CASEY CUNNINGHAM, CHARLES E. LANCE, STANLEY T. MARCUS, LYDIA PETTIS, AND JOY VERONNEAU, individually and as representatives of a class of participants and beneficiaries on behalf of the Cornell University Retirement Plan for the Employees of the Endowed Colleges at Ithaca and the Cornell University Tax Deferred Annuity Plan v. CORNELL UNIVERSITY, THE RETIREMENT PLAN OVERSIGHT COMMITTEE, MARY G. OPPERMAN, AND CAPFINANCIAL PARTNERS, LLC D/B/A CAPTRUST FINANCIAL ADVISORS
Nos. 21-88-cv; 21-96-cv; 21-114-cv
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
November 14, 2023
August Term 2022 (Argued: October 19, 2022)
Plaintiffs-Appellants-Cross-Appellees,
-v.-
Defendants-Appellees-Cross-Appellants.*
Before: LIVINGSTON, Chief Judge, and KEARSE and PARK, Circuit Judges.
Defendants-appellees conditionally cross-appeal, in the event that the judgment is not affirmed, to challenge the district court‘s ruling that plaintiffs were entitled to a jury trial rather than a bench trial. As the judgment is affirmed, we dismiss the cross-appeals as moot.
FOR PLAINTIFFS-APPELLANTS-CROSS-APPELLEES: SEAN E. SOYARS (Jerome J. Schlichter, Heather Lea, and Joel D. Rohlf, on the brief), Schlichter Bogard & Denton LLP, St. Louis, MO.
FOR DEFENDANTS-APPELLEES-CROSS-APPELLANTS: MICHAEL A. SCODRO (Nancy G. Ross, Samuel P. Myler, and Jed W. Glickstein, on the brief), Mayer Brown LLP, Chicago, IL; Michelle N. Webster, on the brief, Mayer Brown LLP, Washington, DC, for Cornell University, The Retirement Plan Oversight Committee, and Mary G. Opperman.
CAROLINE A. WONG (Eric S. Mattson,
Jaime A. Santos and William M. Jay, Goodwin Procter LLP, Washington, DC; James O. Fleckner and Alison V. Douglass, Goodwin Procter LLP, Boston, MA; Stephanie A. Maloney, U.S. Chamber Litigation Center, Washington, DC, for Chamber of Commerce of the United States of America and American Benefits Council, amici curiae in support of Defendants-Appellees-Cross-Appellants.
DEBRA ANN LIVINGSTON, Chief Judge:
This case is one of a number of similar actions filed in federal courts across the country alleging that university pension plans, known as “403(b) plans,” have been improperly managed in violation of the Employee Retirement Income Security Act of 1974 (“ERISA“), as amended,
Plaintiffs challenge the district court‘s award of summary judgment on two counts alleging that Defendants breached their duty of prudence. In addition, Plaintiffs argue that the district court erred in dismissing one of their prohibited transactions claims for failure to state a claim and in parsing one of their claims for a breach of the duty of prudence at the motion-to-dismiss stage. Should the case be remanded to the district court, Plaintiffs also argue that the end date of the class period should be vacated. Defendants conditionally cross-appeal, in the event that the judgment is not affirmed, from the district court‘s denial of their motion to strike the jury demand.
