISSEL, and DERRICK HITTSON, individually and as a representative of a class of similarly situated persons, and on behalf of the Janus 401k and Employee Stock Ownership Plan, Plaintiffs, v. JANUS HENDERSON U.S. (HOLDINGS) INC., JANUS HENDERSON ADVISORY COMMITTEE, and JOHN and JANE DOES 1-30, Defendants.

Susan Prose, United States Magistrate Judge.

RECOMMENDATION TO GRANT IN PART AND DENY IN PART DEFENDANTS' MOTION TO DISMISS

Susan Prose, United States Magistrate Judge.

This matter is before this court on the motion to dismiss of Defendants Janus Henderson U.S. (Holdings) Inc. (“Janus”) and Janus Henderson Advisory Committee (the “Committee”). ECF No. 39 (“Motion to Dismiss” or “Motion”). Janus and the Committee move to dismiss the amended putative class action complaint of Plaintiffs Sandra Schissler, Karly Sissel, and Derrick Hittson. ECF No. 31 (Am. Complt.). The motion is referred to this court for a recommendation under 28 U.S.C. § 636(b)(1)(B). ECF No. 4 (Order Referring Case), ECF No. 41 (Memorandum). As explained below, this court concludes that nearly all of Plaintiffs' claims are plausible. The court accordingly RECOMMENDS largely denying the motion to dismiss and granting it only with respect to part of the breach of fiduciary duty claim against Janus.

BACKGROUND

I. Plaintiffs' claims

Plaintiffs bring claims on behalf of themselves, a putative class of similarly situated persons, and the Janus 401(k) and Employee Stock Ownership Plan (the “Plan”) under the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001, et seq. (“ERISA”). Plaintiffs sue Defendants Janus, the Committee, and John and Jane Does 1-30 (“Doe Defendants”) as fiduciaries of the Plan.¹ This court takes the following fact allegations from the Amended Complaint.

1 The Doe Defendants were or are members of the Committee during the relevant time period. ECF No. 31 (Am. Complt.). The motion to dismiss does not address the Doe Defendants.

The Plan is a defined contribution plan. “A defined contribution plan ‘provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account.'” Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439 (1999) (quoting 29 U.S.C. § 1002(34)). Defendants attach excerpts of the Plan to the Declaration of Sara Bussiere in support of their motion. ECF No. 40-1.²

2 Plaintiffs refer to the Plan throughout the Amended Complaint; it is central to the claims. Plaintiffs do not dispute the authenticity of the excerpts filed at ECF No. 40-1. Accordingly, the court considers the excerpts of the Plan without converting the motion to summary judgment under Rule 12(d). Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010).

Plaintiffs have each participated in the Plan during the time period at issue. They allege that “[a]t the expense of the Plan and its participants and beneficiaries, Defendants breached their fiduciary duties with respect to the Plan in violation of ERISA. Defendants applied a disloyal and imprudent preference for Janus Henderson proprietary funds within the Plan (‘JH Funds'), despite their poor performance and high costs.” Am. Complt. ¶ 1. They further allege that “Defendants' disloyalty and imprudence [in doing so] has cost plan participants millions of dollars over the putative class period,” which begins on September 9, 2016 Id. ¶ 1 n.1. Plaintiffs each invested in several of the JH Funds during the putative class period. Am. Complt. ¶¶ 11-13.

Plaintiffs further allege that “[f]or investment management companies (like Janus Henderson), the potential for disloyal and imprudent conduct is especially high because the plan's fiduciaries can benefit the company by stocking the plan's investment menu with proprietary funds that a non-conflicted and objective fiduciary would not choose.” Id. ¶ 4.

Plaintiffs allege that is what happened here: instead of acting in the participants' interest, as ERISA requires for actions taken in the role of a fiduciary, Defendants allegedly “used the Plan to promote Janus Henderson's proprietary investments and earn profits for Janus Henderson.” Id. ¶ 6.

Plaintiffs allege that Defendants acted in the interest of Janus and not in the interest of the Plan's beneficiaries in several ways. First, Defendants included all JH Funds in the Plan without analyzing those funds' relative strength or weakness as investment options, and they did not voluntarily remove any of them during the putative class period:

[f]rom 2016 until 2021, certain [JH] Funds were eliminated from the Plan's menu due to liquidations or mergers. But Defendants did not choose to remove a single proprietary Janus Henderson investment from the Plan's menu during that time. In fact, they often added new proprietary [JH] Funds shortly after each fund's creation. So, by the end of 2021, the Plan's menu consisted of 50 investments, including 40 proprietary [JH] Funds.

Am. Complt. ¶ 18 (emphasis added, note omitted).³ In fact, by Janus's design, the written Plan itself expressly provides that “the Janus [Henderson] Funds may be removed as investment options under the Plan only by amendment of the Plan by [Janus].” Id. ¶ 19 (emphasis added).

3 The number of JH Funds in the Plan varied somewhat over the putative class period. Plaintiffs allege that “[a]s of the end of 2016, the Plan's investment menu included 53 investments, including 44 proprietary [JH] Funds.” Am. Complt. ¶ 18 (note omitted). “The Plan's proprietary investments include those managed by Janus Henderson and its subsidiaries, including Intech Investment Management LLC and Perkins Investment Management.” Id. ¶ 18 n.4. “The Plan's target-date series (managed by Fidelity) was added to the Plan in 2018 and is counted as a single investment option.” Id. at n.5.

“The Plan's terms also provide Janus Henderson with (1) the ‘right at any time to amend' the Plan; and (2) the right to remove the [JH] Funds from the Plan's menu.” Id. ¶ 25. Janus did not amend the Plan to remove any JH Funds during the class period.

Second, Plaintiffs allege the JH Funds were the only actively managed, non-money market or non-inflation protected investment options throughout the putative class period.⁴ Id. ¶ 43. They allege that no other ERISA plan offers exclusively JH Funds for this category of investment option. Id.

4 Plaintiffs do not take issue with the nonproprietary, low-cost or passively managed investment options that Janus included in the Plan. Those investment options included:

low-cost index funds managed by Vanguard and Fidelity with expense ratios between 0.02% to 0.11%, a passively managed target-date fund series managed by Fidelity with expense ratios between 0.07% and 0.12%, an actively managed inflation-protected securities fund managed by Vanguard at an expense ratio of 0.07%, and money market funds managed by Fidelity with expense ratios between 0.15% to 0.32%.

Am. Complt. at 14 n.11.

Third, Plaintiffs allege the JH Funds had above-average expenses (fees to the participants) compared to their benchmarks and did not have commensurate, above-average performance. See, e.g., Am. Complt. ¶¶ 1, 6, 44. Plaintiffs allege that even small differences in expense ratios generate significant differences in performance over time for participants. Id. ¶ 40 n.8. They allege the high expense ratios combined with the average (or below average) performance of the JH Funds has cost Plaintiffs in earning less on their investments than they would have if Defendants had properly exercised their fiduciary duties. Id. ¶ 6. Specifically, Plaintiffs allege that “[a]n objective and prudent review of comparable investments in the marketplace would have revealed numerous available investments that were less costly and superior to the [JH] Funds that Defendants selected and retained in the Plan.” Id.

Meanwhile, the Plan had significant assets under management during the putative class period-approximately $246 million to $512 million in assets. Id. ¶ 17. This size allowed Janus to “seed” the new proprietary mutual funds that it developed during the class period, and otherwise to support Janus's ongoing mutual funds. Id. ¶ 65. “While Defendants' disloyal and imprudent conduct generated significant profits for Janus Henderson, it has cost participants millions of dollars in excessive fees and lost investment returns since the start of the putative class period.” Id. ¶ 6.

After the above overview of their claims, Plaintiffs allege fourteen pages of facts to state more specifically how and why they believe Defendants' “process for selecting and monitoring investments was disloyal and imprudent.” Am. Complt. at 13. Plaintiffs begin this section by noting they are not asserting that “including proprietary funds in a plan's investment menu” is a breach of fiduciary duty in itself. Id. ¶ 42. Rather, Plaintiffs allege Defendants failed to exercise loyalty and prudence in (1) automatically including all JH Funds in the Plan's menu by the express terms of the Plan, such that (2) the JH Funds were the only actively managed investment options in the Plan (other than a mutual fund focused on inflation-protected securities), (3) several of the JH Funds were added to the menu soon after their inceptions and therefore with no performance history by which to assess their likely future performance, and (4) the JH Funds had higher fees than their benchmarks without commensurate outperformance thereof.

Plaintiffs allege that Defendants failed to analyze the JH Funds when they were introduced in the Plan and failed to monitor them for these issues thereafter. Am. Complt. ¶¶ 4266. Plaintiffs include several tables comparing various JH Funds' expense ratios and performance against benchmarks and averages. Plaintiffs include several footnotes alleging further details of the benchmarks and performance data on which Plaintiffs rely. They allege that a loyal fiduciary (i.e., one who was focused solely on the participants' interests) would not have included all JH Funds in the investment menu because of the high fees without commensurate performance. They further allege that a prudent fiduciary likewise would not have done so.

Based on these allegations, Plaintiffs assert claims (on their own behalf, that of the Plan, and a putative class of similarly situated persons elsewhere defined in the Amended Complaint): Count One, against all Defendants for a breach of the fiduciary duties of loyalty and prudence under 29 U.S.C. §§ 1104(a)(1)(A)-(B), Am. Complt. ¶¶ 77-82; and Count Two, against Janus for failure to monitor the Committee, id. ¶¶ 83-87. They further claim that each Defendant is “also subject to co-fiduciary liability under 29 U.S.C. § 1105(a)(1)-(3) because they enabled other fiduciaries to commit breaches of fiduciary duties, failed to comply with 29 U.S.C. § 1104(a)(1) in the administration of their duties, and/or failed to remedy other fiduciaries' breaches of their duties, despite having knowledge of the breaches.” Am. Complt. ¶ 34.⁵

5 The court will address additional fact allegations, as appropriate, in the analysis below.

II. Defendants' Motion to Dismiss

Defendants move to dismiss the Amended Complaint for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1), arguing that Plaintiffs lack standing to challenge the inclusion in the Plan of JH Funds in which they did not personally invest. Motion at 7-8. Defendants further argue that the Amended Complaint should be dismissed in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6) because Plaintiffs have failed to plausibly allege an ERISA violation. Id. at 8-20.

LEGAL STANDARDS

I. Motions to Dismiss for Lack of Subject Matter Jurisdiction Under Rule 12(b)(1)

Federal courts are courts of limited jurisdiction and, as such, “are duty bound to examine facts and law in every lawsuit before them to ensure that they possess subject matter jurisdiction.” Wilderness Soc. v. Kane Cnty., 632 F.3d 1162, 1179 n.3 (10th Cir. 2011) (Gorsuch, J., concurring); see also Cellport Sys., Inc. v. Peiker Acustic GMBH & Co. KG, 762 F.3d 1016, 1029 (10th Cir. 2014) (explaining courts have an independent obligation to ensure subject matter jurisdiction exists). Pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, a party may bring either a facial or factual attack on subject matter jurisdiction, and a court must dismiss a complaint if it lacks subject matter jurisdiction. See Pueblo of Jemez v. United States, 790 F.3d 1143, 1147 n.4 (10th Cir. 2015). As relevant here, where the alleged jurisdictional defect is standing, the party invoking federal jurisdiction bears the burden of establishing standing. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). The burden of establishing jurisdiction rests with the party asserting jurisdiction. See Kline v. Biles, 861 F.3d 1177, 1180 (10th Cir. 2017).

