Another target-date fund family has been…targeted…in a fiduciary breach suit that claims plan fiduciaries failed to prudently review—and remove—underperforming target-date funds.
The target-date funds in question this time are the JPMorgan SmartRetirement series, while the plans in question are the $1.8 billion 401(k) and $1.7 billion 403(b) plan of Broomfield, CO-based SCL Health, which describes itself as “a faith-based, nonprofit healthcare organization dedicated to improving the health of the people and communities we serve, especially those who are poor and vulnerable.”
The three participant-plaintiffs are represented in the action (Macias et al. v. Sisters of Charity of Leavenworth Health System et al., case number 1:23-cv-01496, in the U.S. District Court for the District of Colorado) by one of the more active litigants in the space, Capozzi Adler.[1] Generally speaking, the suit alleges that the fiduciary defendants breached their fiduciary duty of prudence, and that those appointing the plan fiduciaries failed to monitor their actions.
More specifically, the suit asserts that the fiduciaries failed “to objectively and adequately review the Plans’ investment portfolio with due care to ensure that each investment option was prudent, in terms of cost and performance.” Moreover, the suit states that “their actions were contrary to actions of a reasonable fiduciary and cost the Plans and its participants millions of dollars.”
The allegations of underperformance are relatively perfunctory; performance numbers for three- and five-year periods for allegedly comparator funds for multiple years. While the suit acknowledged a switch to the JPMorgan CIT target date passive blend series in 2020, “this change had no material effect on fund performance and the funds continued to languish as demonstrated by their one-year performance histories…”
The suit comments that “SCL Health’s own investment policy statement required that this target date be replaced based on its poor performance as early as the start of the Class Period, if not sooner. As detailed in the IPS: “…performance will be reviewed at least annually in an effort to identify any adverse performance trends or other issues….”
The suit goes on to note that “the IPS provides that the funds in the Plans must be evaluated primarily on their 3- and 5-year returns compared to their respective benchmark(s) and the rankings of each fund in the 3- and 5-year peer universe,” and that “any underperforming funds should be removed and replaced with their better performing alternatives.”
Ultimately, the suit alleges that the plan fiduciaries (and the individuals who appointed them) stood “idly by as the Plans suffered significant losses as a result of the Committee Defendants’ imprudent actions and omissions,” that they failed to monitor the processes by which the Plans’ investments were evaluated; and failed “to remove Committee members whose performance was inadequate in that they continued to maintain imprudent and poorly performing investments within the Plans all to the detriment of the Plan and Plan participants’ retirement savings.”
Will this be enough to survive a motion to dismiss? Stay tuned.
NOTE: In litigation there are always (at least) two sides to every story. However factual it may turn out to be, the initial lawsuit in any action is only one side, and one generally crafted toward a particular result. In our coverage you'll see descriptions of events qualified with statements such as “the suit says,” or “the plaintiffs allege”—and qualifiers should serve as a reminder of that reality.
Footnote
[1] Capozzi Adler PC has been one of the more active litigants of late. It had a busy 2020, in addition to the suit against LinkedIn, there have been actions filed against Universal Health Services, Inc., and before that Aegis Media Americas Inc., as well as the $2 billion health technology firm Cerner Corp., Pharmaceutical Product Development, LLC Retirement Savings Plan, Gerken v. ManTech Int’l Corp—and the appeal of losses at the district court in a case involving Salesforce. In May 2021, they also filed suit against the $5.3 billion Humana Retirement Savings Plan, in June against the $2.3 billion Wake Forest University Baptist Medical Center (settled in 2023), and in August against the $1.5 billion Baptist Health South Florida, Inc. 403(b) Employee Retirement Plan. More recently, they struck a $6 million settlement in a suit involving the Spectrum Health System 403(b) plan.
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