Summary
The United States Court of Appeals for the Third Circuit affirmed summary judgment for Quest Diagnostics and related plan committees in an ERISA fiduciary-duty class action. The court held that the defendants followed a prudent process in monitoring and retaining the challenged Fidelity Freedom Funds and Invesco Global Real Estate Fund, and that the plan’s permissive investment-policy language did not require their removal. Because there was no breach of fiduciary duty, the court also rejected the plaintiffs’ failure-to-monitor and knowing-breach-of-trust claims.
Topics
Practice areas
Questions Presented
- Whether Quest's retention of the Fidelity Freedom Funds and Invesco Global Real Estate Fund breached its ERISA duty of prudence.
- Whether Quest's conduct breached a fiduciary duty by failing to comply with the Investment Policy Statements under 29 U.S.C. § 1104(a)(1)(D).
- Whether the absence of an underlying breach defeated plaintiffs' failure-to-monitor claim and knowing-breach-of-trust claim.
- Whether plaintiffs' expert evidence and allegations concerning default investments and Department of Labor guidance created a genuine dispute of material fact sufficient to defeat summary judgment.
Holdings
- Quest did not breach its ERISA fiduciary duty because its process for evaluating and retaining the Fidelity Freedom Funds and Invesco Global Real Estate Fund was prudent. Poor or below-average investment performance alone does not require immediate removal, and fiduciaries need not select the best-performing investment.
- The court did not decide whether the Investment Policy Statements were binding plan documents because, even assuming they were covered by § 1104(a)(1)(D), Quest did not violate them. Their permissive language gave the Committee discretion, and the Committee considered the relevant factors without abusing that discretion.
- The failure-to-monitor and knowing-breach-of-trust claims failed because there was no underlying breach of the duty of prudence, and the defendants were undisputedly ERISA fiduciaries.
Key quotations
“ERISA, like trust law, does not hold trustees liable for poor performance alone. Courts review process first.” (16)
“A fiduciary is prudent if it hires an advisor, critically examines its recommendations and data, and follows up when needed.” (16)
“Because ERISA mandates prudence, not perfection, we will AFFIRM.” (16)
Factual background
Quest maintained a defined-contribution 401(k) plan offering, among other options, the actively managed Fidelity Freedom target-date funds and the Invesco Global Real Estate Fund. The plan's Investment Committee met quarterly, retained Mercer Investment Consulting and AON Investment Consulting, used Investment Policy Statements, reviewed fund performance, met with fund managers, and placed the Invesco Fund on a watch list. Plaintiffs alleged that the challenged funds underperformed alternatives and that Quest should have removed them from the plan's investment menu, but the Committee retained them after reviewing their performance, strategies, risks, and alternatives.
Procedural history
Plaintiffs sued Quest and its plan committees, alleging that retaining the Fidelity Freedom Funds and Invesco Global Real Estate Fund breached ERISA fiduciary duties, violated duties to monitor, and constituted a knowing breach of trust. The District Court denied defendants' motion to dismiss, allowed discovery, and then granted defendants summary judgment. The Third Circuit reviewed the summary-judgment ruling de novo and affirmed.