As federal courts turn their attention to a series of lawsuits challenging plans with a series of target-date BlackRock funds, the American Retirement Association has joined the fray in a “friend of the court” brief.
The friend[1] Short (Tullgren vs. Booz Allen Hamilton Inc.., ED Va., No. 1:22-cv-00856, amicus brief 10/17/22) was submitted on behalf of the American Benefits Council, the ERISA Industry Committee and the American Retirement Association to the endorsement of Booz Allen accused in one of a dozen such lawsuits[2] filed in federal courts across the country by Miller Shah LLP.
The plaintiffs in these lawsuits essentially alleged that the plan trustees were “looking for low fees” to the exclusion of any consideration of performance. Specifically, that “Defendants…could have chosen from a wide range of conservative alternative target date families offered by competing TDF vendors, which are readily available in the market, but elected to retain BlackRock TDFs instead, a reckless move that deprived Plan participants of significant growth in their retirement assets. And that in doing so, “Defendants failed to act in the sole interest of Plan Participants and breached their fiduciary duties by failing to appropriately select, retain and monitor the clearly inferior BlackRock TDFs.”
Booz Allen’s fiduciary defendants filed their motion to dismiss the lawsuit earlier this month.
‘So-Called Cherry-Picked Comparators’
The amicus filing notes that “the plaintiff here alleges recklessness based exclusively on the trustees’ selection of a suite of BlackRock funds which allegedly underperformed – solely on short-term returns – a set of four so-called hand-picked comparators with little in common with BlackRock funds challenged beyond the “target date fund” label.
He goes on to cite Plaintiff’s “myopic fixation on a single variable among others that trustees must consider in determining the plan’s investment deals,” explaining that it “creates a particularly threatening prototype for strike suits.” fiduciary, seeking a statement that a fund suite is inherently imprudent despite its fees, risk profile, or rating among market analysts – which the complaint and its sources acknowledge are all exemplary for the BlackRock fund suite here – between other factors.
The brief also points out that to assert “that it is unwise to offer a fund that has generated lower returns for specified past periods relative to top performers in the same broad fund category…will subject every plan that does not select not the #1 fund in every asset category to costly litigation, a disastrous outcome for both the legal system and the private pension system.
‘Desynchronized’
Beyond that, the brief noted that this “theory is also very much out of step with fiduciary duty law,” going on to comment that “it is indisputable that if a fiduciary made annual decisions based solely on past performance , the fiduciary would be failing in its duty of care by ignoring the vast majority of other factors that must be considered, including risk tolerance, diversification, quality of management and the nature of the workforce covered. Indeed, if the complaint (or any of its roughly a dozen identical copies filed concurrently against other plan trustees) survives a motion to dismiss, plan trustees across the United States will be left vulnerable to lawsuits for including all fund options that prioritize low management fees, risk mitigation, or any other factor that a prudent fiduciary may consider. account against past returns. Such an approach would also lead to disastrous fiscal results, with plan trustees constantly buying high and selling low, all in futile pursuit of past performance.
The brief warns that the end result of allowing these types of claims to proceed to trial means that “plaintiffs’ counsel will simply use their surviving claims[3] as a bargaining chip, leveraging the threat of costly discovery to secure settlements that generate big payday for plaintiffs’ companies but negligible benefits for plan participants.
Faced with rising litigation and insurance costs and conflicting court guidance as to what types of recklessness claims are sufficient to survive a motion to dismiss, small sponsors can simply refuse to provide DC plans. . For those who do, plan trustees choosing investment options will have to navigate many competing interests with the threat of exorbitant legal costs looming forever.
Indeed, he concludes that “nothing in the case law relating to ERISA prudence mandates this result. Quite the opposite, in fact. In the face of an upsurge in ERISA violation cases over the past fifteen years, courts have recognized that they should not substitute their judgments for those of trustees tasked with making complex discretionary decisions. Plan trustees face a range of such decisions in structuring the menu of investment options available to plan participants, whose investment needs and objectives can vary widely. Since there is a range of reasonable considerations and choices, courts do not find fiduciary breaches simply because a fund choice has underperformed a set of carefully chosen hypothetical alternatives on a single metric for a period of time. determined period of time. And that’s doubly the case when, as here, the BlackRock suite of funds and the so-called comparators presented entirely different investment strategies that, by design, should perform differently in different market conditions.
Essentially, the brief points out that the plaintiffs in this case are asking the court “to allow a lawsuit based on a legal theory that would open the floodgates to suit every plan in the country and force plan trustees to act in a way that is clearly against the law.
We’ll see if the court takes notice.
Footnotes
[1] Amicus Curiae literally translates from Latin as “friend of the court”. The plural is “amici curiae”. It generally refers to a person or group who is not a party to an action, but who has a strong interest in the case and who, by filing the brief, tries to inform/influence the decision of the court. These briefs are called “amicus briefs”.
[2] To date, this includes lawsuits filed against Genworth Financial Inc., Microsoft, Cisco Systems Inc., Booz Allen Hamilton Inc., Stanley Black & Decker Inc., Advance 401(k) Plan, Wintrust Financial Corp., Marsh & McLennan Cos and CUNA.
[3] The brief explains that “notwithstanding the discretion built into ERISA’s prudence requirement, plan sponsors and trustees have been subject to a growing wave of litigation alleging breaches of their duty of care over the course of decade.5 In recent years, that tide has turned into a tsunami, with more than 180 such federal lawsuits filed since 2020.6 More than half of U.S. district courts now have at least one case of this type underway, and lawsuits have shifted from pursuing plans of large employers with over $1 billion in plan assets to targeting plans sponsored by smaller businesses and nonprofits , such as health systems and educational institutions. This proliferation of cases is fueled in large part by the companies’ use of cookie-cutter complaints, that is, cut-and-paste complaints making identical allegations (in the same language and sometimes even with the same typos) against different shots. filed simultaneously in many different districts. The present case provides an immediate example of this, as it is one of eleven identical cases filed by the same plaintiff firm in seven different district courts across the United States within days of each other.
