In Braden v Wal-Mart Stores, Inc, the Eighth Circuit Court of Appeals recently reversed a district court’s judgment dismissing a putative class action brought by a 401(k) plan participant who alleged that Wal-Mart, the plan’s sponsor and administrator, and various executives involved in the management of the plan breached fiduciary duties imposed by ERISA. The plan had over one million participants and nearly $10 billion in assets and included ten mutual funds in its menu of investment options. The plaintiff challenged the defendants’ process of and motivations in selecting the mutual funds for inclusion in the plan, claiming that the funds charged unjustifiably high fees and that revenue sharing payments constituted improper kickbacks to the plan’s trustee. While noting that ERISA plaintiffs usually lack the “inside information” necessary to make detailed claims prior to the commencement of discovery, the court held that the district court erred by failing to draw reasonable inferences in favor of the plaintiff and that the plaintiff had sufficiently asserted a claim for breach of fiduciary duties.
Braden departs from a Seventh Circuit decision issued in early 2009, Hecker v. Deere & Co., that dismissed similar challenges to mutual fund fees and revenue sharing practices in connection with a 401(k) plan. Differing factual circumstances underlying the selection of the respective plans’ mutual funds and the variety of funds offered were factors in the opposite outcomes. Distinguishing Hecker, the Braden Court pointed out that the 401(k) plan at issue in Hecker featured over 2,500 investment options with varying expense ratios whereas the Braden plan offered only ten and determined that the plaintiff’s claim that the plan was imprudently managed was more plausible than the allegations in Hecker in light of the plan’s limited investment options, selected despite the availability of other options.