Deciphering the Tenth Circuit’s Verdict on Matney v. Barrick Gold of North America
By Donald K. Jones, BCF™
The recent decision in Matney v. Barrick Gold of North America by the Tenth Circuit Court of Appeals has left many in anticipation. Unsurprisingly, the Appeals Court upheld the lower District Court’s decision, consistent with its tendency to favor plan sponsors (Defendant) over the Plan participants (Plaintiffs). However, the significance of the case and its implications for plan participant rights merit a closer examination.
The Matney Case Echoes Brotherston v. Northwestern University
Unresolved Questions from Brotherston
Matney echoes the Brotherston v. Northwestern University case, raising crucial questions that remain unanswered:
- Are comparable market indices and index funds suitable comparators in the evaluation of actively managed mutual funds in 401(k)/403(b) litigation?
- Which party bears the burden of proving causation of loss in 401(k)/403(b) litigation?
The Supreme Court, denied certiorari in Brotherston (an order where a higher court reviews a decision of a lower court), provided insights, then directed attention to the Tenth Circuit for further clarification. Before addressing these questions, it is essential to revisit the landmark Tibble v. Edison International case, which emphasizes turning to the common law of trusts in the absence of ERISA guidance.
Before we can answer these unresolved questions, let’s turn to another case for guidance. In the landmark decision of Tibble v. Edison International, the Supreme Court provided essential principles that form the foundation for understanding ERISA fiduciary duties, offering a roadmap for the intricacies we are about to explore in the Matney v. Barrick Gold of North America context.
Reviewing the Guidance from Tibble v. Edison International
In the landmark case of Tibble v. Edison International, the Supreme Court provided crucial guidance, emphasizing the importance of turning to the common law of trusts in situations where ERISA is silent. Today, this common law is codified in the Restatement of Trusts (Third).
The Supreme Court (SCOTUS) underscored the fiduciary obligations under ERISA, stating, “An ERISA fiduciary must discharge his responsibility ‘with the care, skill, prudence, and diligence’ that a prudent person ‘acting in a like capacity and familiar with such matters’ would use.” This principle clarifies that ERISA fiduciary duty is inherently linked to the common law of trusts.
In shaping the contours of ERISA fiduciary duty, courts often find guidance in the law of trusts. SCOTUS explicitly conveyed that there is no reason why the Ninth Circuit, or any other jurisdiction, should not follow suit in referencing the common law of trusts to inform ERISA-related decisions. This acknowledgment reinforces the reliance on established legal principles when interpreting and applying fiduciary duties under ERISA.
Answering Crucial Questions with Legal Insight
Are Index Funds Acceptable Comparators?
The Solicitor General in Brotherston rightfully asserted that index funds are valid comparators, citing the Restatement of Trusts Section 100, comment b(1).
“Return rates of one or more suitable common trust funds, or suitable index mutual funds or market index (with adjustments that may be appropriate.”
This legal guidance affirms that fiduciaries can insulate themselves by selecting well-established, low-fee, and diversified market index funds. The Tenth Circuit’s departure from this reasoning may necessitate Supreme Court intervention to rectify the error.
The Solicitor General in this case provided a valuable perspective, stating: “Finally, any fiduciary of a plan as the Plan in this case can easily insulate itself by selecting well-established, low-fee and diversified market index funds.”
As Fiduciary Wise has discovered many times, the answers to many fiduciary issues under ERISA can easily be found and understood by turning to the Restatement of the Law Third. The Restatement emphasizes that determining “cost-efficiency” — whether it is a prudent buy for the participant — can be straightforwardly established by comparing the actively managed mutual fund to the appropriate index fund(s).
It is evident that the Tenth Circuit erred in its decision, and it becomes imperative for the Supreme Court to rectify this error, considering the compelling guidance provided by legal authorities.
Unraveling the Complexity: Causation of Loss in 401(k)/403(b) Litigation
Understanding Causation in Retirement Plan Litigation
In exploring the intricate landscape of 401(k)/403(b) litigation, it is essential to grasp the concept of causation – how fiduciary breaches may lead to losses, particularly when parties fail to fulfill their duties correctly. We delve into the nuances and implications of this critical aspect.
The Burden of Proof Dilemma
The heart of the matter lies in determining which party, be it Plaintiff or Defense, should bear the burden of proving causation. Unpacking the complexity, we investigate why this question holds such significance and the strategic considerations each side faces.
Guidance from Brotherston: Trust Law and Causation
Drawing insights from the Brotherston case, we explore how the Solicitor General strategically turned to the common law of trusts to settle the causation responsibility debate. The Solicitor General emphasized, “Under trust law, ‘when a beneficiary has succeeded in providing that the trustee has committed a breach of trust and that a related loss has occurred, the burden shift to the trustee to prove that the loss would have occurred in the absence of the breach.”
Continuing in unequivocal terms, the Solicitor General asserted that in trust law, burden shifting is justified on the grounds that “as between innocent beneficiaries and a defaulting fiduciary, the latter should bear the risk of uncertainty as to the consequences of its breach of duty.”
Labor Department’s Stand: Home Depot Litigation
In the midst of causation discussions, we examine the stance taken by the United States Department of Labor during the Home Depot litigation. Their perspective on establishing loss of causation and the subsequent absence of burden shifting adds a crucial layer to the ongoing dialogue.
Legal Maneuvering and Court Dynamics
As we reflect on the broader legal landscape, we discuss the potential implications of defense attorneys’ arguments and their impact on court proceedings. With a focus on the Tenth Circuit of Appeals, which tends to favor plan sponsors, we assess the dynamics influencing the Supreme Court’s involvement in fiduciary governance matters.
ERISA’s Mission and the Common Law of Trusts
Connecting the dots, we underscore the fundamental purpose of the Employee Retirement Income Security Act (ERISA) – safeguarding innocent participants. The common law of trusts provides clarity on this mission and serves as a guiding principle in ERISA fiduciary governance.
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