We conclude that the district court correctly dismissed Plaintiffs’ prohibited transactions claim and certain duty-of-prudence allegations for failure to state a claim and did not err in granting partial summary judgment to Defendants on the remaining duty-of-prudence claims. In so doing, we hold as a matter of first impression that to state a claim for a prohibited transaction pursuant
I. Factual Background
Plaintiffs represent a class of current and former Cornell employees who participated in Cornell‘s two retirement plans, the Retirement Plan and the TDA Plan, from August 17, 2010 to August 17, 2016 (the “class period“). As of 2016, the Retirement Plan had over 19,000 participants and nearly $2 billion in net assets and the TDA Plan had over 11,000 participants and $1.34 billion in net assets. Both Plans are defined-contribution savings plans that are tax-deferred under
A. Administration of the Plans
Cornell University is the named administrator for the Plans. Cornell delegated administrative responsibilities to Mary G. Opperman, Cornell University‘s Vice President for Human Resources, who in turn delegated certain responsibilities to Paul Bursic, Senior Director of Benefits Services and Administration (the “Benefits Department“), and employees under his direction. Opperman chaired the Retirement Plan Oversight Committee (“RPOC,” and, together with Opperman and Cornell, the “Cornell Defendants“). The RPOC was established in 2010, in response to Internal Revenue Service regulations, to oversee the Plans. In 2011, the RPOC issued a Request for Proposal for a third-party consultant to assist the RPOC with selecting investment options and recordkeeping. After reviewing bids, the RPOC selected CapFinancial Partners, LLC Financial Advisors (“CAPTRUST“) as the Plans’ investment advisor and plan administration consultant. As part of its agreement with Cornell, CAPTRUST agreed to serve as a fiduciary under ERISA with regard to the selection of mutual funds available to the Plans.
B. Recordkeeping Fees and Investment Options
In any defined-contribution plan, participants incur certain fees and expenses. Two kinds of fees are at issue in this case: investment management fees and recordkeeping fees. Investment management fees are charged by the investment providers and are associated with the services of buying, selling, and managing investments. Investment fees are typically expressed as an “expense ratio,” that is, a percentage of the assets under management. For mutual funds, some providers offer different share classes of the same fund: a “retail” share class available to all investors at one expense ratio and “institutional” share classes with lower expense ratios available only to investors that satisfy certain minimum investment amounts—typically institutional investors.
Recordkeeping fees cover necessary administrative expenses such as tracking account balances and providing regular account statements. Recordkeeping fees are charged either as a flat fee, with each fund participant paying a set amount, or by
The Plans offered approximately 300 investment options throughout the class period, including fixed annuities (in which the investment returns a contractually specified minimum interest rate), variable annuities (in which the investment returns a variable interest rate), and mutual funds.
II. Procedural History
Plaintiffs filed their Corrected Amended Complaint (the “Complaint“) on February 24, 2017, and named as defendants Cornell, the RPOC, Opperman, and CAPTRUST. The Complaint alleged that Defendants violated their fiduciary duties under ERISA by failing to monitor and control the recordkeeping fees paid to TIAA and Fidelity, by failing to review the fees and performances associated with the Plans’ investment options, and by entering into certain prohibited transactions.
A. The Alleged ERISA Violations
ERISA imposes various duties on fiduciaries, two of which are relevant here. The first is the duty of loyalty, which requires that the fiduciary act “solely in the interest of the participants and beneficiaries ... for the exclusive purpose of ... providing benefits to participants and their beneficiaries[] and ... defraying reasonable expenses of administering the plan.”
Another section of ERISA,
The Complaint alleged that Cornell and its appointed fiduciaries violated their duties of prudence and loyalty under ERISA by: (1) offering certain products—namely, the CREF Stock Account and Money Market Account, as well as the TIAA Traditional Annuity (“Count I“); (2) failing to monitor and control recordkeeping fees (“Count III“); and (3) failing to monitor and offer appropriate investment options (“Count V“). Plaintiffs also brought prohibited transactions claims on each of
As noted by the district court, Count V spans a number of allegations that Defendants breached their fiduciary duty, specifically that they breached by:
- continuing to offer the CREF Stock Account and TIAA Real Estate Account despite their high fees and poor performance;
- selecting and retaining investment options, including actively managed funds, with high fees and poor performance relative to other investment options that were readily available to the Plans;
- selecting and retaining high-cost retail [class shares of] mutual funds instead of materially identical lower[-]cost institutional mutual funds [(i.e., the “share-class claim“)];
- selecting and retaining investment options with unnecessary layers of fees;
- failing to consolidate the Plans’ investment options into a “core lineup,” depriving the Plans of their ability to qualify for lower cost share classes of certain investments and causing confusion among plan participants; [and]
- failing to monitor any of the Plans’ options until October 1, 2014, and monitoring only “core” investment options after that date.
