MARY BARCHOCK; THOMAS WASECKO; STACY WELLER, Plaintiffs, Appellants,
CVS HEALTH CORPORATION; THE BENEFITS PLAN COMMITTEE OF CVS HEALTH CORPORATION; GALLIARD CAPITAL MANAGEMENT, INC., Defendants, Appellees.
FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
RHODE ISLAND [Hon. Mary M. Lisi, U.S. District Judge]
H. Kim, with whom Todd M. Schneider, Schneider Wallace
Cottrell Konecky Wotkyns LLP, Sonja L. Deyoe, and Law Offices
of Sonja L. Deyoe were on brief, for appellants.
Meaghan VerGow, with whom Brian D. Boyle, Bradley N.
García, O'Melveny & Myers LLP, Robert Clark
Corrente, Whelan, Corrente, Flanders, Kinder & Siket LLP,
Joel S. Feldman, Mark B. Blocker, Robert N. Hochman, Daniel
R. Thies, and Sidley Austin LLP were on brief, for appellees.
A. Young, Shane Pennington, Baker Botts LLP, Steven P.
Lehotsky, Janet Galeria, U.S. Chamber Litigation Center, and
Janet M. Jacobson, on brief for amici curiae Chamber of
Commerce of the United States of America and American
D. Netter, Nancy G. Ross, Mayer Brown LLP, and Kevin Carroll,
on brief for amicus curiae Securities Industry and Financial
Torruella, Kayatta, and Barron, Circuit Judges.
BARRON, CIRCUIT JUDGE.
plaintiffs allege violations of the fiduciary duty of
prudence under the Employee Retirement Income Security Act of
1974 ("ERISA"), 29 U.S.C. §§ 1001-1461,
by the fiduciaries of an employer-sponsored retirement plan.
Specifically, the plaintiffs contend that a particular
investment fund offered through the plan was invested too
heavily in cash or cash-equivalents for the years at issue
and thus that the plan was imprudently managed and monitored.
The District Court dismissed the complaint for failure to
state a claim under ERISA. We affirm.
understand the sole issue on appeal, it helps to provide some
background concerning the duty of prudence that ERISA
establishes. We then describe the particular allegations that
the plaintiffs offer in support of the imprudence claims that
they bring and the travel of the case. Finally, we briefly
review the rulings below.
provides that any person who exercises discretionary
authority or control in the management or administration of
an ERISA plan (or who is compensated in exchange for
investment advice) is a fiduciary. 29 U.S.C. §
1002(21)(A). ERISA further provides that such a fiduciary has
a duty to act "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." Id. §
the Supreme Court has explained that "the content of the
duty of prudence turns on 'the circumstances . . .
prevailing' at the time the fiduciary acts."
Fifth Third Bancorp v. Dudenhoeffer, 134 S.Ct. 2459,
2471 (2014) (omission in original) (quoting 29 U.S.C. §
1104(a)(1)(B)). Accordingly, with respect to whether a
complaint states a claim of imprudence under ERISA, "the
appropriate inquiry will necessarily be context
explained in Bunch v. W.R. Grace & Co., 555 F.3d
1 (1st Cir. 2009), in connection with a claim of imprudence
concerning an ERISA plan's investments, "[t]he test
of prudence -- the Prudent Man Rule -- is one of
conduct, and not a test of the result of performance
of the investment." Id. at 7 (quoting
Donovan v. Cunningham, 716 F.2d 1455, 1467 (5th Cir.
1983)). Moreover, we explained that "[w]hether a
fiduciary's actions are prudent cannot be measured in
hindsight." Id. (quoting DiFelice v. U.S.
Airways, Inc., 497 F.3d 410, 424 (4th Cir. 2007)).
2016, the plaintiffs -- Mary Barchock, Thomas Wasecko, and
Stacy Weller -- filed this suit in the United States District
Court for the District of Rhode Island. They did so pursuant
to 29 U.S.C. § 1132(a), which authorizes any ERISA plan
participant to bring a civil action against an ERISA
fiduciary liable under 29 U.S.C. § 1109 for breach of
to the complaint, the three plaintiffs participated from 2010
to 2013 in an ERISA employee retirement plan that was
sponsored by their employer, CVS Health Corporation
("CVS"), and administered by the Benefits Plan
Committee of CVS.The plan was a 401(k) defined contribution
plan that offered several investment options to participants,
including what is known as a "stable value fund."