II. Motions to Dismiss for Failure to State a Claim Under Rule 12(b)(6)

Under Federal Rule of Civil Procedure 12(b)(6), Defendants can move to dismiss for “failure to state a claim upon which relief can be granted.” In deciding a motion under Rule 12(b)(6), the court must “accept as true all well-pleaded factual allegations . . . and view these allegations in the light most favorable to the plaintiff.” Casanova v. Ulibarri, 595 F.3d 1120, 1124-25 (10th Cir. 2010) (quoting Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)). Nevertheless, a plaintiff may not rely on mere labels or conclusions, “and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citation omitted). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Id. (internal quotation marks omitted). That is, the complaint must include well-pleaded facts that, taken as true, “allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

The Twombly/Iqbal pleading standard first requires the court to identify which allegations “are not entitled to the assumption of truth” because, for example, they state legal conclusions or merely recite the elements of a claim. Id. at 679. It next requires the court to assume the truth of the well-pleaded factual allegations “and then determine whether they plausibly give rise to an entitlement to relief.” Id. In this analysis, courts “disregard conclusory statements and look only to whether the remaining factual allegations plausibly suggest the defendant is liable.” Khalik v. United Air Lines, 671 F.3d 1188, 1191 (10th Cir. 2012). Additionally, “factual allegations that contradict . . . a properly considered document are not well-pleaded facts that the court must accept as true.” Peterson v. Martinez, 707 F.3d 1197, 1206 (10th Cir. 2013) (internal citation omitted). The ultimate duty of the court is to “determine whether the complaint sufficiently alleges facts supporting all the elements necessary to establish an entitlement to relief under the legal theory proposed.” Forest Guardians v. Forsgren, 478 F.3d 1149, 1160 (10th Cir. 2007).

Both sides argue specific pleading or Rule 12(b)(6) standards for ERISA cases. But the usual Twombly/Iqbal pleading standard applies to ERISA cases. Hughes v. Northwestern Univ., 142 S.Ct. 737, 742 (2022). As for any type of case, this inquiry requires “careful, contextsensitive scrutiny of a complaint's allegations.” Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 425 (2014) (cited in Hughes, 142 S.Ct. at 742). Ultimately, though “[t]here is a low bar for surviving a motion to dismiss.” Clinton v. Sec. Benefit Life Ins. Co., 63 F.4th 1264, 1276 (10th Cir. 2023) (internal quotation marks omitted). “[A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.” Id. at 1276 (internal quotation marks omitted, quoting Twombly, 550 U.S. at 556).

III. Matters Presented in Documents Outside the Complaint

As briefly noted above, “[g]enerally, the sufficiency of a complaint must rest on its contents alone.” Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010). the court is generally limited to the allegations of the complaint on Rule 12(b)(6) motions. Fed.R.Civ.P. 12(d). However, there are limited exceptions to this rule for:

(1) documents that the complaint incorporates by reference . . . (2) documents referred to in the complaint if the documents are central to the plaintiff's claim and the parties do not dispute the documents' authenticity . . . and (3) matters of which a court may take judicial notice.

Id. (internal quotation marks omitted, citing inter alia Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); Jacobsen v. Deseret Book Co., 287 F.3d 936, 941 (10th Cir. 2002)); see also Fed.R.Evid. 201(b) (defining the types of facts that may be judicially noticed).

Here, Defendants ask the court to consider eight documents. Plaintiffs do not appear to address whether the court can or should consider any of them. As to Defendants' Exhibit 1, as noted above, the court will consider the Plan excerpts (ECF No. 40-1) as a document referenced in and central to the Amended Complaint.

As to Defendants' Exhibit 2, Forms 5500 Annual Return/Report of the Plan on file with the U.S. Department of Labor (“DOL”) and publicly available through the Department's website, and Exhibits 6-8, several Form 497K summary prospectuses for JH Funds, publicly filed with the Securities and Exchange Commission (“SEC”), these are publicly filed documents at the DOL and SEC. The court takes judicial notice of these documents. See, e.g., Winzler v. Toyota Motor Sales U.S.A., Inc., 681 F.3d 1208, 1212-13 (10th Cir. 2012) (taking judicial notice of the existence of “documents filed with [an agency] and now available on the agency's public website”).⁶

6 The summary prospectuses are also referenced in and central to the Amended Complaint. Plaintiffs rely on the benchmarks identified in the prospectuses to allege inadequate performance for the above-average fees. See, e.g., Am. Complt. ¶¶ 53, 56, 59 n.19, 65. Prospectus benchmarks are the comparators that Janus identified for investors' evaluation of the JH Funds.

Defendants' Exhibit 3-the Investment Policy Statement for the Plan- is not a public record, but Plaintiffs refer to it in a paragraph of the Amended Complaint. Am. Complt. ¶ 28. Although reference in a single paragraph of a pleading does not always make a document central to the claims, in this case the document is part of Plaintiffs' basis for alleging the Committee is a plan fiduciary. The Committee's role as a fiduciary is key to the claim against it. As Plaintiffs do not object to the document's authenticity or the court's consideration of it, the court will consider the Investment Policy Statement.

Defendants' Exhibit 4, an appellate amicus brief by the Investment Company Institute (“ICI”), the court will not consider. While this brief is apparently publicly filed in a pending docket at the Tenth Circuit, Plaintiffs do not allege, refer to, or rely upon the ICI's amicus brief in the Amended Complaint. Defendants ask the court to consider the amicus brief for ICI's view that its average expense ratios for investment categories are not proper benchmarking measures for 401(k) plans because expense ratios may vary depending on whether a fund is actively or passively managed. Motion at 27 n.14. Defendants thus rely on the amicus brief to challenge the plausibility of Plaintiffs' allegations. Judicial notice is only appropriate for facts that are “not subject to reasonable dispute” because they are “accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201(b). Defendants instead ask the court to weigh ICI's opinion against Plaintiffs' allegations. This is a factual dispute inappropriate for judicial notice, particularly on a Rule 12(b)(6) motion.

As to Defendants' Exhibit 5- a 2021 study analyzing the total plan costs for 401(k) plans in 2018 by BrightScope and the Investment Company Institute (referred to hereafter as the “BrightScope/ICI Study”)- the Amended Complaint expressly refers to this study as the source of the average 401(k) fund expense ratios to which Plaintiffs compare the JH Funds. Am. Complt. ¶ 47 nn.12, 13. Based on those comparisons, Plaintiffs allege throughout the Amended Complaint that the JH Funds had higher than average expenses for similar mutual funds held in 401(k) plans of similar size. Although Plaintiffs do not expressly cite the BrightScope/ICI Study in each paragraph and table in which they allege that expense ratio, they also do not allege any other source for those facts. Because this study is referenced in and central to Plaintiffs' claims, and Plaintiffs do not object to the authenticity of the copy that Defendants attach, the court will consider the BrightScope/ICI Study.⁷

7 In their response, Plaintiffs also refer to two additional public records referenced in but not attached to the Amended Complaint: a DOL webpage and an SEC Investor Bulletin. Defendants do not appear to dispute that the court can consider these documents.

ANALYSIS

“Nothing in ERISA requires employers to establish employee benefits plans. Nor does ERISA mandate what kind of benefits employers must provide if they choose to have such a plan.” Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996) (internal citations omitted). However, if an employer offers an ERISA plan, the statute imposes fiduciary duties on those persons who administer or manage that plan. A plan's fiduciaries must:

discharge their duties “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”

Hughes, 142 S.Ct. 739 (quoting 29 U.S.C. § 1104(a)(1)(B)). This is the ERISA duty of prudence. The statute also imposes a duty of loyalty:

a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and-- (A) for the exclusive purpose of:

(i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan.

29 U.S.C. § 1104(a)(1)(A).

In this case, the parties disagree whether Defendants acted as fiduciaries, and if so, whether Plaintiffs' claims that they breached their duties of loyalty and prudence are plausible. They also dispute whether, if the claims are otherwise actionable, the named Plaintiffs have standing to seek relief with respect to JH Funds in which they did not individually invest. The court addresses these arguments in turn, beginning with Plaintiffs' standing.

I. Do Plaintiffs Lack Standing as to the JH Funds in which They Did Not Invest?

The crux of Defendants' jurisdictional argument is that “Plaintiffs' claims must be dismissed under Rule 12(b)(1) to the extent they relate to Janus Funds in which they did not invest.” Motion at 8. The court respectfully finds that Plaintiffs have met their burden to establish standing to pursue all claims they have brought in this lawsuit. See Lujan, 504 U.S. at 561.

Federal Rule of Civil Procedure 12(b)(1) permits Defendants to move to dismiss for lack of subject-matter jurisdiction, including a lack of standing. A lack of standing deprives a court of subject-matter jurisdiction because the judicial power of the federal courts extends only to cases or controversies. U.S. Const. art. III, § 2. Under longstanding judicial doctrines, a case or controversy requires a plaintiff with standing:

To establish standing under Article III of the Constitution, a plaintiff must demonstrate (1) that he or she suffered an injury in fact that is concrete, particularized, and actual or imminent, (2) that the injury was caused by the defendant, and (3) that the injury would likely be redressed by the requested judicial relief.

Thole v. U.S. Bank N.A, 140 S.Ct. 1615, 1618 (2020). If an ERISA plaintiff does not allege that they suffered a monetary injury from the conduct of which they complain -for instance in a defined-benefit plan, that they were not paid the defined benefit-then the plaintiff lacks any “concrete stake in [the] lawsuit,” and therefore lacks constitutional standing to bring suit. Id. at 1619.

Moreover, “[t]o bring a suit under ERISA, a plaintiff must show both constitutional standing and a cause of action (statutory standing) under the ERISA statute.” Kurtz v. Vail Corp., 511 F.Supp.3d 1185, 1192 (D. Colo. 2021) (citing Am. Psychiatric Ass'n v. Anthem Health Plans, Inc., 821 F.3d 352, 359 (2d Cir. 2016)).

In this case, Plaintiffs bring claims (i) on their own behalf for losses they incurred in their accounts in the Plan, (ii) on behalf of the Plan, and (iii) on behalf of similarly situated participants under 29 U.S.C. §§ 1132(a)(2) and 1109. Am. Complt. ¶ 1. These statutes provide that “[a] civil action may be brought * * * by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title.” 29 U.S.C. § 1132(a)(2). Section 1109 provides in relevant part:

Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate[.]

29 U.S.C. § 1109(a) (emphasis added).⁸

8 Section 1109(a) further provides that “[a] fiduciary may also be removed for a violation of section 1111 of this title,” but Plaintiffs do not appear to seek this relief.

Section 1132(a) “does not provide a remedy for individual injuries distinct from plan injuries, [but] that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant's individual account.” LaRue v. DeWolff Boberg & Assocs., Inc., 552 U.S. 248, 256 (2008). See also Intel Corp. Inv. Policy Comm. v. Sulyma, 140 S.Ct. 768, 773 (2020) (“Fiduciaries who breach these duties are personally liable to the plan for any resulting losses . . . [and] ERISA authorizes participants . . . to sue for that relief”). Further:

§ 1132(a)(2) authorizes the [Department of Labor], as well as plan participants (and beneficiaries and fiduciaries), to file suit and obtain the forms of relief outlined therein. Regardless of who brings suit under § 1132(a)(2), however, the fact remains, as the Supreme Court has made clear, that the suit is “on behalf of [the] plan” itself, and the precise same statutory remedies are available regardless of the named plaintiff.