Cunningham v. Cornell Univ., No. 16-CV-6525 (PKC), 2017 WL 4358769, at *6 (S.D.N.Y. Sept. 29, 2017).3
B. Defendants’ Motion to Dismiss
On September 29, 2017, the district court granted Defendants’ motion to dismiss in part as to several claims, but it held that Plaintiffs plausibly alleged that Defendants failed to monitor recordkeeping fees and underperforming funds. The court dismissed the duty of loyalty claims in Counts I, III, and V, as well as the duty of prudence claim in Count I. The court also dismissed the prohibited transactions claims in Counts II, IV, and VI. In addition, the court dismissed Count III as to CAPTRUST. Within Count V, the district court found that certain allegations encompassed by the count (allegations 4, 5, and 6, as identified above) failed plausibly to allege a breach of the duty of prudence and accordingly dismissed them. This left within Count V only the claim premised on the retention of certain investments (allegations 1 and 2) and the share-class claim (allegation 3).
Thus, at that stage, the surviving claims were the duty of prudence claim in Count III as to the Cornell Defendants, the duty of prudence claim in Count V as to both the Cornell Defendants and CAPTRUST, and the duty to monitor claim in Count VII as to Cornell and Opperman. With regard to Count VII, the district court noted, however, that “the duty to monitor claim is only as broad as the surviving prudence claims and is otherwise dismissed.” S.A. 77.
C. Defendants’ Motion for Summary Judgment
On September 27, 2019, the district court granted summary judgment for Defendants on nearly all the remaining claims. On the duty of prudence claim in
On the duty of prudence claim in Count V, the district court awarded summary judgment to the Cornell Defendants and CAPTRUST for the retention-of-certain-investments claim. The court also awarded summary judgment to CAPTRUST on the share-class claim in its entirety and to Cornell on the share-class claim with the exception of Plaintiffs’ claim that Cornell breached the duty of prudence by failing to swap out the retail TIAA-CREF Lifecycle target date funds for their identical institutional share-class funds. By awarding summary judgment to Defendants on most of Counts III and V, the district court also disposed of what remained of Count VII, which the district court had deemed to be derivative of the other claims. Thus, following the district court‘s summary judgment decision, all that remained was the duty of prudence claim against Cornell relating to the failure to adopt a lower-cost share class of the TIAA-CREF Lifecycle target date funds.
On December 22, 2020, the district court approved the parties’ settlement of that remaining portion of the case. This appeal followed.
DISCUSSION
On appeal, Plaintiffs contend that the district court erred in granting in part both Defendants’ motion to dismiss and Defendants’ motion for summary judgment. Regarding the dismissed claims, Plaintiffs argue that Count IV of the Complaint stated a plausible claim that Cornell4 caused the Plans to enter into prohibited transactions involving the Plans’ recordkeepers, and that the district court erred in dismissing portions of Count V.5 In addition, Plaintiffs challenge the district court‘s grant of summary judgment to Defendants on Counts III and V. In particular, as to Count III, Plaintiffs argue that the district court erred in holding that Plaintiffs had the burden of proving loss resulting from the alleged fiduciary breach. We first address the dismissed claims, and then turn to the district court‘s grant of partial summary judgment.
I. Dismissed Claims
We review a district court‘s grant of a motion to dismiss under
Plaintiffs contend on appeal that the district court erred in dismissing their prohibited transactions claim for failure to
A. Dismissal of Prohibited Transactions Claim (Count IV)
Plaintiffs challenge the district court‘s dismissal of their allegation, in Count IV, that Cornell violated
Plaintiffs’ claim is premised on this supplementary provision,
Except as provided in section 1108 of this title:
(1) A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect—
(A) sale or exchange, or leasing, of any property between the plan and a party in interest;
(B) lending of money or other extension of credit between the plan and a party in interest;
(C) furnishing of goods, services, or facilities between the plan and a party in interest;
(D) transfer to, or use by or for the benefit of a party in interest, of any assets of the plan; or
(E) acquisition, on behalf of the plan, of any employer security or employer real property in violation of section 1107(a) of this title.
