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Wildman v. American Century Services, LLC

United States District Court, W.D. Missouri, Western Division

May 22, 2018

STEVE WILDMAN, et al., Plaintiffs,



         This case involves claims for breach of fiduciary duty and prohibited transactions pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. Plaintiffs Steve Wildman (“Wildman”) and Jon Borcherding (“Borcherding”), participants in the American Century Retirement Plan (the “Plan”) established by American Century Investment Management, Inc. (“ACIM”), bring this suit, on their own behalf, and on behalf of a class of participants in the Plan, against Defendants American Century Services, LLC (“ACS”), ACIM, American Century Companies, Inc. (“ACC”) (ACIM, ACS, and ACC collectively “American Century”), the American Century Retirement Plan Retirement Committee (the “Committee”), and past and present members of the Committee, [1] seeking damages and declaratory and injunctive relief.

         Now before the Court is Defendants' motion for summary judgment (Doc. 145).[2] For the following reasons, the motion is GRANTED in part and DENIED in part.

         Undisputed Material Facts[3]

         American Century is a financial services company primarily offering mutual funds and other investments to retirement plans and other investors. Plaintiffs Wildman and Borcherding are former employees of American Century and Plan participants.

         The Plan is a defined contribution, “401k”[4] plan that allows participants to contribute a percentage of their earnings and invest those contributions in one or more investment options offered by the Plan. Additionally, American Century makes contributions into these accounts in the form of voluntary matching contributions and discretionary profit-sharing contributions.

         ACS sponsors the Plan for current and former employees of American Century. As the Plan Sponsor, ACS appointed the Committee to assist in administering the Plan. ACIM manages American Century's investment products and to the extent the Plan offers American Century mutual funds, ACIM is the manager of those mutual funds. Both ACS and ACIM are subsidiaries of ACC. ACS and the Committee are Plan fiduciaries.

         The Committee is responsible for supervising, monitoring, and evaluating the performance of the Plan. The Committee held regular meetings to discuss performance of the investment options offered in the Plan, the Plan's fees, investment options on the “watch list[5], ” and other relevant information. When the Committee sought to make changes to the Plan, they reviewed the proposed changes with American Century senior management.

         During the relevant time, American Century offered 106 mutual funds to its customers; a subset of which were included in the Plan's lineup of investment options. During the class period, the Plan offered between 33 and 46 investment options.[6] Other than American Century mutual funds, the Plan included six American Century Collective Investment Trusts (“CIT”), and a self-directed brokerage account (“SDBA”).[7] The SDBA includes American Century and non-American Century investment options including index mutual funds, exchange traded funds, and individual stocks and bonds.

         Within the Plan, there are two categories of expenses, administrative expenses and investment management expenses. Administrative expenses are expenses used to pay for services such as recordkeeping and accounting. Investment management expenses are fees charged by the investment manager. ACIM, as the investment manager of the American Century mutual funds, charges a management fee for its services. This fee is paid from each mutual fund's assets. This fee can vary by mutual fund and by share class within each mutual fund. The Plan paid the same fee as other shareholders.

         Third party service providers like recordkeepers can be paid on a per-participant basis or through revenue sharing. In a revenue sharing compensation model, the fee for the recordkeeper is based on a percentage of the assets, resulting in a larger payment as asset levels increase. In some instances, the recordkeeper then “rebates” a portion of those fees back to the retirement plan. Those rebates can be used to pay for services like third-party consultants, plan audits, or paid back to plan participants.

         The Plan used a revenue sharing compensation model to pay its recordkeeper, J.P. Morgan Retirement Plan Services LLC (“J.P. Morgan RPS”) until February 2012. After that time, American Century paid all of the Plan's recordkeeping fees on a per-participant basis. The fee paid to J.P. Morgan RPS was $125 per-participant per year. Even though J.P. Morgan RPS was not compensated through revenue sharing for shares held by the Plan, American Century did make revenue sharing payments in connection with shares held by other retirement plans.

         On November 21, 2013, American Century replaced J.P. Morgan RPS with Schwab Retirement Plan Services, Inc. (“Schwab RPS”). As to the Plan, Schwab RPS was paid on a per-participant basis but as to shares held by other retirement plans, American Century compensated Schwab RPS through revenue sharing.

         The Committee hired a consultant to review the Plan and produce a benchmarking report (the “Hewitt Report”), and in November 2010, the Hewitt Report was presented to the Committee. It made several findings: (1) the Plan offered 38 investment options and the average plan offered 14 options; (2) the Plan offered more proprietary funds than the plans of other financial services organizations; (3) the Plan did not offer a stable value fund, although 83% of plans did offer that type of fund; (4) the Plan offered two money market funds, although only 37% of plans include a money market fund; (5) the Plan's investment management fees were $963 per-participant, while the average investment management fee for similar sized plans was $172 per-participant; and (6) the Plan had a high percentage of active funds.

         The Hewitt Report suggested the Committee review the use of passive options and assess overlapping funds within an asset class, noting there were ten large cap equity options within the Plan. The report also suggested the Committee add a stable value fund to the Plan's core lineup. At that time, American Century did not offer a stable value fund. None of the Committee members could recall a discussion to offer a stable value fund after reviewing the recommendations made in the Hewitt Report.

