Salesforce.com Workers Score 9th Cir. Revival of 401(k) Fee Suit

Salesforce.com Inc. employees won a major victory in their lawsuit challenging their 401(k) plan fees and investment options, when the Ninth Circuit ruled Friday that their proposed class action can move forward after being improperly dismissed.

The Salesforce workers have viable ERISA claims based on the company’s alleged failure to choose lower cost share classes or collective investment trusts in lieu of the plan’s supposedly high-cost funds, the U.S. Court of Appeals for the Ninth Circuit said.

Salesforce said these more expensive funds benefited the plan by offsetting other costs, but this “alternative explanation” isn’t enough to defeat a motion to dismiss, even if the company may be able to win with it at the summary judgment stage, the court said.

The decision marks the first time an appeals court has ruled on a 401(k) fee challenge since the U.S. Supreme Court considered these issues in January. The high court held in Hughes v. Northwestern University that workers’ ultimate choice over their retirement investments doesn’t excuse a plan’s decision to offer expensive or poorly performing funds.

The Ninth Circuit’s five-page, unpublished opinion doesn’t cite the Supreme Court’s decision in Hughes. Nor does it cite White v. Chevron Corp., the appeals court’s 2018 opinion siding with Chevron in a challenge to its 401(k) plan.

Here, the Ninth Circuit revived an Employee Retirement Income Security Act challenge to the Salesforce plan after a California federal court dismissed the case twice.

Although the appeals court sided with plan participants on most claims, it declined to revive claims based on Salesforce’s alleged failure to consider passively managed funds as a better alternative to the plan’s actively managed funds.

It also said that more facts were needed to determine whether the different regulatory regimes governing mutual funds and collective investment trusts affected the merits of the employees’ claims.

The opinion was issued by Judges Michael Daly Hawkins, Richard A. Paez, and Paul J. Watford.

Capozzi Adler PC represents the Salesforce employees. Steptoe & Johnson LLP represents Salesforce.

The case is Davis v. Salesforce.com, Inc., 9th Cir., No. 21-15867, unpublished 4/8/22.