Daniel C. Matousek, individually v. MidAmerican Energy Company

United States Court of Appeals
For the Eighth Circuit
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No. 21-2749
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Daniel C. Matousek, individually and on behalf of all others similarly situated;
Teresa J. Cantu, individually and on behalf of all others similarly situated; Leah M.
Maloney, individually and on behalf of all others similarly situated
Plaintiffs - Appellants
v.
MidAmerican Energy Company; The Board of Directors of MidAmerican Energy
Company; MidAmerican Energy Company Pension and Employee Benefits Plans
Administrative Committee; John Does, 1-30
Defendants - Appellees
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Appeal from United States District Court
for the Southern District of Iowa - Central
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Submitted: April 13, 2022
Filed: October 12, 2022
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Before SHEPHERD, ERICKSON, and STRAS, Circuit Judges.
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STRAS, Circuit Judge.
Like many companies, MidAmerican offers a retirement plan to its
employees. Some thought it saddled them with unreasonably high costs and low-

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quality investments. In their complaint, however, they failed to identify better
alternatives, so we affirm the district court’s1 decision to dismiss.
I.
Company-sponsored retirement plans follow one of two models. The first is
a defined-benefit plan, which provides retirees with “a fixed payment” regardless of
performance. Thole v. U.S. Bank N.A., 140 S. Ct. 1615, 1618 (2020). In this type
of plan, the employer is generally on the hook if plan assets fall short. Id. at 1620–
21. From the viewpoint of participants, the main advantage of a defined-benefit plan
is the certainty of receiving a fixed stream of payments at retirement.
MidAmerican selected the other type, a defined-contribution plan, which can
rise in value over time but includes no fixed payments. The amount available at
retirement depends on the choices that participants make: when and how much to
contribute, what investments to select, and when to start withdrawing money. See
Spano v. Boeing Co., 633 F.3d 574, 576, 585 (7th Cir. 2011); see also Hughes v. Nw.
Univ., 142 S. Ct. 737, 740 (2022) (explaining that the funding comes from “pretax
contributions” from employees and “matching contributions” from employers). It
can also depend on how well the plan managers carry out their fiduciary duties,
including their diligence in keeping costs low and their skill in selecting “which
investments” belong “in the plan’s menu of options.” Hughes, 142 S. Ct. at 742.
According to Daniel Matousek and the other plaintiffs, MidAmerican’s plan
did neither well. First, the plan’s investment committee let recordkeeping expenses
spiral out of control. Davis v. Washington Univ. in St. Louis, 960 F.3d 478, 482 (8th
Cir. 2020) (defining these expenses as paying for “the day-to-day operations of the
plan itself”). According to the complaint, a larger plan like this one should have
lower fees.
1 The Honorable Charles R. Wolle, United States District Judge for the
Southern District of Iowa, now retired.

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Second, the investment committee allegedly failed to “monitor all plan
investments and remove [the] imprudent ones.” Hughes, 142 S. Ct. at 740. Some
consistently underperformed. Others cost too much. Either way, keeping these
investments showed that the investment committee (and the directors who appointed
them) must have been “asleep at the wheel.” Davis, 960 F.3d at 483.
The district court granted MidAmerican’s motion to dismiss. Without
mentioning the recordkeeping allegations, it concluded that Matousek and the other
plaintiffs had failed to plead meaningful benchmarks for “assessing the performance
of the challenged funds.”
II.
We review the dismissal de novo, “accepting as true the allegations . . . in the
complaint and drawing all reasonable inferences in favor of the nonmoving party.”
Id. at 482 (quotation marks omitted). A complaint can only survive a motion to
dismiss if it contains “‘sufficient factual matter’ to state a facially plausible claim
for relief.” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
The allegation here is that the plan’s fiduciaries have violated their duty of
prudence, which is about how they must act. See Braden v. Wal-Mart Stores, Inc.,
588 F.3d 585, 595 (8th Cir. 2009). If they failed to use the same “care, skill,
prudence, and diligence under the circumstances” as “a prudent man,” then they have
breached their duty. 29 U.S.C. § 1104(a)(1)(B). The process is what ultimately
matters, not the results. See id.
A plaintiff typically clears the pleading bar by alleging enough facts to
“infer . . . that the process was flawed.” Davis, 960 F.3d at 482–83 (quotation marks
omitted). The key to nudging an inference of imprudence from possible to plausible
is providing “a sound basis for comparison—a meaningful benchmark”—not just
alleging that “costs are too high, or returns are too low.” Id. at 484.