         Following the Hewitt Report presentation, the Committee decided to reduce the investment options in the Plan. Initially, the Committee proposed removing eleven funds. Ultimately, the Committee removed five funds, one fund was one of the ten large cap equity funds and one fund from the watch list. In 2011, the Committee replaced fifteen mutual funds with six CITs. Except for the five funds that were removed, no other investment options were removed from the Plan during the class period except for closures of an investment fund or the introduction of a CIT that matched the investment strategy as a mutual fund in the Plan.

         During the class period, the Committee received ten requests from asset managers to add particular funds, all of which were declined except for one, the American Century Strategic Inflation Opportunities Fund, a newly launched fund. In particular, in 2011, an American Century asset manager contacted the Committee requesting it to add the Global Real Estate Fund. The Committee declined to add the fund because it was duplicative to another offering.

         On July 8, 2015, Schwab RPS presented another benchmarking study to the Committee. The report stated that other plans of investment firms that offered non-proprietary funds had an average of 6.3 index funds in the plan's investment lineup, and that plans of investment firms that offered primarily proprietary funds had an average of 4.1 index funds in the plan's investment lineup. On September 12, 2016, the Committee added five Vanguard passively managed index funds to the Plan's core lineup.

         Summary Judgment Standard

         Summary judgment is appropriate if, viewing all facts in the light most favorable to the non-moving party, there is no genuine dispute as to any material fact, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The party seeking summary judgment bears the burden of showing that there is no genuine dispute as to any material fact. Celotex Corp, 477 U.S. at 323. Summary judgment is only appropriate when “there is no dispute of fact and where there exists only one conclusion.” Crawford v. Runyon, 37 F.3d 1338, 1341 (8th Cir. 1994) (citation omitted).

         “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Factual disputes that are irrelevant or unnecessary will not be counted. Id. “[I]n ruling on a motion for summary judgment, the nonmoving party's evidence ‘is to be believed, and all justifiable inferences are to be drawn in [t]hat party's favor.'” Hunt v. Cromartie, 526 U.S. 541, 552 (1999).


         The Amended Complaint alleges five counts under ERISA. Count I asserts ACS, ACIM, the Committee, and the Committee Members (collectively “Fiduciary Defendants”), breached their duties of loyalty and prudence, in violation of 29 U.S.C. § 1104(a)(1)(A)-(B). Count II alleges ACS breached its duty to monitor ACIM, the Committee, and Committee members who allegedly caused losses to the Plan.[8] Counts III and IV allege Defendants American Century, ACIM, and ACS engaged in prohibited transactions, in violation of 29 U.S.C. § 1106(a)(1) and (b). Count V is a claim for other equitable relief based on ill-gotten proceeds, 29 U.S.C. § 1132(a)(3).

         Defendants argue they are entitled to summary judgment on all of Plaintiffs' claims because Plaintiffs lack evidence to support their allegations. The Court discusses each claim below.

         I. There are disputes of material fact preventing summary judgment on Count I - Breach of Fiduciary Duty.

         Count I, alleges Fiduciary Defendants failed to employ a prudent and loyal process for selecting, monitoring, and reviewing the Plan's core lineup by: failing to consider investments from companies other than American Century; failing to promptly transfer to lower-cost R6 share classes of American Century Funds; and by allowing the Plan to pay excessive fees.

         ERISA imposes the duties of loyalty and prudence on fiduciaries. Tussey v. ABB, Inc., 746 F.3d 327, 335 (8th Cir. 2014). To sustain a claim for breach of fiduciary duty, a plaintiff has the burden to show the defendant breached its fiduciary duties and a prima facie case of loss to the plan. Pegram v. Herdrich, 530 U.S. 211, 225-26 (2000); Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 917 (8th Cir. 1994) (Roth I). “Once the plaintiff has satisfied these burdens, ‘the burden of persuasion shifts to the fiduciary to prove that the loss was not caused by . . . the breach of duty.'” Roth I, 16 F.3d at 917 (quoting Martin v. Feilen, 965 F.2d 660, 671 (8th Cir. 1992)). In other words, the burden shifts to the defendant to show a prudent fiduciary would have made the same decision. Id. at 919 (“Even if a trustee failed to conduct an investigation before making a decision, he is insulated from liability if a hypothetical prudent fiduciary would have made the same decision anyway.”).

         Defendants argue Plaintiffs cannot establish the elements of a breach of fiduciary duty claim, [9] specifically that there is no evidence that Fiduciary Defendants acted disloyally, that the investment options were imprudent, or that Fiduciary Defendants' conduct resulted in a loss to the Plan.

         A. There are material facts in dispute as to whether Defendants' conduct met the prudent person standard.

         Under ERISA, fiduciaries are required “to act ‘solely in the interest of [plan] participants and beneficiaries' and to carry out their duties with ‘the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.'” Braden v. Wal-Mart Stores Inc., 588 F.3d 585, 598 (8th Cir. 2009) (alterations in original) (quoting 29 U.S.C. § 1104(a)(1)). “Section [1104]'s prudent person standard is an objective standard that focuses on ...

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