Harrison v. Envision Mgmt. Holding, Inc. Bd. of Directors, 59 F.4th 1090, 1111-12 (10th Cir. 2023) (footnote omitted, quoting LaRue, 552 U.S. at 253), petition for cert. pending sub nom. Argent Trust Co. v. Harrison, U.S. Supreme Court Case No. 23-30. Thus, “[s]ome courts have noted that actions brought under § 1132(a)(2) are derivative in nature-they focus on the injury to the Plan instead of to the individual Plan participants.” Kurtz, 511 F.Supp.3d at 1192.

In a single paragraph of their motion, however, Defendants argue that Plaintiffs lack standing to sue as to any JH Funds in which they did not personally invest because they suffered no harm from those funds being in the Plan. Motion at 8. Defendants point to two ERISA cases as so holding: Wilcox v. Georgetown Univ., CV 18-422 (RMC), 2019 WL 132281, at *9 (D.D.C. Jan. 8, 2019), and Singh v. Deloitte LLP, -- F.Supp.3d --, 21-cv-8458 (JGK), 2023 WL 186679, at *2-3 (S.D.N.Y. Jan. 13, 2023).⁹

9 Plaintiffs do not argue they have standing based on representing the putative class action; accordingly, the court need not address Defendants' citation to Donelson v. Dep't of Interior, 730 Fed.Appx. 597, 601 (10th Cir. 2018).

Plaintiffs respond that the majority position rejects this argument and finds plan participants have standing under ERISA to seek relief on behalf of all plan participants even for investment options in which the named plaintiffs did not invest. ECF No. 45 (“Resp.”) at 6-7 (citing primarily Anderson v. Coca-Cola Bottlers' Ass'n, Case No. 21-2054-JWL, 2022 WL 951218, at *3 (D. Kan. Mar. 30, 2022); 29 U.S.C. §§ 1132(a)(2), 1109; and LaRue, 552 U.S. at 256).¹⁰

10 In a footnote, Plaintiffs also cite numerous opinions of district courts outside the Tenth Circuit on this issue, Resp. at 6 n.3, which this court does not address but which do not appear to alter the court's analysis here.

In reply, Defendants devote only a footnote to this issue. ECF No. 46 at 10 n.11. Defendants assert that numerous courts reject the notion that named ERISA plaintiffs have standing as to “any losses to the plan” so long as they allege losses on their own investments in the plan. Id. (citing Singh and Locascio v. Fluor Corp., 3:22-cv-0154-X, 2023 WL 320000, at *3 (N.D. Tex. Jan. 18, 2023); Brown-Davis v. Walgreen Co., 1:19-cv-05392, 2020 WL 8921399, at *3 (N.D. Ill. Mar. 16, 2020)).

The court finds Defendants' argument is not unpersuasive. In the ERISA context, once the plan participant alleges they suffered a loss in their plan account, that suffices for constitutional standing. This court agrees with its sister court in Anderson that the Supreme Court's reasoning in Thole suggests that “if a[n ERISA] plaintiff has suffered an injury in fact and has standing (by virtue of his investment in some plan funds at issue), he is entitled to represent the interests of other injured participants in a derivative capacity.” Anderson, 2022 WL 951218, at *4 (citing Thole, 140 S.Ct. at 1618, 1620, 1622). In Thole, the plaintiffs asserted they had “standing as representatives of the plan itself.” 140 S.Ct. at 1620. The Court rejected this argument only because the plaintiffs in that case did not allege they suffered a loss of promised benefits under the defined-benefit plan, or otherwise suffered a monetary loss. The Court did not take issue with the more general principle that ERISA plan participants who suffer a loss themselves in a plan have standing to sue on behalf of the plan. See also id. at 1623 (Thomas, J., and Gorsuch, J., concurring) (“The fiduciary duties created by ERISA are owed to the plan, not petitioners.”).

As for statutory standing, although it appears the Tenth Circuit has not addressed this specific issue, the Tenth Circuit recognizes under LaRue that “the precise same statutory remedies are available regardless” of whether the Department of Labor or a plan participant brings the claims. Harrison, 59 F. 4th at 1111-12. Section 1109 expressly extends the cause of action to “any losses to the plan.” Moreover, even before Harrison, one judge of this District concluded that claims alleging (1) a defined-contribution plan's fees were excessive compared to other, similar 401(k) plans and (2) the plan paid excessive fees for investments that did not outperform lower-cost funds were most like the cases finding that plaintiffs had standing to sue as to all of the plan's investment options, once they alleged they had invested in some of them and suffered a loss. Kurtz, 511 F.Supp.3d at 1192-93 (citing inter alia, Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 589 (8th Cir. 2009)). See also Jones v. DISH Network Corp., 22-cv-00167-CMA-STV, 2023 WL 2644081, at *3 (D. Colo. Mar. 27, 2023) (“The majority of courts have held that Article III does not prevent named plaintiffs in a class action suit from representing parties who invested in funds that were allegedly imprudent due to the same decisions or courses of conduct, even if the named plaintiffs did not invest in those funds,” emphasis original, internal quotation marks omitted).

So too this court concludes that Plaintiffs' claims seek relief for harm to not only their own investments in the Plan but also for the harm to the entire Plan from including all JH Funds. Much as in Kurtz, Plaintiffs here “bring[] a single claim for mismanagement of the entire Plan.” Kurtz, 511 F.Supp.3d at 1192. They allege that not only did they pay excessive fees on JH Funds they held in their individual investment accounts, but also that any participant in the Plan who invested in any of the JH Funds paid excessive fees. As a sister court held in Anderson:

Plaintiffs have alleged a unitary claim of breach because of an overarching process by which defendants chose imprudent options for the Plan. In light of that claim, the Court is persuaded by the majority of courts to have considered the issue that Plaintiffs may assert claims on behalf of the Plan based on allegedly excessive-fee funds in which they did not invest.

Anderson, 2022 WL 951218, at *3 (cleaned up).

Meanwhile, the cases on which Defendants rely for this issue are not from within the Tenth Circuit. This in itself is reason enough to not follow them. In addition, Defendants' cases do not discuss Thole and also do not appear to discuss why-given that ERISA creates a cause of action for plan participants only on behalf of the plan-a plaintiff who asserts a unitary harm to the entire plan has not shown concrete harm as to the entire plan sufficient for constitutional standing. See, e.g., Wilcox, 2019 WL 132281, at *8-9; Brown-Davis, 2020 WL 8921399, at *3; Singh, 2023 WL 186679; Locascio, 2023 WL 320000, at *3.

In conclusion, the court finds that Plaintiffs have met their burden to establish standing.

The court respectfully recommends that Defendants' Motion to Dismiss Plaintiffs' claims pursuant to Rule 12(b)(1) “to the extent they relate to Janus Funds in which [Plaintiffs] did not invest,” see Motion at 8, be denied.

II. Do the Well-Pleaded Facts Show that Defendants Are ERISA Fiduciaries With Respect to the JH Funds in the Plan?

The court now turns to Defendants' arguments for dismissal for failure to state a plausible claim for relief under Rule 12(b)(6). Defendants' arguments for dismissal of Count One, a claim for breach of fiduciary duty, rests on several legal theories. The court analyzes these in order, beginning with the argument that Defendants did not act in a fiduciary capacity with respect to offering the JH Funds. See Motion at 8-11. The court concludes Plaintiffs have plausibly alleged that Defendants acted in their fiduciary capacities with respect to virtually all of the JH Funds in the Plan, but that the allegations concerning Janus's design of the Plan and failure to amend it do not support such a claim as a matter of law.

A. Janus

Although the claim is not expressly organized in a chronological or functional sequence, Plaintiffs appear to premise their breach of fiduciary duty claim against Janus on (1) its writing the JH Funds into the Plan itself (to which Plaintiffs refer in their response brief as “hardwiring” the JH Funds as investment options in the Plan); (2) its failure to amend the Plan to remove any of the JH Funds from the Plan; (3) its failure to otherwise remove any of the JH Funds (i.e., to override the Plan's mandate when necessary); and (4) its failure to use a prudent and loyal process to select the investment options in the Plan because the JH Funds have above-average expenses without commensurate performance. See, e.g., Am. Complt. ¶¶ 1, 4, 6, 18-19, 25-26, 31, 42-44. Janus argues that its so-called “hardwiring” the Funds in the Plan and failing to amend the Plan to remove any of them were actions analogous to that of a settlor of a trust under Lockheed Corp. v. Spink, 517 U.S. 882, 890 (1996), and thus were not fiduciary functions. Id. at 8-9.

For the reasons that follow, the court concludes that the only portion of this claim that regards settlor functions is Janus's “hardwiring” of the JH Funds into the Plan and failing to amend the Plan to remove any of those funds.

1. “Fiduciaries” Under ERISA

“ERISA . . . defines ‘fiduciary' not in terms of formal trusteeship, but in functional terms of control and authority over the plan.” Mertens v. Hewitt Assocs., 508 U.S. 248, 262 (1993) (emphasis original). Specifically, the statute provides:

[A] person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.

29 U.S.C. § 1002(21)(A)(i), (iii) (in relevant part). Thus, the keynotes for an ERISA fiduciary are (a) discretion in (b) “management” or “administration” of the Plan. “[F]iduciary status requires authority or responsibility that is discretionary, which entails ‘the freedom to decide what should be done in a particular situation.'” Lebahn v. Nat'l Farmers Union Uniform Pension Plan, 828 F.3d 1180, 1184 (10th Cir. 2016) (citing “Discretion,” New Oxford American Dictionary (3d ed. 2010)).

“An employer can wear two hats: one as a fiduciary administering a . . . plan and the other as the drafter of a plan's terms.” Averhart v. U.S. WEST Mgmt. Pension Plan, 46 F.3d 1480, 1488 (10th Cir. 1994) (quotation omitted). When an employer has such “dual roles as plan sponsor and plan administrator . . . an employer's fiduciary duties under ERISA are implicated only when it acts in the latter capacity.” Beck v. PACE Int'l Union, 551 U.S. 96, 101 (2007).

“In every case charging breach of ERISA fiduciary duty, then, the threshold question is not whether the actions of some person . . . adversely affected a plan beneficiary's interest, but whether that person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint.” Pegram v. Herdrich, 530 U.S. 211, 226 (2000). “Which hat the employer is proverbially wearing depends upon the nature of the function performed and is an inquiry that is aided by the common law of trusts which serves as ERISA's backdrop.” Beck, 551 U.S. at 101 (internal citation omitted; citing Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 444 (1999); Pegram, 530 U.S. at 224; Lockheed, 517 U.S. at 890).

In this case, Janus has dual roles because it is both the “plan sponsor” and plan “administrator.” Am. Complt. ¶¶ 23-25. ERISA defines a “plan sponsor” in terms of the employer that “established or maintained” the plan. 29 U.S.C. § 1002(16)(B). In contrast, by its very title, the “administrator” is defined in terms of administering the plan. 29 U.S.C. § 1002(16)(A). “Plan sponsors . . . do not fall into the category of fiduciaries” when they “adopt, modify or terminate . . . plans.” Lockheed, 517 U.S. at 890. “When employers undertake those actions, they do not act as fiduciaries ... but are analogous to the settlors of a trust.” Id. (internal citation omitted).

2. The Parties' Arguments ¹¹

11 The parties cite to an unusually large number of cases in their briefing, much of which the court deems appropriate to analyze in detail here. However, the court does not believe it necessary to address every case that the parties cite, particularly when those cases are outside of the Tenth Circuit.