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III.
To manage the “day-to-day operations” of the plan, MidAmerican hired
Merrill Lynch, which served as the plan’s recordkeeper. Id. at 482. It was tasked
with “track[ing] the balances of individual accounts, provid[ing] regular account
statements,” offering various other services, and making sure the plan was
complying with regulatory requirements. Hughes, 142 S. Ct. at 740. In return,
Merrill Lynch received $1.9 million to $3.1 million in fees per year, which translates
to between $326 and $526 per plan participant.
The claim here is that these amounts were too high. In the absence of
“significant allegations of wrongdoing,” Tussey v. ABB, Inc., 746 F.3d 327, 336 (8th
Cir. 2014), the way to plausibly plead a claim of this type is to identify similar plans
offering the same services for less. See Albert v. Oshkosh Corp., 47 F.4th 570, 579–
80 (7th Cir. 2022); see also Sweda v. Univ. of Pa., 923 F.3d 320, 330 (3d Cir. 2019)
(holding that the plaintiffs plausibly alleged a breach-of-fiduciary-duty claim when
the plan spent millions more than “similar plans” paid “for the same services”).
A.
The plaintiffs allege that no more than $100 per participant is reasonable for
a plan with approximately $1 billion in total assets and 5,000 participants. Even if
the fees here look high, we cannot infer imprudence unless similarly sized plans
spend less on the same services. Albert, 47 F.4th at 579–80.
First, however, we need to determine what those services are. Two documents
fill in the details. One is a participant-disclosure form, which describes the services
offered by the plan and the costs accompanying them. The other is an “Annual
Return/Report of Employee Benefit Plan”—otherwise known as a Form 5500—
which discloses the aggregate payments made to the plan’s recordkeeper. See Davis,
960 F.3d at 484 n.3 (explaining that these documents are “embraced by the
pleadings” and can be considered by the district court on a motion to dismiss).

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According to the participant-disclosure forms, the cost of Merrill Lynch’s
“suite of administrative services” ranges between $32 and $48 per participant. In
return, Merrill Lynch safeguards “assets provided by outside service providers,”
keeps “track of participant accounts and transactions,” and provides “call centers,
websites, account statements[,] and educational materials.” These are, in the words
of the complaint, “the suite of administrative services typically provided . . . by [a]
plan’s ‘recordkeeper.’”
So what about those larger numbers in the complaint? A portion are indirect
“revenue-sharing payments,” which account for no more than $37 per participant
per year. The remainder appears to come from what Merrill Lynch received from
its other, non-recordkeeping services: investment advice for those with self-directed
brokerage accounts; commissions for individual trades; and trading, loan-
origination, returned-payment, and check-service fees. Each is “charged against the
account of [individual] participant[s] . . . rather than on a [p]lan-wide basis.”
The Form 5500s, which describe Merrill Lynch’s “total compensation” for
“services rendered to the plan,” seem to bear this out. (Emphasis added). According
to the form’s “service codes,” Merrill Lynch’s compensation includes investment-
management fees, redemption fees, shareholder-servicing fees, and securities-
brokerage commissions. In plain English, the per-participant fees cover more than
just standard recordkeeping services.
For a benchmark to be “sound” and “meaningful” here, it must do the same.
Meiners v. Wells Fargo & Co., 898 F.3d 820, 822 (8th Cir. 2018). After all, we have
been clear that the key to stating a plausible excessive-fees claim is to make a like-
for-like comparison. See Davis, 960 F.3d at 485.
B.
Rather than point to the fees paid by other specific, comparably sized plans,
the plaintiffs rely on industry-wide averages. But the averages are not all-inclusive:

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they measure the cost of the typical “suite of administrative services,” not anything
more. And using this information creates a mismatch between Merrill Lynch’s total
compensation, which includes everything it does for MidAmerican’s plan, and the
industry-wide averages that reflect only basic recordkeeping services.
The first source, published by a consulting group called NEPC, says that no
similarly sized retirement plan paid more than $100 per participant for
recordkeeping, trust, and custodial services. MidAmerican’s plan compares
favorably, with the fees for these basic recordkeeping services totaling between $32
and $48 per plan participant. NEPC’s report says nothing about the fees for the other
services that Merrill Lynch provided, which means it cannot provide a “sound basis
for comparison” for anything else. Meiners, 898 F.3d at 822; see Smith v.
CommonSpirit Health, 37 F.4th 1160, 1169 (6th Cir. 2022) (rejecting a comparison
to industry averages because the plaintiff “ha[d] not pleaded that the services that
[the plan’s] fee covers are equivalent to those provided by the plans comprising the
average in the industry publication that she cite[d]”).
The second source, the 401K Averages Book, is similarly unhelpful. It
suggests that the average plan with 2,000 participants and $200 million in assets paid
$160 per participant in revenue-sharing and $5 in recordkeeping-administration fees.
Neither includes fees arising out of participant-initiated transactions like “loans” and
“distributions.” And the revenue-sharing category consists of fees “received by
other service providers to the plan,” including “recordkeepers, advisors[,] and
platform providers.”
It is almost impossible to tell if these figures provide a meaningful benchmark.
See Davis, 960 F.3d at 484–85. For one thing, they leave out the total fees charged
for individualized services like “loans” and “distributions,” just like the NEPC
Report, making them a less-than-helpful benchmark for the larger, total-
compensation numbers in the complaint. For another, they analyze smaller plans:
those with less than half the number of participants and under a quarter of the total

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assets. See Smith, 37 F.4th at 1169 (discounting comparisons to smaller plans that
“might offer fewer services and tools to plan participants”).
The point is that neither of these sources tells us much about whether
MidAmerican pays too much to Merrill Lynch overall. And without a meaningful
benchmark, the plaintiffs have not created a plausible inference that the decision-
making process itself was flawed. See Davis, 960 F.3d at 484–85; Sweda, 923 F.3d
at 330–32.
IV.
The plaintiffs tread on familiar ground with their investment-by-investment
duty-of-prudence claims. See, e.g., Davis, 960 F.3d at 484; Meiners, 898 F.3d at
823–24. As the Supreme Court recently explained, fiduciaries like MidAmerican’s
investment committee “normally ha[ve] a continuing duty of some kind to monitor
investments and remove imprudent ones.” Hughes, 142 S. Ct. at 741. The complaint
alleges that the committee should have removed five investments from
MidAmerican’s lineup, each of which was a poor performer, cost too much, or both.
Beyond these bare allegations, there still must be a “sound basis for
comparison—a meaningful benchmark.” Meiners, 898 F.3d at 822. In one case, a
combination of a “market index and other shares of the same fund” did the trick, but
there is no one-size-fits-all approach. Id. (emphasis added) (discussing Braden, 588
F.3d at 595–96). Nudging the complaint past the plausibility threshold depends on
the “totality of the specific allegations.” Id. (citation omitted).
The plaintiffs’ approach in this case is multifaceted. The complaint starts by
comparing the performance of three of the five funds to their “peer groups.” Then
it evaluates the expense ratios of all but one fund to the mean and median expense
ratios in their groups. And finally, it analyzes the expenses and performance of two
of the funds against alternative investments. None clears the pleading bar.

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A.
Start with the peer-group performance comparisons for three of the funds in
MidAmerican’s lineup: Oakmark Equity and Income Investor, Dodge & Cox
International Stock, and Aristotle Small Cap Equity I. The peer group for each
contains hundreds of funds. The allegation is that these funds performed worse than
their peer-group averages over one-, three-, five-, and ten-year periods.
On its own, the raw performance data provided by the plaintiffs falls short of
providing a “meaningful benchmark.” Davis, 960 F.3d at 484. The main reason is
that the composition of the peer groups remains a mystery. The complaint says that
Oakmark Equity and Income Investor is in the “Non-target date Balanced” category
and that Dodge & Cox International Stock is in the “International Equity” category.
But there is no explanation of what types of funds are in each group, much less the
criteria used to sort them. And for Aristotle Small Cap Equity I, the complaint does
not even identify a peer group.
With so little information, we have no way of knowing whether the peer-group
funds provide a “sound basis for comparison.” Meiners, 898 F.3d at 822. Among
the missing details is whether they hold similar securities, have similar investment
strategies, and reflect a similar risk profile. If they are indeed different, then the
peer-group data is unlikely to be “sound” or “meaningful” on its own. Id.
Compare the information in the complaint to what worked in Braden. There,
the plaintiffs relied on “the market index and other shares of the same fund.” Id. at
822 (emphasis added) (citing Braden, 588 F.3d at 595–96). The reason why those
two comparisons turned out to be “meaningful” was that tracking the market index
was the stated investment goal of the fund the plaintiffs challenged. See Braden,
588 F.3d at 595–96 (noting that the funds had “underperformed the market indices
they were designed to track”). Here, by contrast, we have limited information about

