Supreme Court Wants Solicitor General Opinion on Excessive Fee 401(k) Case

The U.S. Supreme Court has asked the U.S. solicitor general to weigh in on a 401(k) excessive fee lawsuit against The Home Depot Inc., a case that involves an issue on which federal district courts and appellate circuit courts have issued opposing decisions.

Regarding the legal issue in Pizarro et al. v. The Home Depot Inc. et al., courts have rendered contrasting opinions over whether a 401(k) plan’s fiduciary or its plan participants bear the burden of proving that losses are or are not the result of actions taken by plan fiduciaries.

While the 10th and 11th U.S. Circuit Courts of Appeals placed the burden of proof on participants, the 1st, 4th, 5th and 8th circuits—as well as Department of Labor under the administration of former President Joe Biden—held in a variety of cases that once a plaintiff has proven a breach of fiduciary duty and a related loss to the plan under the Employee Retirement Income Security Act, the burden of proof shifts to the fiduciary.

The Supreme Court announced Monday an invitation for Solicitor General John Sauer to file a brief “expressing the views of the United States.” The Supreme Court did not include a deadline for this brief in its order list.

In the case, plaintiffs Jamie Pizarro and Craig Smith, who filed a class action complaint in 2018, alleged that The Home Depot offered “imprudent investment options” for their retirement plans and failed to monitor the investments’ performance.

Financial Engines Advisors (now Edelman Financial Engines) served as an investment adviser to the plan until June 3, 2017. The plan then switched to Alight Financial Advisors for advisory services. Both Financial Engines and Alight are named in the lawsuit.

The plaintiffs accused Financial Engines of being a “robo adviser” offering “cookie cutter” plans and therefore having minimal operating costs. They also noted that small fee differences add up to a significant amount over the course of a participant’s life.

In a brief filed with the 11th Circuit Court of Appeals in 2023 by the secretary of labor in support of the plaintiffs, the Biden-era DOL argued that the district court “incorrectly placed the burden of proof on the participants to show loss causation, when it should have applied a burden-shifting framework, … that places the burden to disprove the loss causation on the fiduciary after a plaintiff demonstrates a fiduciary breach and a related loss.”

It is unclear if President Donald Trump’s DOL administrators will share the same opinion.

The 11th Circuit argued in its decision that the plaintiffs did not show that The Home Depot’s investment choices were “objectively imprudent” and that any losses to the plan were not caused by The Home Depot’s failure to investigate.

The Home Depot 401(k) plan, called FutureBuilder, had 460,862 participants and more than $12 billion in assets as of year-end 2023.