A U.S. District Court judge dismissed an ERISA class action lawsuit, Barrett et al. v. O’Reilly Automotive Inc. et al., brought by former employees, alleging that the company breached fiduciary duties by allowing participants of its 401(k) retirement plan to pay excessive recordkeeping and investment management fees.
Following oral argument on May 23, U.S. District Judge Brian C. Wimes granted the defendants’ motion to dismiss and denied the plaintiffs’ informal request to file a further amended complaint.
New York-based law firm Skadden, Arps, Slate, Meagher & Flom LLP representing the auto parts company secured the dismissal of the class action complaint brought under the Employee Retirement Income Security Act in the U.S. District Court for the Western District of Missouri.
The court held the complaint that the plaintiffs failed to plead “meaningful benchmarks” for their excessive fee allegations, and therefore did not satisfy the Eighth Circuit’s pleading standard for an ERISA breach of fiduciary duty claims.
In addition, the judge held that because the plaintiffs had a chance to amend the complaint after the defendants’ first motion to dismiss, they should not be allowed another opportunity to amend.
A 12(b)(6) dismissal – given on the grounds that the plaintiffs failed to state a complaint for which relief can be granted—is rare in ERISA law, where courts typically find that dismissal arguments are too factual.
As a large plan with assets between $1.1 billion and $1.2 billion, the original complaint, filed in May 2022 against O’Reilly’s board of directors and 401(k) plan investment committee, stated that the employer had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments.
The plan had 53,561 participants as of 2020.
The complaint alleged that the employer “did not try to reduce the plan’s expenses or exercise appropriate judgement to scrutinize each investment option that was offered in the plan to ensure it was prudent.” It claimed that the O’Reilly cost participants and beneficiaries millions of dollars in retirement savings between 2016 and 2020.
The plaintiffs in the case are represented by law firm Capozzi Adler PC, which has filed several lawsuits on excessive fee grounds in recent years.
Ten of the plan’s investment options had more than $43 million in assets under management in 2020, which was more than double the average of similarly sized plans, according to the complaint.
Another indication that the plan was “poorly run” and lacked a prudent process for selecting and monitoring investments, according to the complaint, was that as of 2020, it had a total cost of more than 0.60%, or in other words, more than 172% higher than the average.
The workers also alleged that O’Reilly’s 401(k) paid $49.86 in recordkeeping costs in 2020, compared to similar size plans that paid between $23 and $30 for these services.
In its motion to dismiss the allegations, the company argued that the workers specifically picked ten of the plan’s 30 investment options to suggest they were too costly.
While the ex-employees cited the Seventh Circuit’s March ruling in Hughes v. Northwestern University, to bolster their case, Wimes dismissed the suit.
O’Reilly Automotive Inc. did not immediately respond to a request for comment.