The U.S. 11th Circuit Court of Appeals affirmed the decision of a district court in a 401(k) excessive fee lawsuit against The Home Depot Inc., ruling that the workers had the burden of showing how the company’s conduct caused them to suffer loss and affirming the original summary judgment in favor of Home Depot.  

However, federal court districts and appellate court circuits have issued differing decisions as to which party, the fiduciary or retirement plan participants, bear the burden of proving that losses are or are not the result of actions taken by plan fiduciaries. 

Circuit Split 

While the 10th and 11th Circuits have placed the burden of proof on participants, the 1st, 4th, 5th and 8th circuits—as well as the Department of Labor—have argued that once an ERISA plaintiff has proven a breach of fiduciary duty and a related loss to the plan, the burden shifts to the fiduciary. 

The so-called circuit split among the different courts of appeals means that federal law—in this case the Employee Retirement Income Security Act of 1974—is applied differently in different parts of the country. The Supreme Court often agrees to hear cases involving circuit splits to ensure there is a single federal interpretation of the law. The Home Depot case has not been appealed to the Supreme Court at this time. 

Pizzaro v. Home Depot 

In Pizarro et al. v. The Home Depot Inc. et al, plaintiffs Jaime Pizarro and Craig Smith filed a class action complaint in April 2018, alleging that Home Depot offered imprudent investment options for their retirement plans and failed to monitor the investments’ performance, in violation of ERISA, during a class period beginning in April 2012. The plaintiffs specifically argued that the Home Depot plan had higher fees than similar plans, as some funds in the Home Depot investment menu charged fees as high as 0.5%, when similar funds charged as low as 0.07%.  

Financial Engines Advisors (now Edelman Financial Engines) served as an investment adviser to the plan for the beginning of the class period until June 30, 2017. The plan then switched to Alight Financial Advisors for advisory services. 

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 can add up to a lot over the course of a participant’s life.  

U.S. District Judge Steven D. Grimber, in the U.S. District Court for the Northern District of Georgia, ruled in favor of Home Depot in September 2022, noting that during the period in question, the plan committees held individual committee meetings to discuss the plan and that the investment committee met quarterly to adopt and update an investment policy statement. 

11th Circuit Decision 

The appellate court explained in its opinion, published Friday, that the district court found an issue of material fact on the duty-of-prudence question for all but one of the plaintiffs’ claims. But on the second element, loss of causation, the answer was different—the court decided that the plaintiffs had not met their burden for any claims.  

Even if Home Depot did not appropriately monitor and evaluate the service providers’ fees and the plan’s investments, the district court concluded, the plaintiffs did not show that Home Depot’s investment choices were “objectively imprudent.” As a result, the district court argued that any losses to the plan were not caused by Home Depot’s failure to investigate. 

The plaintiffs, in their appeal, argued this approach is not correct and that the burden should be flipped, meaning ERISA fiduciaries are required to show that their plans’ losses were caused by something other than their own failure to investigate and evaluate the investments.  

“We cannot agree,” the appellate court opinion stated. “Our prior precedent forecloses adopting the burden-shifting framework, as do ordinary principles of civil liability. Nor does ERISA’s text help the plaintiffs—it offers no indication that Congress intended to require defendant fiduciaries to disprove loss causation.”  

The appellate court stated that the plaintiffs had the burden, but they did not sustain it. To prove that the losses were caused by a fiduciary breach, the court argued that plaintiffs must show that a hypothetical prudent fiduciary, armed with the information of a “proper evaluation,” would not have made the same choices, but the plaintiffs did not do this. 

“Home Depot’s investment decisions were objectively prudent, whether or not it used the right process to evaluate and monitor them,” the appellate court opinion stated. “We agree with the district court that the damages claims fail, and we affirm its well-reasoned order granting summary judgment to Home Depot.” 

The Home Depot 401(k) plan, called FutureBuilder, had about 230,000 participants and $9.1 billion in assets, as of year-end 2019.