Plaintiffs assert, however, that “[t]o the extent that Janus Henderson mandated inclusion of the [JH] Funds in the Plan's investment menu, that is an investment decision that Janus Henderson had fiduciary responsibility for.” Am. Complt. ¶ 26. Janus disagrees. It argues that in structuring the Plan to mandate offering JH Funds, it acted as the “settlor,” not as a fiduciary. Motion at 15-16 (citing Lockheed, 517 U.S. at 890; Hughes Aircraft, 525 U.S. at 444). Janus further argues that its decision to not amend the Plan to remove the Funds is likewise in its role as settlor. Id. at 16 (citing In re Sprint Corp. ERISA Litig., 388 F.Supp.2d 1207, 1219 (D. Kan. 2004); In re CMS Energy ERISA Litig., 312 F.Supp.2d 898, 907-08 (E.D. Mich. 2004)).

Plaintiffs oppose this argument, noting that ERISA itself recognizes that a person who “exercises any authority or control respecting management or disposition of [a plan's] assets” is acting as a fiduciary. Resp. at 9 (emphasis added, quoting 29 U.S.C. § 1002(21)(A)(i)). Plaintiffs cite “congressional concern” to prevent “misuse and mismanagement of plan assets by plan administrators” in the future. Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140 n.8 (1985). They cite ERISA's fiduciary duties of loyalty and prudence as “the highest known to the law.” Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir. 1982). Plaintiffs note that those duties include “exercis[ing] prudence in selecting investments” and a “continuing duty to monitor investments and remove imprudent ones.” Tibble v. Edison Int'l, 575 U.S. 523, 530 (2015).

Russell, however, did not involve an issue of whether the employer acts in its fiduciary or settlor role in writing (“hardwiring,” as Plaintiffs refer to it in briefing) its proprietary funds into a plan itself as required offerings. The issue in Russell was instead whether an ERISA plan beneficiary could bring a claim outside the terms of the plan for alleged improper delay and processing of her benefits claim. The Court held that she could not. Russell, 473 U.S. at 148. The opinion does not address any issue of distinguishing between settlor and fiduciary functions. The same is true of Donovan, where there was no question that the plan's trustees acted in their fiduciary role when responding to a tender offer for the company's shares held in the plan. Donovan, 680 F.2d at 272-76. Likewise, Tibble does not involve any issue of settlor versus fiduciary roles. The question was whether the defendants' “allegedly imprudent retention of an investment is an ‘action' or ‘omission' that triggers the running of the 6-year limitations period.” See 575 U.S. at 525.

Plaintiffs further point to a Second Circuit opinion holding that “fiduciary functions include . . . selecting investments, exchanging one instrument or asset for another, and so on.” Resp. at 9 (quoting Coulter v. Morgan Stanley & Co., Inc., 753 F.3d 361, 367 (2d Cir. 2014)). However, the issue in Coulter was that the employer “elected, pursuant to its express authority under the Plans, to make its employer contributions to the Plans in the form of” company stock. Id. at 364. The court held that this was not fiduciary conduct because it was not an act “undertaken with respect to plan management or administration.” Id. at 367. “[F]iduciary status turns on ERISA's plain language and does not exist simply because an employer's business decision proves detrimental to a covered plan or its beneficiaries.” Id.

Plaintiffs further note that “even in a defined-contribution plan [such as the Plan in this case] where participants choose their investments, plan fiduciaries are required to conduct their own independent evaluation to determine which investments may be prudently included in the plan's menu of options.” Hughes, 142 S.Ct. at 742. However, in Hughes, the Court refers to all of the respondents as persons “who administer the Plans.” Id. at 740 (emphasis added). There was no issue of allegedly imprudent investment options required by the terms of the plans and failure to amend the plans to remove those investment options, such as Plaintiffs allege here.

Plaintiffs also cite opinions of the Seventh and Fourth Circuits. Plaintiffs quote from Howell v. Motorola, Inc., 633 F.3d 552 (7th Cir. 2011), that “[t]he choice of which investments will be presented in the menu that the plan sponsor adopts is a core decision relating to the administration of the plan” and therefore “the selection of plan investment options . . . are acts to which fiduciary duties attach.” Id. at 567. In that case, the “Plan's governing documents allowed, but did not require, the Plan to offer the Motorola Stock Fund as one option.” Id. at 557.

Although Howell analyzes whether the employer was a plan fiduciary by appointing plan administrators and “assume[s] for the sake of argument” that it was a fiduciary, Id. at 562-64, Howell does not analyze whether the employer acted as a fiduciary in authoring the plan that allowed the company stock fund in the plan.

The passage in Howell on which Plaintiffs rely arose in the context of analyzing whether ERISA's Section 404(c) “safe harbor” for fiduciaries on participants' self-directed accounts applied to the fiduciaries' selection of investment options. Id. at 567-68. In that analysis, the court does not address the employer specifically but rather asks whether the safe harbor applies to any plan fiduciaries' selection of investment options. This passage does not support the conclusion that an employer acts as a fiduciary in writing its company stock fund in the plan itself. Later, Howell also

The plaintiffs theory is that these individual defendants, along with Motorola and the Committee, violated their fiduciary duties by including the Motorola Stock Fund as one of the Plan's investment options. It is unclear whether they believe that the breach of duty arose at the very moment that the Motorola Stock Fund was designated for the Plan, or if they are arguing that the decision not to revise the Plan and withdraw this as an option was the violation. (The latter theory seems more likely.)

Howell, 633 F.3d at 568. But in the end, the Seventh Circuit did not reach whether the employer's act of including the company stock fund in the plan document itself (or failure to revise the plan to remove that fund) could support a breach of fiduciary duty. The court instead affirmed summary judgment for the defendants based on plaintiffs' failure to come forward with sufficient evidence to show a material fact dispute that the defendant's “stock was an imprudent option for a retirement plan[.]” Id. (observing that the evidence plaintiffs' presented on summary judgment was “fatally thin”). Thus, Howell does not support Plaintiffs' position that Janus acted as a fiduciary in “hardwiring” the JH Funds in the Plan.

Plaintiffs also quote Tatum v. RJR Pension Investment Committee, 761 F.3d 346 (4th Cir. 2014), for the principle that “ERISA imposes high standards of fiduciary duty on those responsible for . . . the investment and disposal of plan assets.” Id. at 355. However, the full sentence reads: “ERISA imposes high standards of fiduciary duty on those responsible for the administration of employee benefit plans and the investment and disposal of plan assets.” Id. (emphasis added). The plaintiffs' claims in Tatum were based on complex actions and omissions the employer and other defendants undertook after splitting their tobacco and food businesses. Among the complex assertions, it appears that at trial and on appeal, the courts assumed that the employer's failure to consider amending the plan at one point (and perhaps improperly amending it later) were fiduciary acts. Id. at 351-55. However, the parties do not appear to have raised the issue, as the opinion does not once discuss whether that conduct was instead in the settlor role. And if the plaintiffs originally claimed a breach in the employer's act of writing its stock fund into the plan itself, it appears they dropped that theory before trial. In the end, then, because the court only assumed that plan amendment and failure to amend is a fiduciary act, Tatum does not support Plaintiffs' position either.

Plaintiffs also point to a Tenth Circuit opinion describing the “relationship of trust [that] is established when one acquires possession of another's property with the understanding that it is to be used for the owner's benefit.” Resp. at 9 (quoting David P. Coldesina, D.D.S. v. Est. of Simper, 407 F.3d 1126, 1134 (10th Cir. 2005)). But this says nothing of how the employer's “hardwiring” of its proprietary funds in an ERISA plan is akin to receiving possession of another's property. Writing the Plan (and later failing to amend the Plan) was not a step at which Janus received its employees' funds. Coldesina also does not appear to involve an investment option that was written into the plan itself, but rather concerns who might be held responsible for theft from a plan.

In a footnote in their Response, Plaintiffs quote from the Department of Labor's general preamble to the safe-harbor regulation: “the act of limiting or designating investment options which are intended to constitute all or part of the investment universe of an ERISA 404(c) plan is a fiduciary function . . . whether achieved through fiduciary designation or express plan language.” Resp. at 9 n.4 (quoting Final Regulation Regarding Participant Directed Individual Account Plans (ERISA Section 404(c) Plans), 57 Fed.Reg. 46906, at *46924-25 n.27 (Oct. 13, 1992) (emphasis added)). Giving this passage more of its context, it reads:

The proposal [for the safe-harbor regulation] stated that a fiduciary is relieved of responsibility only for the direct and necessary consequences of a participant's exercise of control. [n.27]

[n.27] In this regard, the Department points out that the act of limiting or designating investment options which are intended to constitute all or part of the investment universe of an ERISA 404(c) plan is a fiduciary function which, whether achieved through fiduciary designation or express plan language, is not a direct or necessary result of any participant direction of such plan....In those situations where the ERISA section 404(c) plan by its own provisions limits the investment universe by designating specific investment alternatives . . . the plan fiduciary must comply with the requirements of ERISA section 404(a)(1)(D).

57 Fed.Reg. 46906, at *46924 n.27 (emphasis added).

This footnote is the closest Plaintiffs come to supporting their theory that hardwiring an investment option in a plan is a fiduciary function. But “arguments that are . . . mentioned only in a footnote[] [of the party's brief] are generally deemed waived.” Swan Glob. Invs., LLC v. Young, 18-cv-03124-CMA-NRN, 2021 WL 3164242, at *2 (D. Colo. July 27, 2021). Plaintiffs do not argue what level of judicial deference to the DOL regulation, if any, is required; nor do they attempt to explain how the DOL could logically distinguish a “fiduciary designation” from “express plan language” but nonetheless refer to both as fiduciary functions. Plaintiffs also do not address the significance of the final regulation's more limited definition of a “designated investment alternative” as “a specific investment identified by a plan fiduciary as an available investment alternative under the plan.” Id. at 46936 (emphasis added; See 29 C.F.R. § 2550.404c-1(e)(4)). I.e., consistent with being a safe-harbor only for fiduciaries, the regulation only concerns designations of investment alternatives by fiduciaries. Plaintiffs also do not point the court to any cases construing this footnote.¹² Thus, Plaintiffs' argument regarding the preamble footnote is too perfunctory to resolve. See, e.g., San Juan Citizens Alliance v. Stiles, 654 F.3d 1038, 1056 (10th Cir. 2011) (declining to construct a persuasive case for a party that raised an issue only in a footnote).

12 A case that Defendants cite on other issues, Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009), notes that this footnote “was never embodied in the final regulations” but does not otherwise address it. Id. at 589. On a different but related question (whether the safe-harbor defense applies to breach of duty claims), another circuit found the footnote is not a reasonable interpretation of the statute. Langbecker v. Elec. Data Sys. Corp., 476 F.3d 299, 310 (5th Cir. 2007).

Plaintiffs next argue that if hardwiring investment options in a plan is a settlor function, this would permit employers to effectively nullify the duties of prudence and loyalty. Resp. at 10. They argue that ERISA requires fiduciaries to follow plan documents only “insofar as such documents . . . are consistent with the provisions of [ERISA].” 29 U.S.C. § 1104(a)(1)(D) . They further argue that ERISA makes void “any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility . . . for any . . . duty under this part.” Id. § 1110(a). These statutes, they argue, defeat the “hardwiring defense” by “mak[ing] clear that the duty of prudence trumps the instructions of a plan document, such as an instruction to invest exclusively in employer stock even if financial goals demand the contrary.” Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 421 (2014).

