Rick Pearl, John W. Fogarty, Author at Spotlight on Benefits

Eleventh Circuit Holds That Burden of Proof of Loss Causation is on Plaintiffs in ERISA Actions

In an August 2, 2024, decision in Pizarro v. The Home Depot, Inc., No. 22-13643 (11th Cir. Aug. 2, 2024), the Eleventh Circuit reaffirmed its position — and the position of the majority of federal circuit courts to address the issue — on the burden of proving loss causation for purposes of an ERISA claim for fiduciary breach. Loss causation is an element of a plaintiff’s claim for damages because of a breach of fiduciary duty, and the plaintiff bears the burden of proving causation of loss.

Pizarro involves claims by a putative class of Home Depot employees (Plaintiffs) who participated in Home Depot’s 401(k) plan. Plaintiffs alleged that the plan had excessive fees and imprudent investment options, but the United States District Court for the Northern District of Georgia granted summary judgment in Home Depot’s favor because Plaintiffs could not prove that they suffered any losses caused by a fiduciary’s alleged breach. To make such a showing, Plaintiffs would have to prove that a hypothetical “prudent” fiduciary would have not made the same choices that the defendants made. The District Court held that Home Depot’s investment decisions were “objectively prudent,” whether or not those decisions resulted from the right process, and thus Plaintiffs could not prove damages.

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IRS Proposed Regulations for Plan Forfeitures

Today, employees are more likely than ever to seek new employment opportunities and change jobs. These employees may leave a company before becoming fully vested in their qualified retirement plan benefits – which may result in forfeiture of their unvested benefits. What is a retirement plan sponsor supposed to do with the forfeited amount? More importantly, what is the plan sponsor allowed to do with these forfeited amounts? This is an important question, as the use of forfeitures can raise compliance questions under both ERISA and the Internal Revenue Code requirements for qualified retirement plans.

For defined contribution retirement plans, such as 401(k) plans, the IRS has typically allowed plan sponsors to apply forfeitures to offset administrative expenses or reduce employer contributions. In proposed regulations, issued in February 2023, the IRS reiterates this position, indicating that defined contribution plan forfeitures may be used to offset plan administrative expenses or reduce employer contributions, or may be reallocated to participants pursuant to a nondiscriminatory formula.

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Plan Fiduciaries Continue to Defeat BlackRock Target Date Fund Class Actions

A series of cases against fiduciaries of 401(k) plans that offer BlackRock Target Date Funds (TDFs) have been dismissed by district courts in recent months. In three recent cases, the district courts held that plaintiffs failed to allege any facts about the plan fiduciaries’ process for selecting and monitoring the BlackRock TDFs and that plaintiffs’ reliance on the BlackRock TDFs’ alleged underperformance alone was insufficient to state a claim for breach of fiduciary duty.

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