Section 1108, which, as reflected above, is expressly referenced in the text of
Reading
Two circuits, on the other hand, have embraced the expansive reading of the statute that these other circuits have rejected as absurd. See Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 601 (8th Cir. 2009); Bugielski v. AT&T Servs., Inc., No. 21-56196, 2023 WL 4986499, at *9–10 (9th Cir. Aug. 4, 2023). In Braden, the Eighth Circuit held that the plaintiffs had stated a claim under
Following reasoning similar to that embraced by the Third, Tenth, and Seventh Circuits, the district court here declined to read
disloyal conduct.” Cunningham, 2017 WL 4358769, at *10 (internal quotation marks omitted). Holding that Plaintiffs’ Complaint failed to make such allegations adequately, the district court dismissed the prohibited transaction claims, including Count IV. On appeal, Plaintiffs urge this Court to reject the district court‘s interpretation of the statute and instead adopt the Eighth and Ninth Circuits’ more expansive reading.7
Our reading flows directly from the text and structure of the statute. The text of
This difference is significant in light of the “familiar principle[s]” that guide our interpretation of statutory text. Meacham v. Knolls Atomic Power Lab‘y, 554 U.S. 84, 91 (2008). Typically, when a statute is drafted “with exemptions laid out apart from the prohibitions,” the exemptions are understood to serve as defenses that must be raised affirmatively by the defendant. Id. However, that presumption does not apply when the exemptions are incorporated directly into the text of the relevant provision. See United States v. Vuitch, 402 U.S. 62, 70 (1971) (“[W]hen an exception is incorporated in the enacting clause of a statute, the burden is on the prosecution to plead and prove that the defendant is not within the exception.“); see also Roth v. CitiMortgage Inc., 756 F.3d 178, 183 (2d Cir. 2014) (holding that a plaintiff alleging a violation of the Fair Debt Collection Practices Act must plead that an exception to the definition of a debt collector does not apply). Thus, the fact that Congress drafted
Further support for this view arises from the role the exceptions play in articulating the nature of the prohibited conduct. Typically, when “a statutory prohibition
In our view, this is such a statute. Section
The broad scope of
Put simply, when read on its own,
In reaching this decision, we leave undisturbed our prior decisions holding that it is ultimately the defendant fiduciary that bears the burden of persuasion with regard to the applicability of the
As we explained in Lowen, when construing ERISA‘s provisions, we look to “common law rules regarding trustees” for guidance, and, under such rules, it is typically the fiduciary—with better access to “information concerning the transaction in question” and thus “in the best position to demonstrate the absence of self-dealing“—who ultimately bears the burden of proving the fairness of the transaction. 829 F.2d at 1215; see also Marshall v. Snyder, 572 F.2d 894, 900 (2d Cir. 1978) (“The settled law is that in such situations the burden of proof is always on the party to the self-dealing transaction to justify its fairness.“). But, “[i]n the law of trusts,” before the burden shifts to the defendant, it falls on the “beneficiaries [to] establish[]
Turning to the allegations of Count IV, Plaintiffs allege simply that “[b]ecause TIAA and Fidelity are service providers and hence ‘part[ies] in interest,’ their ‘furnishing of’ recordkeeping and administrative services to the Plans is a prohibited transaction unless Cornell proves an exemption.” Appellants’ Br. at 61 (quoting
Our conclusion is unchanged when we look—as Plaintiffs ask us to do in the alternative—beyond the allegations of Count IV and to those of Count III, which asserts a claim that Cornell breached the duty of prudence by allowing the Plans to pay unreasonable administrative fees. While Plaintiffs have alleged several forms of procedural deficiencies with regard to recordkeeping, their complaint does not plausibly allege that the compensation was itself unreasonable. For example, Plaintiffs claim that Cornell failed to seek bids from other recordkeepers and neglected to monitor the amount of revenue sharing received by TIAA-CREF and Fidelity. Such process-oriented allegations may well be sufficient to state claim for a breach of the duty of prudence, as the district court here found, but they cannot sustain a claim pursuant to