Plaintiffs also take issue with Defendants' application of Lockheed, Hughes Aircraft, CMS Energy, and Sprint to Plaintiffs' claims. Plaintiffs note that the plan amendments discussed in Lockheed and Hughes Aircraft did not concern investment options designated in the plans. As for CMS Energy and Sprint, Plaintiffs note that in both cases the “motions to dismiss were denied in substantial part.” Resp. at 11. Plaintiffs appear to recognize, though, that as discussed further below, CMS Energy and Sprint concluded the designation of an employer's stock in the plan (and failing to amend the plan) were not fiduciary functions.

Finally, Plaintiffs point to Brotherston v. Putnam Investments, LLC, 907 F.3d 17, 23-24 (1st Cir. 2018), as involving a “similar plan mandate to include essentially all of the sponsor's proprietary funds.” Resp. at 12. In that case, the defendants conceded that the plan's “instruction [to offer the proprietary funds] does not immunize defendants from potential liability based on the duty of prudence in selecting investment offerings under the Plan.” Brotherston, 907 F.3d at 23-24 (citing Dudenhoeffer, 573 U.S. at 421, “the duty of prudence trumps the instructions of a plan document”). Brotherston discusses the plaintiffs' claims as based on the overriding statutory duty of prudence in selecting investments, without focusing on the employer's decision to include the instruction in the plan itself or the employer's continuing decision to not amend the plan to remove that instruction. The case does not support Plaintiffs' claim based on Janus's design of the Plan or the failure to amend it, but like Sprint does support Plaintiffs' claim to the extent it is premised on Janus's failure to do anything else about the offering of the JH Funds.

The same is true of the last case that Plaintiffs cite on this issue, Feinberg v. T. Rowe Price Grp., Inc., MJG-17-0427, 2018 WL 3970470, at *6 (D. Md. Aug. 20, 2018). In that case, the court did not disagree with the defendants that the design of the plan (which required proprietary funds as investment options) was a settlor function. The court understood the claim, however, as one asserting that the employer and other defendants failed to meet the overriding statutory duty of prudence in selecting investments. Essentially, Feinberg understood the claim to not focus on the instruction in the plan itself but rather on the failure to override that instruction to the extent it was inconsistent with ERISA's duty of prudence in administering the plan once it was in place.

In reply, Janus argues that Plaintiffs “do not meaningfully challenge” that it is the design of the Plan to include JH Funds, and that the design or amendment of the Plan are settlor functions. Because it thus was not “performing a fiduciary function,” Pegram, 530 U.S. at 226, Janus argues it is not subject to a claim for breach of fiduciary duty for including the JH Funds in the Plan. It further argues that Dudenhoeffer did not involve the threshold issue of settlor versus fiduciary functions because that case does not concern the employer's inclusion of its stock in the express language of the plan. Rather, the case concerns the employer's (and other defendants) later continuing to buy and hold the employer's stock in the plan when the defendants allegedly knew it was overvalued and excessively risky. Dudenhoeffer, 573 U.S. at 413, 426-29 (analyzing this task as a fiduciary function).

3. Recommendation

Plaintiffs are correct that ERISA defines a plan's fiduciary in relevant part as one who “exercises any authority or control respecting management ... of its assets.” 29 U.S.C. § 1002(21)(A)(i) (emphasis added). But this only begs the question of whether “hardwiring” an investment option in the Plan constitutes “management . of its assets.” As noted above, Plaintiffs do not cite any cases that directly address that question in their favor. They concede that under Lockheed and Hughes Aircraft, the design and amendment of a plan are generally settlor functions. Resp. at 10. Plaintiffs contend that is not true when the plan instructs fiduciaries to offer a proprietary fund.

Although neither Lockheed nor Hughes Aircraft involve plans (or plan amendments, or the lack thereof) that “hardwire” an employer's stock or proprietary funds as investment options, these cases also do not recognize any exceptions to the general rule that design or amendment of plans are settlor functions. In Hughes Aircraft, the Supreme Court noted:

In general, an employer's decision to amend a pension plan concerns the composition or design of the plan itself and does not implicate the employer's fiduciary duties which consist of such actions as the administration of the plan's assets.

Hughes Aircraft, 525 U.S. at 444 (emphasis added).

In Sprint, the District of Kansas held that the employer acted in its settlor not fiduciary function when it did not amend its plan to remove the employer's “Company Stock Fund” as one of the investment options. Therefore, to the extent the participants' claim for breach of fiduciary duty could “fairly be read to suggest that defendants should have amended the plan documents,” that part of the claim was dismissed. Sprint, 388 F.Supp.2d at 1219. But much as Plaintiffs argue, the court also held that the defendants (including the employer) acted as fiduciaries in not overriding the terms of the plans to stop investment in the company's stock once they were allegedly aware of facts making it an imprudent investment. Id. at 1221-24.

In CMS Energy, the Eastern District of Michigan similarly held that the alleged failure to amend the plan to remove the employer's stock from its investment options was not a fiduciary function, citing Hughes Aircraft; Akers v. Palmer, 71 F.3d 226, 230 (6th Cir. 1995); and In re McKesson HBOC, Inc. ERISA Lit., C00-20030, 2002 WL 31431588, at *8 n.8 (N.D. Cal. 2002). Akers noted that “[n]ot every decision affecting a benefits plan is subject to ERISA's fiduciary rules,” and specifically held that a board decision to initially fund a plan with newly issued company stock was not fiduciary conduct. Akers, 71 F.3d at 230. McKesson HBOC held that the failure to amend a plan is not a fiduciary act and dismissed the breach of fiduciary duty claim to the extent it was based on such. McKesson HBOC, 2002 WL 31431588, at *8 n.8. CMS Energy declined to dismiss the breach of fiduciary duty claim as to the plan's fiduciaries only because the claim:

does not solely complain of a lack of Plan amendment ... [but r]ather, plaintiffs complain of the lack of any action taken by Plan fiduciaries, which might include other measures to protect participants' assets, such as a suspension of investment in CMS stock funds, or requiring investments in the ESOP to be held in cash until an assessment of the prudence of CMS stock investment could be made.

CMS Energy, 312 F.Supp.2d at 907-08.

As noted above, Plaintiffs premise their breach of fiduciary duty claim against Janus on (1) its hardwiring the JH Funds into the Plan itself, (2) its failure to amend the Plan to remove any of the JH Funds from the Plan, (3) its failure to otherwise remove any of the JH Funds (i.e., to override the Plan's mandate when necessary), and (4) its failure to use a prudent and loyal process to select the investment options in the Plan.

The court concludes that Janus has the better argument with respect to the first two portions of the claim: designing the Plan to mandate offering all JH Funds and not amending the Plan to remove that mandate. Under the case law discussed above, the well-pleaded facts show that Janus acted in its settlor role-not as a fiduciary-in that conduct. While Plaintiffs resist this conclusion, they do not point to any case law that supports their position. Their argument regarding the Department of Labor's footnote in issuing the safe-harbor regulation referring to designation of investment options in express plan language is too slender a hook on which to hang Plaintiffs' legal theory, given that the regulation itself does not include that key phrase. Therefore, the court respectfully recommends that the portion of Plaintiffs' Count I against Janus, alleging that it breached its duties to the Plan in writing the JH Funds into the Plan and failing to amend the Plan, be dismissed. See, e.g., Sprint, 388 F.Supp.2d at 1212; CMS Energy, 312 F.Supp.2d at 907 (dismissing similar portions of ERISA breach of fiduciary duty claims)

However, the third and fourth aspects of the claim against Janus (the failure to otherwise remove the JH Funds or override the Plan, and the failure to use a loyal and prudent selection process) should not be dismissed. The facts the court can consider on a motion to dismiss show that Janus was a fiduciary with respect to that conduct because, once the Plan was in place, ERISA's statutory duties of loyalty and prudence in selecting investments controlled over the Plan's instruction to offer all JH Funds.

B. The Committee

Plaintiffs allege several facts to support that the Committee acts as a fiduciary with respect to administering and managing the Plan's investment options:

The Committee assists Janus Henderson with administration of the Plan. The Committee is responsible for overseeing and monitoring the Plan's investments. The Committee is also generally responsible for: (A) Promulgating the Plan's Investment Policy Statement; (B) Selecting the core funds available under the Plan; (C) Reviewing the funds for compliance with the Investment Policy Statement; (D) Making revisions to the Investment Policy Statement to reflect changing conditions within the Plan, the investment environment, or as the Committee sees fit.

In performance of its duties, the Committee exercises “authority or control respecting management or disposition of the Plan's assets” and is therefore a fiduciary under 29 U.S.C. § 1002(21)(A). The Plan's terms also identify the Committee as a named fiduciary of the Plan.

Am. Complt. ¶¶ 28-30 (certain paragraph breaks omitted).

The Committee argues that because the Plan itself mandates including the JH Funds, and the Committee does not have the power to amend the Plan, it has no discretion to remove any of the JH Funds and therefore is not a fiduciary with respect to that issue. ECF. No. 39 at 4. Plaintiffs do not appear to dispute that the Committee lacked power to amend the Plan. The Amended Complaint alleges Janus had that power but appears to be silent on whether the Committee also had that power. The Plan states: “The JNS Fund and the Janus Mutual Funds may be removed as investment options under the Plan only by amendment of the Plan by the Employer.” ECF No. 40-1, § 5.5. Plaintiffs do not dispute this in their response brief.

Regardless that the Committee did not have the power to amend the Plan to remove the JH Funds, the Committee had discretion over the selection of investment options for the same reason Janus did: ERISA's statutory duties override the Plan's mandate to offer all JH Funds. 29 U.S.C. §§ 1104(a)(1)(D), 1110(a). Defendants cite several cases for the proposition that when a person lacks discretion to act concerning a subject, they cannot be held liable as a fiduciary for conduct relating to it: Teets v. Great-West Life & Annuity Ins. Co., 921 F.3d 1200, 1206-07 (10th Cir. 2019); In re Bear Stearns Cos. Sec., Derivative, & ERISA Litig., 763 F.Supp.2d 423, 56667 (S.D.N.Y. 2011); on recon., 07 Civ. 10453, 2011 WL 4072027 (S.D.N.Y. Sept. 13, 2011), and on recon., 2011 WL 4357166 (S.D.N.Y. Sept. 13, 2011); In re Am. Exp. Co. ERISA Lit., 762 F.Supp.2d 614, 626 (S.D.N.Y. 2010); and Smith v. Delta Air Lines, Inc., 422 F.Supp.2d 1310, 1326 (N.D.Ga. 2006). But none of those cases expressly allow a named fiduciary who generally has discretion over investment management to avoid their statutory duty of prudence based on plan documents that purport to carve out some investments.¹³ None of these cases discuss whether, despite a plan document purporting to limit investment discretion, 29 U.S.C. §§ 1104(a)(1)(D) or 1110(a) nonetheless imposed a duty of prudence as to those matters. See, e.g., Teets, 921 F.3d at 1205 (defendant was also not a named fiduciary but only an investment fund manager whose obligations as a “functional fiduciary” were limited to the plan's documents or contract); Bear Stearns, 763 F.Supp.2d at 566-67; Am. Ex., 762 F.Supp.2d at 626; Delta Air Lines, 422 F.Supp.2d at 1326.

