Today, as part of a group of law professors around the country with interests in the mutual funds and employee benefits area, I helped to draft and signed on to an amicus brief which asked for the Seventh Circuit Court of Appeals to grant rehearing en banc in the ERISA case of Hecker v. Deere & Company. The case concerns an issue of tremendous importance for American workers’ retirements: the appropriate scope of a fiduciary duty under ERISA in the context of personal savings and mutual fund fees.
In Hecker, a 7th Circuit panel affirmed the decision of the district court of the Western District of Wisconsin, which found a group of employee-plaintiffs did not state a claim for relief under ERISA when their employer, Deere, allegedly did not provide a sufficient menu of mutual fund options for their 401(k) retirement plan accounts. Although the brief argued in part that the panel inappropriately adopted a remarkably narrow interpretation of fiduciary duty that relied crucially upon an assumption that the underlying market for mutual funds is vibrant and competitive, my part of the brief involved the proper fiduciary standard for employers who run 401(k) accounts under so-called 404(c) plans.
More specifically, we argued that the panel’s decision in Hecker drastically overstated the proper scope of the § 404(c) safe harbor for fiduciaries of 401(k) plans under ERISA and thereby threatens to undermine the ability of tens of millions of Americans to save effectively for their retirements. This is because ERISA requires “care, skill, prudence, and diligence” on the part of a fiduciary to select a suitable menu of investments, not to select a small number of expensive options or to make essentially no selection at all.
And although it is true that ERISA § 404(c) eliminates fiduciary responsibilities for plan administrators to the extent participants direct how their pension fund assets are invested, it does not touch the obligation of fiduciaries to prudently select and monitor the menu of possible plan investments. Yet, the Hecker panel concluded on mere pleadings that, “even if § [404(c)] does not always shield a fiduciary from an imprudent selection of funds under every circumstance that can be imagined, it does protect a fiduciary that satisfies the criteria of § 1104(c) and includes a sufficient range of options so that the participants have control over the risk of loss.” This conclusion misstates ERISA law, as interpreted by the DOL, and insulates ERISA fiduciaries from liability for assembling an imprudent menu of investment choices for employees in the first instance. We thus urge the panel to grant en banc rehearing and deny the defendants’ motion to dismiss.