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United States Court of Appeals for the Eighth Circuit
September 25, 2019, Submitted; May 22, 2020, Filed
[*481] STRAS, Circuit Judge.
Three retirement-plan participants sued Washington University in St. Louis for breach of its fiduciary duties under the Employee Retirement Income Security Act, more commonly known as ERISA. The district court dismissed their complaint for failure to state a claim. We affirm in part, reverse in part, and remand for further proceedings.
This case is just one in a series of actions filed against some of the nation's largest universities for alleged mismanagement of their section 403(b) retirement-savings plans. See, e.g., Divane v. Nw. Univ., 953 F.3d 980 (7th Cir. 2020); Sweda v. Univ. of Pa., 923 F.3d 320 (3d Cir. 2019); see also 26 U.S.C. § 403(b)(1)(A) (authorizing "educational organization[s]" to create these tax-sheltered "annuity" plans). Latasha Davis and the other plaintiffs in this case have alleged in their complaint that the plan offered to Washington University ("WashU") employees is just too expensive and offers too many poorly performing investment [**3] options. By mismanaging its plan in these two ways, the plaintiffs say, WashU has breached the fiduciary duties it owed to plan participants under ERISA.
With about 24,000 participants and $3.8 billion in assets, the WashU plan is one of the largest of its kind in the country. It is a defined-contribution plan, which is a type of retirement account funded by contributions from the employee, the employer, or both. The account's value depends on the amount of those contributions, plus any earnings from the underlying investments, minus the fees charged. In this type of plan, participants retain the ability to select their own investments from a menu of options. The risk of loss, however, remains with them, meaning that underperformance or excessive fees will chip away at their returns. See John Downes & Jordan Elliot Goodman, Barron's Dictionary of Finance and Investment Terms 175-76 (8th ed. 2010).
WashU's plan includes approximately 115 options from two investment firms, the Teachers Insurance and Annuity Association [*482] of America-College Retirement Equities Fund ("TIAA") and Vanguard. Both firms receive compensation for their services through the fees they charge, which fall into two major [**4] categories. The first are investment-management fees, which cover the operating costs of the individual investments in a participant's portfolio. See Emp. Benefits Sec. Admin., U.S. Dep't of Labor, Understanding Retirement Plan Fees and Expenses 4 (Dec. 2011). Along with any trading costs, these are generally expressed as an expense ratio: the amount of fees charged as a percentage of the total assets invested. The size of the expense ratio varies based on a host of factors unique to each investment, such as the size of the fund, the frequency of trading, and the complexity of its holdings. See id. at 4, 9.
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960 F.3d 478 *; 2020 U.S. App. LEXIS 16392 **; 2020 WL 2609865
Latasha Davis, Individually and as a Representative of a Class of Participants and Beneficiaries in and on Behalf of Washington University Retirement Savings Plan; Jennifer Elliott, Individually and as a Representative of a Class of Participants and Beneficiaries in and on Behalf of Washington University Retirement Savings Plan; Marla Aliece Sims-King, Individually and as a Representative of a Class of Participants and Beneficiaries in and on Behalf of Washington University Retirement Savings Plan, Plaintiffs - Appellants v. Washington University in St. Louis; Washington University in St. Louis Board of Trustees, Defendants - Appellees
Prior History: [**1] Appeal from United States District Court for the Eastern District of Missouri - St. Louis.
Davis v. Wash. Univ. in St. Louis, 2018 U.S. Dist. LEXIS 167594 (E.D. Mo., Sept. 28, 2018)
fiduciary, shares, Stock, funds, benchmark, invested, Annuity, managed, options, retirement, real estate, allegations, investors, portfolio, complaint alleges, imprudent, holdings, prudent, retail, plans
Civil Procedure, Appeals, Standards of Review, De Novo Review, Pleadings, Complaints, Requirements for Complaint, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Business & Corporate Compliance, Fiduciaries, Fiduciary Responsibilities, Duty of Prudence, Reviewability of Lower Court Decisions, Preservation for Review