The Benefits Plan Committee appointed Galliard Capital
Management, Inc. ("Galliard") to manage that fund.
three plaintiffs allocated portions of their retirement
investments under the plan to this stable value fund, which
held approximately $1 billion in assets. Their complaint
alleged that CVS, the Benefits Plan Committee, and Galliard
owed the plaintiffs a fiduciary duty of prudence under ERISA
with respect to the plan's investments in the fund and
that each of the defendants breached that duty.
claiming, the plaintiffs' complaint described what a
stable value fund is by quoting the description of such funds
given by the Seventh Circuit in Abbott v. Lockheed Martin
Corp., 725 F.3d 803 (7th Cir. 2013). Specifically, the
complaint quoted Abbott as describing stable value
funds, or SVFs, as "recognized investment vehicles"
typically invest in a mix of short- and intermediate-term
securities, such as Treasury securities, corporate bonds, and
mortgage-backed securities. Because they hold longer-duration
instruments, SVFs generally outperform money market funds,
which invest exclusively in short-term securities. To provide
the stability advertised in the name, SVFs are provided
through "wrap" contracts with banks or insurance
companies that guarantee the fund's principal and shield
it from interest-rate volatility.
Id. at 806 (citations omitted).
complaint did not identify what information was provided by
the defendants to plan participants before they invested in
the CVS stable value fund. Notably, the complaint did not
allege that the plan documents specified how the fund's
assets would be allocated. The complaint did, however, allege
that the fund was part of a mix of investment options that
the employer offered in "lifestyle" funds described
as "conservative" and "moderate, " as
opposed to "aggressive." The complaint also alleged
that, according to the plan's Internal Revenue Service
Form 5500 Annual Return from one of the years at issue, the
fund's stated objective was "to preserve capital
while generating a steady rate of return higher than money
market funds provide" (emphasis omitted).
respect to Galliard, the complaint contended that, as a
fiduciary, it breached its duty of prudence under ERISA in
managing the CVS stable value fund by investing "too
much" of the fund's assets in short-term debt
obligations equivalent to cash, as opposed to
intermediate-term investments that generally provide higher
returns. Specifically, the complaint alleged that from 2010
to 2013, Galliard invested between twenty-seven and
fifty-five percent of the fund's assets in an investment
fund offered by a different firm that was invested
"primarily" in such cash equivalents. (Galliard
allocated the balance of the CVS stable value fund to
intermediate-term investments.) This asset allocation,
according to the complaint, predictably both resulted in
unnecessary liquidity and "acted as an enormous drag on
the duration of the overall Stable Value Fund portfolio,
which depressed returns."
complaint further alleged that this asset allocation was a
"severe outlier" when compared to allocation
averages for the stable value industry. And, to identify
those averages, the complaint incorporated a survey of
industry data from 2011 and 2012. That survey was released by
the Stable Value Investment Association, which the complaint
described as a trade association for the stable value
industry. The complaint alleged that, according to the
survey, the average mean allocation of assets to cash or
cash-equivalent investments by stable value funds surveyed
was between only five and ten percent for the years 2011 and
2012.Finally, the complaint alleged that
Galliard's relatively high allocation of investments in
short-term, cash-equivalents was at odds with
"well-established principles of stable value
investing." The complaint explained that investors in
stable value funds generally agree to contractual provisions
that restrict the liquidity of their investments in exchange
for relatively stable returns from longer-term investments.
Yet, the complaint alleged, Galliard's excessive
allocation of the CVS stable value fund's assets to
short-term, cash-equivalent investments resulted in liquidity
that the investors did not want and for which the plaintiffs
paid a premium by losing out on the higher returns generally
associated with longer-term investments. And, the complaint
asserted, that allocation decision cannot be justified in
terms of reducing risk because stable value funds, as
conventionally structured, have historically outperformed
money market funds -- which invest in cash equivalents -- in
terms of both return and volatility. To support that last