Closer, yet still insufficient, are Plaintiffs’ allegations that the Plans paid substantially more than what the Complaint identified as a “reasonable recordkeeping fee.” A. 111. According to the Complaint, “a reasonable recordkeeping fee for the Plans would have been $1,050,000 in the aggregate for both Plans combined,” calculated using “a flat fee based on $35 per participant.” Id. The Plans allegedly paid many times more than that: Plaintiffs alleged that “the Retirement Plan paid between $2.9 and $3.4 million (or approximately $115 to $183 per participant) per year from 2010 to 2014” and “the TDA Plan paid between $1.8 and $2.2 million (or approximately $145 to $200 per participant) per year from 2010 to 2014.” A. 111–12. But it is not enough to allege that the fees were higher than some theoretical alternative service. Whether fees are excessive or not is relative “to the services rendered,” Jones, 559 U.S. at 346, and it is not unreasonable to pay more for superior services. Yet, here, Plaintiffs have failed to allege any facts going to the relative quality of the recordkeeping services provided, let alone facts that would suggest the fees were “so disproportionately large” that they “could not have been the product of arm‘s-length
B. “Parsing” of Count V
Plaintiffs also argue that the district court improperly parsed Count V at the motion-to-dismiss stage by separately addressing each of the six categories of allegations made in connection with the count and holding that only two—those relating to the retention of certain high-cost investment options and those relating to the share-class claim—succeeded in stating claims, while dismissing the others. When a “complaint relies on circumstantial factual allegations to show a breach of fiduciary duties under ERISA,” the question on a motion to dismiss is whether those particular allegations “give rise to a ‘reasonable inference’ that the defendant committed the alleged misconduct.” PBGC, 712 F.3d at 718–19 (quoting Iqbal, 556 U.S. at 678) (emphasis omitted). This evaluation “requires assessing ‘the allegations of the complaint as a whole‘” and drawing all “reasonable inference[s]” in the plaintiff‘s favor. Id. at 719 (quoting Matrixx Initiatives Inc. v. Siracusano, 563 U.S. 27, 47 (2011)). Where, as here, a plaintiff‘s claim of breach depends on a fiduciary‘s process in managing a plan, a court may appropriately find that the allegations “considered as a whole” state a claim for relief even if no single allegation “directly addresses the process.” Braden, 588 F.3d at 596.
But the imperative that a court consider the complaint “as a whole” does not mean that in all cases the entirety of any particular count must stand or fall as one. Far from it. Under the
In challenging the district court‘s evaluation, Plaintiffs misunderstand the limited nature of the district court‘s dismissal order. Central to Plaintiffs’ contention of error is their argument that by dismissing the allegations relating to Cornell‘s alleged failure to streamline the investment menus and to engage in adequate monitoring (the fifth and sixth categories of allegations in Count V, respectively), the district court precluded consideration of relevant pieces of “circumstantial evidence supporting the overall claim in Count V that Defendants had a flawed investment-review process.” Appellants’ Br. at 23. But that is not what the district court did. The district court‘s summary judgment decision, as well as its
Significantly, the district court did not preclude Plaintiffs from relying on evidence related to those alleged procedural errors to support its theory of breach and loss premised on the retention of imprudent investment options. To the contrary, in ruling on summary judgment, the district court extensively discussed the evidence of Defendants’ putative deficiencies in monitoring the Plans’ options and their retention of numerous investment options in addressing whether Defendants had acted imprudently in not removing various underperforming funds. Cunningham, 2019 WL 4735876, at *11–16. In this context, it is clear that the district court‘s decision on the motion to dismiss was not an improper “parsing” of Count V, but rather a refining of it so as to identify clearly the theories upon which Plaintiffs had stated a claim. We accordingly find no merit in Plaintiffs’ objections to the district court‘s evaluation of Count V at the motion-to-dismiss stage.
II. Grant of Summary Judgment
“We review a grant of summary judgment de novo and may affirm on any basis that finds support in the record.” Tolbert v. Smith, 790 F.3d 427, 434 (2d Cir. 2015) (internal citations omitted). Summary judgment is appropriate “only when no genuine issue of material fact exists and the movant is entitled to judgment as a matter of law.” Riegel v. Medtronic, Inc., 451 F.3d 104, 108 (2d Cir. 2006), aff‘d, 552 U.S. 312 (2008); see also
Plaintiffs contend on appeal that the district court erred in granting summary judgment to Defendants on the duty of prudence claim in Count III, premised on recordkeeping fees, and those duty of prudence claims in Count V that survived the motion to dismiss, premised on the retention of underperforming investment options and on the failure to transition to lower-cost institutional shares.11 We address each of Plaintiffs’ claims in turn.