13 The same is true of the cases Defendants cite in a footnote on this issue: Renfro v. Unisys Corp., 671 F.3d 314, 323-29 (3d Cir. 2011); Rosen v. Prudential Ret. Ins. & Annuity Co., 2016 WL 7494320, at *6-8 (D. Conn. Dec. 30, 2016); Hecker v. Deere & Co., 556 F.3d 575, 583-84 (7th Cir. 2009). None of these cases appear to discuss 29 U.S.C. §§ 1104(a)(1)(D) or 1110.

In sum, this court thus concludes that the facts the court can consider on a motion to dismiss show that the Committee was a fiduciary with respect to offering the JH Funds, regardless that the Plan and related documents said those funds were outside the Committee's discretion. Accordingly, the court recommends that Defendants' arguments concerning their fiduciary status should be granted only with respect to Janus's “hardwiring” the JH Funds in the design of the Plan and decision to not amend the Plan, and otherwise denied.

III. Breach of Prudence Claim

Plaintiffs allege that Janus and the Committee breached the fiduciary duty of prudence in not analyzing and monitoring the JH Funds for whether they were prudent investments to include in the Plan. They allege that there was in fact no process for reviewing the prudence of continuing to offer the JH Funds, which they infer from (1) the Plan itself requiring all JH Funds to be offered, (2) the Plan expressly prohibiting the removal of JH Funds except by Janus amending the Plan, and (3) the fact that no JH Funds were ever removed from the Plan except when terminated or merged into another fund.

Plaintiffs further allege that even if these “direct” fact allegations were lacking, they have compared the JH Funds to their respective prospectus benchmarks' expense ratios and performance. They allege the Plan's overall expense ratio was higher than average for similar sized 401(k) plans and that this was due to the expense ratios of the JH Funds being higher than average for similar mutual funds (which they define as actively managed, non-inflation protected mutual funds). Plaintiffs further allege that the higher expense fees did not come with a commensurately higher performance than the benchmarks. Thus, Plaintiffs allege that the process Janus and the Committee employed (to the extent there was one) for reviewing the prudence of continuing to offer the JH Funds is flawed because they did not remove a single JH Fund from the Plan despite the excessive fees for the level of performance. With that overview of the imprudence allegations in mind, the court turns to the law and Defendants' arguments.

A. ERISA's Duty of Prudence

For fiduciary functions such as the selection and monitoring of investments, ERISA defines the fiduciary duty of prudence as follows:

[A] fiduciary shall discharge [its] duties with respect to a plan . . . with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims.

29 U.S.C. § 1104(a)(1)(B) (in relevant part).

To claim a breach of this duty with respect to management of investments, a plaintiff must allege:

that a fiduciary's “investment decisions-in the conditions prevailing at the time, and without the benefit of hindsight-are such that a reasonably prudent fiduciary would not have made that decision as part of a prudent, whole-portfolio,¹⁴investment strategy that properly balances risk and reward, as well as short-term and long-term performance.”

Kurtz v. Vail Corp., 511 F.Supp.3d 1185, 1196 (D. Colo. 2021) (quoting Birse v. CenturyLink, Inc., 17-cv-02872-CMA-NYW, 2019 WL 1292861, at *3 (D. Colo. Mar. 20, 2019)). See also Matney v. Barrick Gold of N. Am., Inc., 2:20-cv-275-TC-CMR, 2022 WL 1186532, at *4 (D. Utah Apr. 21, 2022) (citing Kurtz), appeal pending.

14 As the court explains below, after Hughes, the “whole-portfolio” focus for ERISA imprudence claims does not permit dismissal simply because the allegedly imprudent investment options constituted only some but not all options in a plan.

Because the claim regards the fiduciary's conduct and not the results, the focus of the claim must be that the fiduciary's processes for investment selection and retention were flawed. Kurtz, 511 F. Supp. 3d at 1196-97. More specifically for this case, “[a] plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones.” Hughes, 142 S.Ct. at 741 (quoting Tibble, 575 U.S. at 530). The Court explained:

[E]ven in a defined-contribution plan where participants choose their investments, plan fiduciaries are required to conduct their own independent evaluation to determine which investments may be prudently included in the plan's menu of options. See [ Tibble, ] 575 U.S. at 529-530, 135 S.Ct. 1823. If the fiduciaries fail to remove an imprudent investment from the plan within a reasonable time, they breach their duty. See ibid. Hughes, 142 S.Ct. at 742. The Supreme Court thus considers that since at least its 2015 decision in Tibble, it is clear ERISA fiduciaries cannot obtain dismissal of imprudence claims simply by pointing out that they offered other investment options to which the plaintiffs do not object as imprudent. Plan fiduciaries must employ a reasonable process under the circumstances at the time to evaluate and monitor the prudence of every investment option offered in a plan. Id.

(noting that “[a]t times, the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise”).

B. Plaintiffs' Claims Are Plausible Despite Concerning Only a Portion of the Available Investment Options.

Despite the Hughes decision, Defendants nonetheless point to the non-proprietary funds offered in the Plan to show that Plaintiffs' claims of imprudence in offering all JH Funds must fail because they had many other options to choose from. They cite to cases from this District that predate Hughes: Birse, 2019 WL 1292861, and Kurtz, 511 F.Supp.3d at 1196. While these cases remain good law on other issues--this court indeed cites Birse and Kurtz above--to the extent these cases would support dismissing claims because there were other investment options available in a plan that were not challenged as imprudent, this court respectfully concludes that they are no longer good law after Hughes.

Defendants also cite to 29 C.F.R. § 2550.404c-1(b)(3) as only requiring a fiduciary to offer a “broad range of investment alternatives.” But this regulation only defines what an ERISA section 404(c) plan is. Id. § 2550.404c-1(a)(1) (“This section describes the kinds of plans that are ‘ERISA section 404(c) plans'”). It does so in terms of participant control over their individual account and having an “opportunity to choose[] from a broad range of investment alternatives.” Id. § 2550.404c-1(b)(1)(ii). The regulation does not purport to implement or limit ERISA's Section 1104 duty of prudence in selecting or managing a plan's assets.¹⁵ Indeed, one of the cases on which Defendants rely for other issues, Smith v. CommonSpirit Health, 37 F.4th 1160 (6th Cir. 2022) holds: “ERISA, in other words, does not allow fiduciaries merely to offer a broad range of options and call it a day.” Id. at 1165-66. Defendants also cite the Ninth Circuit's 2013 Tibble decision (Tibble v. Edison Int'l, 729 F.3d 1110, 1134-35 (9th Cir. 2013)), but the Supreme Court later vacated that decision because plan fiduciaries have “a continuing duty to monitor” the prudency of plan investments. Tibble, 575 U.S. at 529.

15 Later, Defendants relatedly assert that plan fiduciaries have broad discretion over the mix of investments to offer, whether proprietary or non-proprietary, actively managed or passive. Motion at 19. Defendants assert there are thousands of other funds, including actively managed non-proprietary funds, available through the “Fidelity BrokerageLink.” Id. But Plaintiffs allege the JH Funds were the only actively managed, non-inflation protected funds in the Plan. Even if the court could consider Defendants' assertion (which it cannot; see infra), it would not negate Hughes' holding: fiduciaries must use a reasonable process to assess and monitor the prudence of each investment option. Here, Plaintiffs allege Defendants did not analyze the prudence of the JH Funds in the Plan at all. While Defendants' assertion of non-proprietary, actively managed funds in the Plan would likely be material for summary judgment, it does not permit dismissal of this case at the Rule 12(b)(6) phase, and neither side requests conversion of the motion.

Defendants argue to the contrary: that Hughes does not forbid the court from dismissing the imprudence claim based on the fact that the JH Funds are only a portion of the entire portfolio. Defendants argue that Hughes simply requires lower courts to analyze the fiduciaries' selection and monitoring processes in the full circumstances that existed at the time. They cite more recent cases that, in their view, demonstrate Hughes did not do away with what this court will call the dilution of imprudence theory-i.e., that if the imprudent funds were only a portion of a portfolio that offered other, more prudent funds, this dilutes the imprudence to the point that the claim is implausible. Defendants cite in particular Matney, 2022 WL 1186532, at *4 (applying Kurtz's “whole-portfolio” language); Forman v. TriHealth, Inc., 40 F.4th 443, 449 (6th Cir. 2022); and Albert v. Oshkosh Corp., 47 F.4th 570, 591 (7th Cir. 2022). But these cases just stand for the continuing importance of the need for the court to consider the complete context when ruling on motions to dismiss ERISA imprudence claims. They do not suggest that Hughes permits courts to still find such a claim implausibly pleaded simply because participants could choose from other options in the plan's portfolio. Albert, for instance, alleged only that the defendants “failed to consider materially similar and less expensive alternatives to the Plan's investment options,” without “more detailed allegations providing a sound basis for comparison.” 47 F.4th at 582.

Plaintiffs meanwhile point to the Seventh Circuit's Hughes decision after remand. Hughes v. Northwestern Univ., 63 F. 4th 615 (7th Cir. 2023) (“Hughes II”). That opinion holds, in relevant part, that “Hughes says providing a diverse menu of investments alone is not dispositive that a plan fiduciary has fulfilled the duty of prudence.” Id. at 625. The court recognized that Hughes “rejected this court's reliance on a categorical rule that a plan fiduciary may avoid liability by assembling a diverse menu of investment options that includes the types of investments a plaintiff desires.” Id. at 626. Thus, the Seventh Circuit does not discuss Hughes as Defendants do here, as though the Supreme Court's opinion requires expressly addressing all the alleged circumstances before nonetheless dismissing imprudence claims that complain about only a subset of the investment options.

In Hughes, the Supreme Court recognizes that, of course, a fiduciary's selection and monitoring processes must be viewed in the factual context that existed at the time. Hughes, 142 S.Ct. at 742. But that goes to the question of whether Plaintiffs allege the fiduciary used an unreasonable process. It does not permit the court to infer that Plaintiffs' allegations of an unreasonable process are implausible just because participants had other options available to them in the Plan.

C. Plaintiffs' Allegations of Above-Average Fees Without Commensurate Performance Are Plausible.

Defendants further argue that Plaintiffs' allegations of excessive fees are conclusory, only concern two of the many JH Funds, use improper benchmarks, and ignore that a plan fiduciary is not required to choose the “cheapest” funds as investment options. Motion at 12-18. Defendants argue the imprudence claim should accordingly be dismissed as implausible.

This court disagrees. First, Plaintiffs allege that Janus and the Committee had no process for assessing or monitoring the prudence of any of the JH Funds, and those allegations are not conclusory.¹⁶ See, e.g., Am. Complt. ¶¶ 6, 18-19, 42-46, 49-52, 62, 63. Plaintiffs also allege damages from that lack of assessment and monitoring because JH Funds were the only actively managed investment options in the Plan, and the JH Funds carried higher expenses than similar, actively managed funds. Id. ¶¶ 47, 52, 59, 64, 65, 82. Plaintiffs further allege, with citation to DOL and SEC publications,¹⁷ that even small differences in expense ratios for investments in retirement accounts result in significantly lower gains over time. Id. ¶ 40 n.8.

16 In their reply, Defendants argue that “[t]o suggest Janus does not ‘prudently select or monitor' its own funds ignores the significant guardrails in place to protect investors like Plan participants.” ECF No. 46 at 8 (citing 15 U.S.C. § 80a-15(c) as requiring directors of investment companies to “request and evaluate” information regarding mutual funds). This is a new argument on reply, and it is accordingly waived for purposes of the motion to dismiss. See, e.g., Tuft v. Indem. Insur. Co. of N. Am., No. 19-cv-01827-REB-KLM, 2021 WL 1041801, at *2 n.3 (citing United States v. Leffler, 942 F.3d 1192, 1197-98 (10th Cir. 2019)); Home Design Servs., Inc. v. B&B Custom Homes, 509 F.Supp.2d 968, 971 (D. Colo. 2007)). Even if the court were to consider the argument, it would not alter the court's analysis here. This is a provision of the Investment Company Act's requiring board approval before a registered investment company contracts for regular investment advice. Defendants do not explain how they believe that statute applies to Janus or the Committee in their fiduciary roles for the Plan.

