Jacob V. Stewart

In Trauernicht v. Genworth Financial Inc., the Fourth Circuit explains how the nuances of ERISA and retirement plans mesh with the nuances of Rule 23 and class certification. 169 F.4th 459 (4th Cir. Mar. 10, 2026). This post will explore the Fourth Circuit’s breakdown of the distinction between “defined contribution plans” and “defined benefit plans,” and why that distinction matters in the context of ERISA and class actions.

Refresher on Mandatory Class Actions

Before diving into the facts of this case, let’s begin with a refresher on “mandatory” class actions. Under Rule 23, there are three types of class actions:

• (b)(1) class actions;
• (b)(2) class actions; and
• (b)(3) class actions.

Rule 23(b)(1) and (b)(2) class actions are “mandatory.” Mandatory class actions do not require that notice be given to all class members and do not allow members to opt out of the class. 

A mandatory class action may be certified under (b)(1) when “prosecuting separate actions by or against individual class members would create a risk of: (A) inconsistent or varying adjudications . . . that would establish incompatible standards of conduct for the party opposing the class” or “(B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests.” 

A mandatory class action may also be certified under (b)(2) when “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.”

In contrast, Rule 23(b)(3) class actions are not mandatory; they have protective notice requirements and allow members to opt out. The Supreme Court has held that “individualized monetary claims belong in Rule 23(b)(3).” Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 362–63 (2011). 

Background

Now we can turn to the facts of Trauernicht. Two former employees of Genworth Financial filed a putative class action against Genworth for breaching its duty to act “prudently,” a fiduciary duty established by the Employee Retirement Income Security Act (“ERISA”). Specifically, the plaintiffs alleged that Genworth violated ERISA by “imprudently” including underperforming investment options in its retirement plan. According to the plaintiffs, Genworth harmed each employee who invested in the underperforming options because each employee would have earned a greater return if Genworth offered a better, “prudent” alternative. 

Based on this theory, the district court certified a mandatory class action under Rule 23(b)(1) that included all Genworth retirement-plan participants whose accounts held the allegedly underperforming investment options. In doing so, the district court relied on the derivative nature of the claims, noting that the plaintiffs were suing in a representative capacity “on behalf” of the retirement plan and concluding that the claims were not for individualized monetary damages, but rather for recovery to the plan as a whole.

The Fourth Circuit reversed and vacated the district court’s certification order. The Fourth Circuit concluded that ERISA claims “brought in the context of a defined contribution plan are individualized monetary claims,” which “cannot be joined in a mandatory class certified under Rule 23(b)(1).” 

The Court also concluded that the district court failed to conduct a “rigorous analysis to determine whether members of the class suffered the same injury, as required for finding commonality under Rule 23(a)(2).” The Court reached these conclusions by parsing through the differences between mandatory and nonmandatory class actions (discussed above), as well as the differences between “defined contribution plans” and “defined benefit plans.” 

Defined Contribution Plans vs. Defined Benefit Plans

A defined-contribution plan includes retirement plans like 401(k)s. In 401(k)s and similar plans, employees can choose which employer-selected investment options to include in their retirement accounts, and the value of their accounts depends on the performance of their investment choices. On the other hand, defined-benefit plans, like pensions, pay participants fixed amounts in retirement, and these payments remain consistent regardless of the overall value of the plan’s investments.     

The scope of relief available under imprudent-investment claims “varies considerably” depending on whether the employer’s retirement plan is a defined-contribution plan or a defined-benefit plan. 

If imprudent-investment claims concern a defined-benefit plan, mandatory class relief can be proper because the plan’s investments are collectively used to make fixed retirement payments. Recovery under such claims would go to the plan—not to the individual plan participants. But if imprudent-investment claims concern a defined-contribution plan, a mandatory class is improper because investments are held in distinct retirement accounts, and each participant would have an “individualized monetary claim” regarding his or her retirement account. Recovery under such claims would go to each participant’s retirement account, rather than to the plan at large. 

Certifiability of Claims Based on Genworth’s Retirement Plan

In Trauernicht, Genworth’s retirement plan was not a defined-benefit plan, like a pension. Rather, it was a defined-contribution plan, like a 401(k), and Genworth employees could choose which Genworth-selected investment options to include in their individual retirement accounts. Some investment options were the allegedly underperforming ones, the inclusion of which violated ERISA’s duty to act prudently, according to the plaintiffs. 

But regardless of whether the inclusion of the allegedly underperforming investment options violated ERISA, the Fourth Circuit explained that claims based on such a violation could not be joined in a mandatory class action. Mandatory class certification was improper because Genworth’s retirement plan was a defined-contribution plan, and each participant’s claim for damages was “individualized.” Losses caused by the allegedly underperforming investment options could “vary significantly depending on factors like how much money a participant had invested in the imprudent fund, how long he had held the investment, and the precise timing of when he had bought and sold.”    

These fluctuating factors also undercut the “commonality” requirement applicable to all class actions, mandatory and nonmandatory. The district court failed to conduct a thorough commonality analysis; rather, it simply concluded that there was “inherent commonality” across the participants’ claims. But as the Fourth Circuit noted, each potential class member “participated in the plan in a materially different way,” choosing different investment options, and holding these investments for different periods. Moreover, each plan participant suffered different injuries, and indeed, the record suggested that some participants suffered no injury at all. Thus, contrary to the district court’s conclusion, the participants’ claims were not “inherently common,” and a more rigorous commonality analysis was required. 

Accordingly, the Fourth Circuit reversed and vacated the district court’s class-certification order because the participants’ claims could not be joined in a mandatory class action and, in any event, the district court’s commonality analysis lacked the rigor required for class certification. 

Takeaway

Trauernicht illustrates how the substance of class-action claims informs the Rule 23 analysis, and nuances like the distinctions between pension plans and 401(k)s can be critical to class certification. In a world that has largely shifted away from pensions, Trauernicht will be useful precedent for employers with retirement plans governed by ERISA.