Plaintiffs argue that the district court erred in awarding summary judgment to the Cornell Defendants on Plaintiffs’ claim that they breached their duty of prudence by failing to monitor and control the recordkeeping fees paid to TIAA and Fidelity. In particular, Plaintiffs argue that the Cornell Defendants acted imprudently by failing (1) to determine whether the amount of revenue sharing with the recordkeepers was competitive or reasonable; (2) to solicit bids from competing recordkeepers on a flat fee or per participant basis; and (3) to engage in a reasoned decision-making process to determine whether the Plans should move to a single recordkeeper. The district court concluded that genuine issues of material fact remained with respect to whether the Cornell Defendants breached the duty of prudence, but nevertheless granted summary judgment in favor of the Cornell Defendants because Plaintiffs failed to establish that any breach resulted in loss. Cunningham, 2019 WL 4735876, at *5–7. Because we agree that Plaintiffs failed to meet their burden as to loss, we affirm.12
To obtain damages for a fiduciary breach pursuant to
At the summary judgment stage, Plaintiffs sought to establish loss primarily through the testimony of two putative experts on the subject of the market for contribution plan recordkeeping, Al Otto and Ty Minnich. Both declared that, in their “experience,” a reasonable recordkeeping rate for the Plans would have been $35 to $40 per participant. Cunningham, 2019 WL 4735876, at *9–10. But neither offered any cognizable methodology in support of their conclusions, instead simply referencing their knowledge of the relevant industry and a few examples of other university plans that paid lower fees, though without explaining how
these putative comparators were selected. Given these deficiencies, the district court did not abuse its discretion in excluding Otto‘s and Minnich‘s testimony on the recordkeeping fees. See In re Pfizer Inc. Sec. Litig., 819 F.3d 642, 665 (2d Cir. 2016) (“If the opinion is based on data, a methodology, or studies that are simply inadequate to support the conclusions reached, Daubert [v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993)] and
After the exclusion of Plaintiffs’ expert testimony, what remains are numerical data from TIAA and CAPTRUST—scattered numbers of plan participants, assets, and recordkeeping fees for certain plans—which are insufficient standing alone to show loss. In particular, Plaintiffs cite (1) TIAA‘s pricing data showing the Plans paid fees higher than the 25th percentile of TIAA‘s “200 largest clients,” A. 2167, 2301–02, and (2) CAPTRUST‘s data identifying a handful of plans with over 10,000 participants that paid lower recordkeeping fees than the Plans based on certain measures, A. 2303, 2496. But a district court is not required to “scour the record” to find losses. CILP Assocs., L.P. v. PriceWaterhouse Coopers LLP, 735 F.3d 114, 125 (2d Cir. 2013) (internal quotation marks omitted).
And, as the district court explained, absent admissible “expert testimony opining on why [these data are] based upon relevant comparators or would lead a reasonable juror to conclude that Cornell could have achieved lower fees,” Cunningham, 2019 WL 4735876, at *6, such data are not enough, on their own, to establish a “prudent alternative” fee, Sacerdote, 9 F.4th at 113, or otherwise prove loss.
Accordingly, having concluded that Plaintiffs’ evidence was insufficient to demonstrate a genuine dispute of material fact as to whether the Plans suffered loss, we affirm the award of summary judgment to the Cornell Defendants on Count III.14
Next, Plaintiffs challenge the district court‘s grant of summary judgment to Defendants on the claim, found in Count V, that Cornell and CAPTRUST employed a flawed process in reviewing the set of investment options made available through the Plans and, as a result, failed to remove underperforming options. Plaintiffs’ theory of liability separates the class period into two parts, with the dividing line being July 2013, when CAPTRUST presented the RPOC with a quantitative assessment of the Plans’ investment options.