17 DOL, A Look at 401(k) Plan Fees, at 1-2 (2013), available at https://www.dol.gov/sites/dolgov /files/ebsa/about-ebsa/our-activities/resource-center/publications/a-look-at-401k-plan-fees.pdf, (noting that a “1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent”); SEC Investor Bulletin, How Fees and Expenses Affect Your Investment Portfolio, SEC Pub. No. 164 at 3 (2014), available at https://www.sec.gov/investor/ alerts/ibfeesexpenses.pdf (“In 20 years, the total amount paid for a 1% annual fee adds up to almost $28,000 for a $100,000 initial investment”).

Second, Plaintiffs' comparison allegations are anything but conclusory. The Amended Complaint goes on for several pages with detailed allegations of which benchmarks Plaintiffs used and includes several tables setting forth the specific comparisons against those benchmarks.

As one of Defendants' cited cases notes, Plaintiffs “cannot simply make a bare allegation that costs are too high, or returns are too low.” Davis v. Wash. Univ. in St. Louis, 960 F.3d 478, 484 (8th Cir. 2020). They must offer “a sound basis for comparison-a meaningful benchmark.” Id.

The court respectfully concludes that Plaintiffs do so here.

Plaintiffs recognize that the JH Funds are actively managed funds and that expenses are higher for such funds than those which are merely index or passively managed funds. While Plaintiffs rely in part on the average 401(k) fund expense ratios from the ICI study, they also compare the JH Funds to the “average actively managed expense ratios” that Morningstar calculated for eighteen categories of actively managed funds. See, e.g., Am. Complt. at 16-19 (several tables). In a footnote, Plaintiffs explain inter alia that the actively managed average expense ratio:

consists of the average annual report expense ratio of the least expensive share class of the twenty largest actively managed mutual funds by assets under management managed in a similar investment style to each Janus Henderson fund, as represented by the Morningstar Global Category. The least expensive share class is that which carries the lowest expense ratio for a given mutual fund and is generally reserved for larger institutional or retirement plan investors. This primarily includes institutional and R6 share classes. Janus Henderson's least expensive share class is the “N” class which, like institutional and R6 share classes, carries the lowest expense ratio of all Janus Henderson share classes, is available to investors with larger initial investments, and is not subject to front or deferred loads. Averages are calculated separately for [18 categories:] Asia ex-Japan Equity, Cautious Allocation, Europe Equity Large Cap, Fixed Income Miscellaneous, Flexible Allocation, Global Emerging Markets Equity, Global Equity Large Cap, Global Equity Mid/Small Cap, Global Fixed Income, Healthcare Sector Equity, Moderate Allocation, Multialternative, Real Estate Sector Equity, Technology Sector Equity, U.S. Equity Large Cap, U.S. Equity Mid Cap, U.S. Equity Small Cap, and U.S. Fixed Income Morningstar Global Categories.

Am. Complt. at 16-17 n.16 (emphasis added).

Plaintiffs' allegations thus plausibly show that they do not rely solely on average expense ratios for 401(k) plans that include passively managed or index funds, and they do not rely on just one, generic average expense ratio for actively managed funds. Rather, the well- pleaded facts demonstrate that Plaintiffs use separately calculated averages for eighteen categories (Morningstar Global Categories) of actively managed funds to take into account that different types of investments tend to have higher or lower expenses associated with them within the umbrella of actively managed funds. Id. n.16. These are similar to allegations that survived a motion to dismiss in, for instance, Waldner v. Natixis Inv. Managers, L.P., Civil No. 21-10273-LTS, 2021 WL 9038411, at *4 (D. Mass. Dec. 20, 2021) (noting allegations that nine proprietary funds at issue “exceeded the average expense ratio of the twenty largest actively managed mutual funds under a similar investment style”).

Thus, this case is not like the cases which Defendants cite in their motion, which appear to only involve the average 401(k) plan expense ratios from the ICI study and do not discuss the expense ratios of the Morningstar Global Categories: Riley v. Olin Corp., 4:21-cv-01328-SRC, 2022 WL 2208953, at *5 (E.D. Mo. Jun. 21, 2022); Matney, 2022 WL 1186532, at *6; Matousek v. MidAm. Energy Co., 51 F.4th 274, 282 (8th Cir. 2022) (noting the plaintiffs compared three of the funds at issue with their “peer groups,” but “the composition of the peer groups remains a mystery;” the pleading did not explain for instance “what types of funds are in each group, much less the criteria used to sort them”); and Parmer v. Land O'Lakes, Inc., 518 F.Supp.3d 1293, 1303-04 (D. Minn. 2021).

In a footnote in their motion, Defendants claim that the average actively managed expense ratio fails because Plaintiffs “cite no data [n]or explain why this is a meaningful benchmark.” Motion at 15 n.16. Defendants assert that Plaintiffs' allegation that this benchmark reflects similar investment styles as the JH Funds is conclusory. In their reply, Defendants repeat this assertion and cite Forman, 40 F.4th at 449. But Forman notes that “[i]mportant though the ‘meaningful benchmark' hurdle may be, it is at its most salient when a beneficiary challenges an investment choice in a vacuum. The plaintiff in that setting must do the work of showing that the comparator investment has sufficient parallels to prove a breach of fiduciary duty.” Id. at 451 (citing CommonSpirit, 37 F.4th 1160).

This court respectfully concludes that Plaintiffs allege meaningful benchmarks in this case. In a table spanning four pages, Plaintiffs list 45 JH Funds (in rows) with the respective ICI/BrightScope and Morningstar Categories in which Plaintiffs allege each JH Fund belongs. Am. Complt. at 16-19. Plaintiffs list the average actively managed expense ratio that Plaintiffs allege should be associated with each respective JH Fund. While Plaintiffs do not “map” the eighteen categories in the Morningstar Global Categories to the 45 JH Funds, and do not allege that the JH Funds are among the funds that comprise each Morningstar Global Category, this is not necessary to satisfy the requirements for notice pleading and plausibility. Plaintiffs point to the categories that a third-party (Morningstar) defined, and how precisely Plaintiffs mapped those to the JH Funds is a question Defendants can ask them in discovery. In short, Defendants' disagreements with Plaintiffs' comparisons and benchmarks present factual disputes (that are inappropriate to resolve on a Rule 12(b)(6) motion), but those disagreements do not mean that Plaintiffs' claim is not plausible.

Nor is it persuasive that a fiduciary is not required to select the cheapest funds, as Defendants claim. Motion at 12-13. Plaintiffs do not dispute that point in their response brief, and they do not allege that Defendants failed to select the cheapest funds. Rather, they claim that JH Funds had high fees for their relative performance compared to their benchmarks. See, e.g., Am. Complt. ¶¶ 1, 6, 44, 50, 52.

Defendants further argue that a fiduciary can choose investment options “as here, to align the economic interests of a company with its employees.” Motion at 13 (citing White v. Chevron Corp., 2017 WL 2352137, at *11 (N.D. Cal. May 31, 2017); Pendency of Proposed Rulemaking, Class Exemption Involving Mutual Fund In-House Plans Requested by the Investment Company Institute, 41 Fed.Reg. 54,080, 54081 (Dec. 10, 1976) (referred to hereafter as the “DOL Notice”); U.S. Dep't of Labor Advisory Opinion 2006-08A, 2006 WL 2990326 (Oct. 3, 2006), https://www.dol.gov/agencies/ebsa/aboutebsa/our-activities/resource-center/advisory-opinions/2006-08a.¹⁸

18 DOL Opinion No. 2006-08A notes that “[w]ithin the framework of ERISA's prudence, exclusive purpose and diversification requirements, the Department believes that plan fiduciaries have broad discretion in defining investment strategies appropriate to their plans.” Id. at *3. However, the opinion gives the DOL's views only “on whether a fiduciary of a defined benefit plan may, consistent with the requirements of section 404 of ERISA, consider the liability obligations of the plan and the risks associated with such liability obligations in determining a prudent investment strategy for the plan.” Id., 2006 WL 2990326, at *1 (emphasis added). Given this context, it appears that Defendants cite the opinion only for the broad proposition that they have wide discretion in defining investment strategies.

Even assuming that Defendants are correct in their views of these authorities, the court cannot weigh this competing goal (of aligning economic interests) against Plaintiffs' allegations that the JH Funds are imprudent due to excessive fees for their level of performance. To do so would contradict the well-pleaded fact allegations, which the court must accept as true at the Rule 12(b)(6) phase.

Moreover, Defendants' arguments challenging the allegations of underperformance likewise raise factual disputes that are beyond the purview of Rule 12(b)(6). Defendants cite Birse from this court, and several out-of-circuit cases, as finding that prudent investors can retain investments despite a period of underperformance and finding that alleged underperformance over spans of up to five years did not plausibly support that the fiduciaries were imprudent to retain those investments in a plan. But Defendants ignore that Plaintiffs in this case do not separately allege underperformance. Rather, they allege the JH Funds had excessive fees without commensurate outperformance of their respective benchmarks. The allegations of high fees and low-to-average performance combine here to make the claim plausible. See, e.g., Troudt v. Oracle Corporation, 1:16-cv-00175-REB-CBS, 2017 WL 663060, (D. Colo. Feb. 16, 2017), report and rec. adopted, 2017 WL 1100876 (D. Colo. Mar. 22, 2017) (finding claim of underperformance in conjunction with high fees survived motion to dismiss).

Defendants' cited cases, in contrast, do not discuss claims of underperformance in conjunction with the level of fees for that relative performance. See Birse, 2019 WL 1292861, at *1, 5 (plaintiffs alleged only underperformance, not that the funds in question had excessive fees without commensurate outperformance);¹⁹ White v. Chevron Corp., 16-cv-0793-PJH, 2016 WL 4502808, at *17 (N.D. Cal. Aug. 29, 2016) (dismissing a claim that fiduciaries should have removed an underperforming fund sooner because the allegations instead supported inferences that the fiduciaries had been “attentively monitoring the fund” and removed it “while it was still outperforming its benchmark on a long-term trailing basis”); Meiners v. Wells Fargo & Co., Civil No. 16-3981(DSD/FLN), 2017 WL 2303968, at *2 (D. Minn. May 25, 2017), aff'd, 898 F.3d 820 (8th Cir. 2018) (dismissing underperformance claim that compared the defendant's funds against only Vanguard funds); CommonSpirit, 37 F.4th at 1166 (dismissing claim that “mainly compare[d] the Fidelity Freedom Funds' performance to the Fidelity Freedom Index Funds” over a five year period); Dorman v. Charles Schwab Corp., 17-cv-00285-CW, 2019 WL 580785, at *6 (N.D. Cal. Feb. 8, 2019) (dismissing claims that did not allege facts to support the alleged “consistent underperformance” of the ten funds at issue and instead showed that at various times in a five year period, the funds both underperformed and outperformed their benchmarks); Patterson v. Morgan Stanley, 16-cv-6568 (RJS), 2019 WL 4934834, at *11 (S.D.N.Y. Oct. 7, 2019) (noting that “[a]lthough the Mid Cap Fund lagged behind its alleged comparators in 2011, 2012, and 2014, it outperformed all of Plaintiffs' suggested alternative investments in 2013,” and dismissing the claim because it improperly relied on hindsight).

