Jennifer Sweda v. University of Pennsylvania
923 F.3d 320
3rd Cir.
2019

Background

  • Plaintiffs are current/former University of Pennsylvania employees who sued under ERISA on behalf of Plan participants challenging the University and its fiduciaries for imprudent plan management, excessive fees, and failure to remove underperforming funds in Penn’s 403(b) plan.
  • The Plan offered mutual funds (Vanguard) and TIAA‑CREF products across a four‑tier menu (Do‑it‑for‑me through self‑directed); at the end of 2014 it held about $3.8 billion with many retail‑class share options and revenue‑sharing recordkeeping arrangements.
  • Plaintiffs alleged (inter alia) that Penn: (a) paid excessive recordkeeping and investment fees (including keeping higher‑cost retail share classes when institutional classes were available); (b) failed to solicit bids or negotiate caps/rebates; and (c) retained duplicative and underperforming funds.
  • The district court dismissed all claims under Rule 12(b)(6); plaintiffs appealed. The Third Circuit reviews dismissal de novo and applies Twombly/Iqbal plausibility standards in ERISA context, mindful of ERISA’s protective purpose and fiduciary prudence standard (29 U.S.C. § 1104).
  • The Third Circuit reversed dismissal of two fiduciary‑breach counts (Counts III and V) alleging imprudent process on fees, selection, and retention, but affirmed dismissal of the lock‑in claim (Count I, time‑barred), all § 1106 prohibited‑transaction counts (II, IV, VI), and monitoring claim (VII).

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether plaintiff plausibly alleged fiduciary breach for excessive administrative recordkeeping fees and failure to leverage plan size (Count III) Penn’s fiduciary process was imprudent: Plan paid millions more than comparable plans, failed to solicit bids, monitor revenue sharing, or negotiate caps/rebates Penn acted within fiduciary discretion and used a reasonable process; Twombly/Iqbal require excluding lawful explanations Reversed as to Count III — complaint pleaded detailed circumstantial facts allowing a plausible inference of imprudence in process
Whether plaintiff plausibly alleged fiduciary breach for imprudent investment selection/retention and excessive investment fees/retail share use (Count V) Penn retained higher‑cost retail share classes and underperforming/duplicative funds despite cheaper, available alternatives, showing a faulty process Penn had broad discretion and offered a meaningful mix/range of investment options; Renfro controls and warranted dismissal Reversed as to Count V — factual comparisons and industry practices support a plausible breach claim
Whether payments via revenue sharing and service arrangements constitute prohibited transactions under § 1106(a)(1) (Counts II, IV, VI) Revenue sharing and service payments to TIAA‑CREF/Vanguard were prohibited transfers/furnishing of services benefiting parties in interest Ordinary service arrangements are lawful; plaintiffs must plead intent to benefit the service provider; services are necessary to operate plans Affirmed dismissal of II, IV, VI — plaintiff failed to plead facts showing subjective intent to benefit the parties in interest and revenue sharing did not involve plan assets
Whether the initial "lock‑in" agreement claim (Count I) was timely The lock‑in forced inclusion of certain TIAA‑CREF accounts and recordkeeper use, creating an ongoing breach Agreement predates limitations period; claim is time‑barred Affirmed dismissal of Count I as time‑barred under ERISA statute of limitations

Key Cases Cited

  • Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (antitrust plausibility pleading standard; context matters)
  • Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must contain factual content plausibly showing liability)
  • Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir. 2011) (mix and range of investment options relevant to pleading prudence; dismissal affirmed there)
  • Tibble v. Edison Int'l, 135 S. Ct. 1823 (2015) (ERISA fiduciaries must monitor investments and consider fees; fees can significantly reduce account value)
  • Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014) (ERISA balances participant protection with encouragement of plan creation; prudence standard applies)
  • Lockheed Corp. v. Spink, 517 U.S. 882 (1996) (statutory interpretation of §1106(a)(1) must avoid absurd results; not every plan payment is a prohibited transaction)
  • Reich v. Compton, 57 F.3d 270 (3d Cir. 1995) (§1106(a)(1)(D) requires that fiduciary know or should know of transfer/use of plan assets for benefit of party in interest)
  • Tussey v. ABB, Inc., 746 F.3d 327 (8th Cir. 2014) (fiduciary breach plausibly pleaded where plan failed to calculate revenue‑sharing payments, test competitiveness, or leverage plan size)
  • Allen v. GreatBanc Trust Co., 835 F.3d 670 (7th Cir. 2016) (advances a per se approach to §1106 but viewed skeptically by this court)
  • Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009) (pleading standard discussion; breadth of menu relevant to prudence analysis)
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