As to the pre-July 2013 period, Plaintiffs argue that Cornell lacked a sufficient process for reviewing the performance of the investment options, instead relying on the “opinions of conflicted non-fiduciary third parties (TIAA and Fidelity) as to whether their proprietary investments complied with ERISA.” Appellants’ Br. at 33. As to the post-July 2013 period, Plaintiffs largely take issue with what they characterize as a five-year delay on the part of the RPOC to act on CAPTRUST‘s identification of underperforming funds. They also argue that CAPTRUST breached its duties by “fail[ing] to review the Plans’ investments for the first 19 months of its tenure” and then conducting a review that “was of generally lower quality than its work for other clients.” Id. at 34–35. Because we conclude that a review of the record fails to reveal sufficient evidence for a rational trier of fact to find in Plaintiffs’ favor on any of these theories, we affirm the district court‘s grant of summary judgment to Defendants on this claim.
To establish a breach of the duty of prudence, a plaintiff must, as discussed above, show that the fiduciary‘s conduct fell below the “[p]rudent man standard of care.”
That said, “[b]ecause the content of the duty of prudence turns on ‘the circumstances . . . prevailing’ at the time the fiduciary acts, the appropriate inquiry will necessarily be context specific.” Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 425 (2014) (quoting
Given this context-sensitive inquiry, we conclude that no reasonable trier of fact could determine that Cornell‘s process was flawed such that Cornell violated its duty of prudence. Turning first to the pre-July 2013 period, Plaintiffs have failed to put forward any evidence suggesting that Cornell‘s process for evaluating the performance of its investment line-up fell below the then-prevailing fiduciary standard. While Cornell‘s oversight did improve with time, it had processes to review the Plan‘s investment options at all points during the class period. As Paul Bursic, the Senior Director of the Benefits Department, testified, Cornell‘s Benefits Department regularly “received and reviewed detailed performance and investment disclosures for all the plans’ investment options“—prior to the RPOC‘s formation—which were prepared by TIAA and Fidelity and included “performance benchmarking information.” D.J.A. 283. In addition to distributing these disclosures to plan participants, id., the Benefits Department used them to identify “potential problems,” such as “funds that may be in trouble,” D.J.A. 194. Though Bursic acknowledged that this level of monitoring may fall below the expectations for plan fiduciaries today, he testified that it was consistent with then-prevailing standards, see D.J.A. 193—a point that Plaintiffs’ evidence does not refute.15
After the Internal Revenue Service updated its regulations on 403(b) plans, Cornell formed the RPOC for the purpose of enhancing oversight of the plans. Cornell then engaged CAPTRUST as an outside consultant and launched a multi-year process focused on redesigning and streamlining the investment menu. The process, unsurprisingly, took time to implement. Initially, there was a “set-up period” during which Cornell “continued to do [its] work as [it] had for years before through the Benefits [Department],” while also developing an Investment Policy Statement (“IPS“) with CAPTRUST to guide the evaluation of investment options going forward. A. 1007, 1056–60. Once the IPS was approved in late 2012, Cornell initiated a much more systematized and in-depth review of the investment options, beginning in earnest with CAPTRUST‘s presentation of its performance analysis in July 2013.
In this context, Cornell considered not only CAPTRUST‘s bottom-line recommendations, but also the quantitative and qualitative criteria described in the IPS, the availability of options among peer institutions, and the popularity of options among plan participants in developing a revised menu of investment options. With regard to the post-July 2013 period, Plaintiffs accuse Cornell of merely “passively accept[ing]” CAPTRUST‘s proposal without engaging more deeply in the monitoring process. Appellants’ Br. at 37. But, as the district court explained, such an accusation is inconsistent with the record. The undisputed evidence shows that the RPOC engaged critically with CAPTRUST‘s presentation, asking questions and, at times, expressing concerns about CAPTRUST‘s methodologies for evaluating particular investments.