19 Defendants also appear to rely on Birse's dismissal of underperformance claims based on the whole portfolio (the plan) performing well, but the court respectfully concludes that Hughes disapproves of this reasoning for Rule 12(b)(6) dismissals.

Defendants also point out that the two particular JH Funds that Plaintiffs use as examples to allege underperformance in greater detail outperformed their benchmarks when measured from inception. Motion at 17. One of those funds, they point out, also outperformed its benchmarks for the majority of years at issue-based on the benchmark data in the summary prospectuses that Defendants submit as Exhibits 6 to 8 to their motion. See ECF Nos. 40-6 to 408. Defendants further argue that “relative underperformance” is “insufficient to state a claim,” citing Kurtz, 511 F.Supp.3d at 1196. And Defendants also contend that the underperformance of JH Funds is simply too small to plausibly allege imprudence. Motion at 18.

This court notes that although funds' relative underperformance was not the precise issue in Hughes, Defendants are proposing the same sort of bright-line thinking for ERISA fiduciaries' duty of prudence of which Hughes disapproves. This court respectfully concludes that the ten-year performance data (Am. Complt. at 21-23) and “long-term performance” data (Id. at 24-25 n.19) that Plaintiffs allege with respect to fourteen JH Funds plausibly support their assertions that (1) the JH Funds' higher-than-average expense fees did not come with commensurate outperformance, (2) this led to significant shortfalls in the returns that participants earned on their holdings of JH Funds in the Plan (compared to what they would have earned from other actively managed funds that were not in the Plan), and (3) the JH Funds were hence imprudent to retain in the Plan.

Certainly, some of the performance shortfalls that Plaintiffs allege for JH Funds that ultimately were liquidated or merged are small. The INTECH U.S. Core Fund (one of the JH Funds managed by a subsidiary, Am. Complt. at 6 n.4), for instance, allegedly fell short of its prospectus benchmark by only 0.05%. Am. Complt. at 24. The Janus Henderson Twenty Fund similarly fell short by only 0.32%. Id. at 25. Intuitively, a difference of 0.05% or 0.32% for longterm performance does seem very small indeed. If this were all Plaintiffs alleged to support that the JH Funds' expenses were excessive for their performance (or to support that Defendants did not reasonably assess and monitor the JH Funds), the court's assessment of the plausibility question might be different. -.

However, Plaintiffs include that particular piece of data only for the sake of presenting complete performance data for the fifteen JH Funds that were liquidated or merged. Id. ¶ 59. Most of those JH Funds fell short of their benchmarks on long-term performance by far more significant intervals, with several underperforming by between 1and 6%. Id. at 25. Again, “a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.” Twombly, 550 U.S. at 556.²⁰ In short, the court recommends denying Defendants' motion to dismiss the imprudence claim.

20 Defendants also repeat their argument (addressed above) that Janus did not act as a fiduciary with respect to the continued offering of JH Funds in the Plan. The court respectfully disagrees for the same reasons the court explains above in Section II.

IV. Do the Well-Pleaded Facts Plausibly Show that Defendants Breached the Duty of Loyalty to Plaintiffs?

ERISA's duty of loyalty requires that “a fiduciary shall discharge [its] duties with respect to a plan solely in the interest of the participants and beneficiaries and- (A) for the exclusive purpose of (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan.” 29 U.S.C. § 1104(a)(1)(A). A claim for disloyalty requires alleging more than just an incidental benefit to the fiduciary; Plaintiffs must allege that self-benefit (or benefit to another person who was not the Plan) was the motivating reason for the fiduciary's action or omission. Kurtz, 511 F.Supp.2d at 1202; see also Jones v. DISH Network Corp., 22-cv-00167-CMA-STV, 2023 WL 2644081, *8 (D. Colo. Mar. 27, 2023) (citing Kurtz). A disloyalty claim also cannot simply recast allegations of imprudence. Kurtz, 511 F.Supp.2d at 1202. However, where, as here, the plaintiffs bring a single claim for disloyalty and imprudence, the court is to read all of the allegations together in deciding whether a disloyalty claim is plausible. See, e.g., Anderson, 2022 WL 951218, at *12.

Plaintiffs allege that Defendants breached their duty of loyalty in offering and continuing to offer the JH Funds in the Plan to benefit Janus. Plaintiffs allege that Defendants did so to “seed” Janus's funds. Plaintiffs further allege that Defendants continued to offer the JH Funds so that Janus could charge the Plan the excessively high fees of the JH Funds.

Defendants argue that this claim is duplicative or derivative of the imprudence claim. They argue that the Plan itself states that the purpose of requiring all JH Funds in the Plan was to align Janus' economic interests with those of its employees. Motion at 20. The Plan states that it is structured to “align the economic interests of [Janus] and its employees” by offering employees “equity in [Janus].” Id. at 2 (quoting ECF No. 40-2, Plan at 1). Defendants further argue that Janus pays the administrative costs of the Plan instead of charging those costs to the participants. ECF No. 40-2 (Plan) § 11.11. Finally, Defendants argue that none of the allegations of disloyalty plausibly suggest self-dealing, citing Kurtz, 511 F.Supp.3d at 1202; DOL Notice. ²¹

21 In their reply, Defendants also cite ERISA Prohibited Transaction Exemption 77-3, 42 Fed.Reg. 18734-35 (Apr. 8, 1977). The document provides notice that the proposal (permitting investment companies to offer their funds as options in their ERISA plan without running afoul of the statute's prohibited transactions rules) floated in the DOL Notice has taken effect. Id. at 18734. As Defendants do not cite the court to any particular provision of the April 1977 notice, the court does not further analyze the document.

Defendants thus argue that the law allows financial companies like Janus to offer their proprietary investment funds to employees, and it is common to do so. See, e.g., Wildman v. Am. Century Servs., LLC, 362 F.Supp.3d 685, 693 (W.D. Mo. 2019). So, the reasoning goes, charging the JH Funds' usual expense fees to the Plan like any other investor in those funds therefore cannot be disloyal. Defendants also note that the default investment option in the Plan--when participants do not choose investments for themselves-is non-proprietary. ECF No. 40-3 (Investment Policy Statement) at 13 (p. 15 of pdf) (Vanguard Balanced Index Fund).

As to Janus, the court finds that Plaintiffs have the better argument on the disloyalty claim. Even setting aside for the present the allegations of excessive fees for the JH Funds' relative performance (as the substance of the imprudence claim), Plaintiffs allege Janus continued to require that all of its funds be offered in the Plan to “seed” those funds for its own benefit. A sister court has found similar allegations support a plausible disloyalty claim, albeit where the plaintiffs also alleged the proprietary funds were the only investment options. Schapker v. Waddell & Reed Financial, Inc., 17-cv-2365-JAR-JPO, 2018 WL 1033277, at *9 (D. Kan. Feb. 22, 2018). Here, Plaintiffs allege that the JH Funds were the only actively managed, non-inflation protected funds available in the Plan. They further allege that no other 401(k) plan similarly limits its actively managed investment options to JH Funds. While Plaintiffs do not dispute that the Plan's default investment option was a non-proprietary index fund, this does not change their allegations that Janus mandated all of its funds be included in the Plan, and that those funds were the only actively managed, non-inflation protected options.²²

22 In addition, in Troudt, 2017 WL 663060, a judge of this court found plausible an ERISA disloyalty claim that arguably alleged even less motivation by the fiduciary to benefit a person other than the plan. Id. at *1-2 n.3, 7 (claiming fiduciary was disloyal in providing an asset-based fee to the plan's recordkeeper and failing to monitor; as the plan's assets grew, recordkeeping duties did not, and thus the arrangement benefitted only the recordkeeper).

Although Janus points to the Forms 5500 (ECF No. 40-2) to assert that, to the contrary, there were thousands of non-proprietary funds-including actively managed funds-available through the “Fidelity BrokerageLink,” these documents do not support that assertion. The Forms 5500 just disclose that the BrokerageLink investments are “participant-directed brokerage accounts,” the number of BrokerageLink shares held in the Plan, and their current value. Id., passim. ²³ They do not disclose the number of funds available to Plan participants through that service. While Defendants' assertion, if true, may be a strong argument on summary judgment, the court cannot consider it at the Rule 12(b)(6) phase. Neither side requests that the court convert the motion, and the court does not see any efficiency to be gained by doing so.

23 Defendants also point to An Advisor's Guide to Fidelity BrokerageLink, Fidelity Institutional, https://clearingcustody.fidelity.com/app/-proxy/content?-literatureURL=/967373.PDF. However, the court will not consider this document, which does not come within any of the exceptions to Rule 12(d) that the Tenth Circuit has recognized.

Nor can the court weigh at this phase the significance of either the Plan's stated purpose (to align Janus's and employees' economic interests), or Janus's decision to charge itself the administrative costs of running the Plan instead of charging them to the Plan. ECF No. 40-1, Plan § 11.11. These points present factual issues that cannot be resolved on a Rule 12(b)(6) motion, but that does not undermine the conclusion that Plaintiffs have pleaded non-conclusory facts which permit this court reasonably to infer that Janus breached a duty of loyalty to Plaintiffs.

As to the Committee, neither side's briefs specifically distinguish the disloyalty claim between Janus and the Committee. It appears that both sides consider the same arguments to apply to both the company and the advisory committee on this claim. The court therefore does likewise. Because Plaintiffs allege facts that make the disloyalty claim plausible, the court recommends denying Defendants' motion to dismiss this claim.

V. Do the Well-Pleaded Facts Plausibly Show that Defendants Janus Henderson Failed to Monitor the Committee?

Finally, Defendants' only argument on Count II for Janus's alleged failure to monitor the Committee is that the claim fails for lack of a cognizable claim for breach of fiduciary duty. As this court finds the breach of fiduciary duty claims are cognizable against both Janus and the Committee, the court recommends denying Janus's motion to dismiss Count II.

CONCLUSION

For each of the above reasons, this court RECOMMENDS granting in part and denying in part Defendants' motion to dismiss. The motion should be granted only with respect to the portion of the breach of fiduciary duty claim (Count I) against Janus for writing the JH Funds into the Plan and failing to amend the Plan thereafter to remove that requirement. This court recommends dismissing that portion of the claim with prejudice, as it is barred by the ERISA law discussed herein and leave to amend would therefore be futile. The court respectfully recommends that the motion to dismiss should otherwise be denied and that all remaining claims should proceed.²⁴

24 Rule 72 of the Federal Rules of Civil Procedure provides that within fourteen (14) days after service of a Magistrate Judge's order or recommendation, any party may serve and file written objections with the Clerk of the United States District Court for the District of Colorado. 28 U.S.C. §§ 636(b)(1)(A), (B); Fed.R.Civ.P. 72(a), (b). Failure to make any such objection will result in a waiver of the right to appeal the Magistrate Judge's order or recommendation. See Sinclair Wyo. Ref. Co. v. A & B Builders, Ltd., 989 F.3d 747, 782 (10th Cir. 2021) (firm waiver rule applies to non-dispositive orders); but see Morales-Fernandez v. INS, 418 F.3d 1116, 1119, 1122 (10th Cir. 2005) (firm waiver rule does not apply when the interests of justice require review, including when a “pro se litigant has not been informed of the time period for objecting and the consequences of failing to object”).