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each of the challenged funds,2 and know even less about the funds in each peer
group.
B.
To be fair, the complaint provides mean and median expense-ratio data for
two of these funds—Oakmark Equity and Income Investor and Dodge & Cox
International Fund—and for two others. Once again relying on peer-group data, the
plaintiffs allege that the expense ratios of these four funds eclipse both the mean and
median expense ratios for their respective peer groups.3
The problem here echoes what we have already said about the raw
performance data. There is no way to compare the large universe of funds—about
which we know little—to the risk profiles, return objectives, and management
approaches of the funds in MidAmerican’s lineup. The bottom line is that the
aggregate data fails “to connect the dots in a way that creates an inference of
imprudence.” Davis, 960 F.3d at 486.
C.
In one final attempt to clear the pleading bar, the plaintiffs offer individualized
benchmarks for two investments: Dodge & Cox International Stock and Oakmark
Equity and Income Investor. In their view, finding less-expensive and superior-
performing investments should be enough to nudge their claim from “conceivable
to plausible.” Iqbal, 556 U.S. at 682–83.
2 For Aristotle Small Cap Equity I, for example, there is nothing in the
complaint about fees. In Braden, by contrast, the plaintiffs provided expense ratios
and compared them with “other shares of the same fund” to plausibly plead that they
were too high. See Meiners, 898 F.3d at 822 (citing Braden, 588 F.3d at 595–96).
3 For the other two funds that allegedly have excessive fees, the complaint
places Dodge & Cox Stock in the “Domestic Equity” category and PIMCO Total
Return Instl Revenue Share in the “Domestic Bond” category.

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For Dodge & Cox International Stock, the complaint points us to Vanguard
International Growth Fund. The former, according to its prospectus, has a value
strategy: it typically invests in “well-established . . . companies that, in Dodge &
Cox’s opinion, appear to be temporarily undervalued by the stock market but have a
favorable outlook for long-term growth.” The latter, by contrast, has a growth
strategy: it “invests mainly in common stocks of non-U.S. companies that are
considered to have above-average potential for growth.” Just from their contrasting
investment styles, the two have “different aims, different risks, and different
potential rewards that cater to different investors.” Davis, 960 F.3d at 485.
We reach the same conclusion about the American Balanced R6 Fund, which
the complaint insists is a benchmark for Oakmark Equity and Income Investor. The
American fund “uses a balanced approach to invest in a broad range of securities,”
including both growth and value stocks. The Oakmark fund, by contrast, “uses a
value investment philosophy” by buying stock in a “relatively small number” of
companies trading below their intrinsic value. These two funds, much like the other
two, are “just different.” Davis, 960 F.3d at 486. So using either as a benchmark
for the other would neither be “sound” nor “meaningful.” Id. at 484.
V.
One loose end remains. The district court dismissed the complaint with
prejudice without giving the plaintiffs a chance to amend it. We conclude that there
was no abuse of discretion. Far E. Aluminium Works Co. v. Viracon, Inc., 27 F.4th
1361, 1367 (8th Cir. 2022).
Although litigants are “freely give[n] leave” to amend, see Fed. R. Civ. P.
15(a)(2), they still have to “follow [the] proper procedures,” Thomas v. United
Steelworkers Loc. 1938, 743 F.3d 1134, 1140 (8th Cir. 2014). And here, the
plaintiffs never requested leave to amend, much less “submitted an amended
complaint.” Far E. Aluminium Works, 27 F.4th at 1367; see N.D. & S.D. Iowa R.
15 (“A party moving to amend . . . a pleading . . . must electronically attach to the

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motion . . . the proposed amended . . . pleading.”). A failure to do either is reason
enough to reject their argument now. See In re 2007 Novastar Fin. Inc., Sec. Litig.,
579 F.3d 878, 884–85 (8th Cir. 2009); see also United States v. Mask of Ka-Nefer-
Nefer, 752 F.3d 737, 742 (8th Cir. 2014) (explaining that district courts are under no
obligation “to invite a motion for leave to amend if the plaintiff [does] not file one”).
VI.
We accordingly affirm the judgment of the district court.
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