Cornell‘s review of the Plans ultimately led to the rollout of a new investment
Though Plaintiffs dismiss these concerns as “nonpecuniary goals” that an ERISA fiduciary should not be permitted to rely on, Appellants’ Reply Br. at 24, we disagree. “An ERISA defined[-]contribution plan is designed to offer participants meaningful choices about how to invest their retirement savings.” Renfro v. Unisys Corp., 671 F.3d 314, 327 (3d Cir. 2011). Accordingly, in the context of a defined-contribution plan, one “component of the duty of prudence” is “a fiduciary‘s obligation to assemble a diverse menu of options” for participants. Hughes, 142 S. Ct. at 741–42. It is thus consistent with the fiduciary‘s duty to take steps to ensure that participants’ ability to make selections among “a broad range of investment alternatives,”
We also conclude that no reasonable jury could find that CAPTRUST was imprudent in its conduct. Plaintiffs’ allegations of delayed and deficient performance do not find support in the record. As discussed above, upon retention, CAPTRUST began working with Cornell to develop its process for reviewing investment-option performance, helping to create and then effectuate the IPS. Plaintiffs offer no evidence that it carried out these tasks in a subpar way, instead merely pointing out differences in the amount of detail between CAPTRUST‘s July 2013 presentation and an analysis provided to a different university. But Plaintiffs offer no reason to assign to this difference the significance they suggest. Accordingly, we affirm the district court‘s award of summary judgment to Defendants on this claim.
C. Share Class Claim (Count V)
Finally, Plaintiffs argue that the district court erred in awarding partial summary judgment to the Cornell Defendants on the share-class claim. With regard to this claim, the district court concluded that issues of material fact precluded summary judgment as to whether Cornell violated its fiduciary duty by failing to swap out the higher-cost retail shares offered through the Plans for lower-cost, but otherwise identical, institutional shares. Nevertheless, the district court held that for all the funds other than one in particular—the TIAA-CREF Lifecycle fund—Plaintiffs had not come forward with evidence that the funds in question met the eligibility threshold for the lower-cost share classes, thus precluding any finding of loss attributable to Cornell‘s purported deficiencies. Accordingly, the court granted summary judgment to the Cornell Defendants except with regard to the Lifecycle fund. On appeal, Plaintiffs challenge the district court‘s conclusions regarding loss. In opposition, Cornell Defendants, in addition to defending the district court‘s loss holding, urge us to affirm on the alternative ground that Plaintiffs’ evidence was insufficient to create a genuine issue as to whether Cornell acted imprudently. Because we
In its summary judgment decision, the district court explained that Plaintiffs had presented evidence that, although TIAA began offering identical institutional share classes for its mutual funds to certain defined contribution plans in 2009, Cornell did not transition any of its funds to institutional shares with TIAA until early 2012. The district court held that this was sufficient evidence of imprudence, relying on its determination that “[t]here is no evidence in the form of affidavits or otherwise that anyone at Cornell attempted to transition to the institutional share class funds before February 22, 2012.” Cunningham, 2019 WL 4735876, at *17. But this analysis overlooked that Cornell did, in fact, present evidence that it had tried to effectuate such a transition but was rebuffed.
Specifically, according to his deposition testimony, prior to 2011, Bursic had “lobbied the president of TIAA” on numerous occasions to allow Cornell‘s Plans to transition to institutional shares, arguing that it was not appropriate for large plans like Cornell‘s to be paying the same fees as the much less sizable plans associated with small liberal arts colleges like nearby Ithaca College. D.J.A. 189. Bursic testified that although TIAA “very clearly and very firmly” denied the requests, he continued to “tr[y] very hard” to push for this change, even as Fidelity began to permit Cornell to transition to lower-cost share classes in 2010. D.J.A. 130, 136, 189–90. These efforts remained unsuccessful until 2012, when CAPTRUST became involved and helped Cornell negotiate a new contract with TIAA that capped the total revenue TIAA could collect from the Plans and had TIAA refund excess revenue to the Plans.16
Given this evidence, a reasonable finder of fact could not conclude that Cornell could have forced, or should have tried harder to force, TIAA to offer the Plans the lower-cost share funds at an earlier date. Accordingly, we affirm the grant of summary judgment for Defendants on this claim.
CONCLUSION
We have considered all of Plaintiffs’ contentions on appeal and have found in them no basis for reversal. For the foregoing reasons, we AFFIRM the judgment of the district court.17 Defendants’ conditional cross-appeals are dismissed as moot.