Another of the suits alleging that plan fiduciaries “chased” low fees and disregarded poor performance has been dismissed, though not with “prejudice.”
These suits have also been filed on behalf of participants in the 401(k) plans of Citigroup Inc., Cisco Systems Inc., Genworth, Stanley Black & Decker Inc., Microsoft, Marsh & McLennan Cos., Advance Publications, and Wintrust Financial Corp.—all holders of the BlackRock LifePath Index Funds.
Representing the plaintiffs in each of these suits is the law firm of Miller Shah LLP—which has also targeted the Fidelity Freedom funds in a series of suits (albeit on different grounds). However, in recent weeks the suits have been dismissed in cases involving Microsoft, Booz Allen Hamilton, and Capital One.
You can now add to that list the $1.5 billion Advance 401(k) Plan. In a suit filed by former participant and current plaintiff Jermaine Anderson (on behalf of himself and some 12,027 participants), Anderson had, according to the suit, his account invested in the BlackRock LifePath Index 2035 Fund. Here, as in the rest of this class of litigation (and in identical language), the suit (Anderson v. Advance Publ’ns, Inc., S.D.N.Y., No. 1:22-cv-06826, complaint 8/10/22) alleges that “the BlackRock TDFs are significantly worse performing than many of the mutual fund alternatives offered by TDF providers and, throughout the Class Period, could not have supported an expectation by prudent fiduciaries that their retention in the Plan was justifiable.”
The Ruling
After laying out the history of the proceedings, as well as the applicable standards of review, Judge Analisa Torres of the U.S. District Court for the Southern District of New York noted (Anderson v. Advance Publ’ns, Inc., 2023 BL 200786, S.D.N.Y., No. 1:22-cv-06826, 6/13/23) that, not only had the plaintiff here not contested the argument by the fiduciary defendants that no supporting facts had been submitted in support of that allegation (and thus Judge Torres considered that claim “abandoned”), but that “even if Plaintiff had not abandoned that claim, the Court agrees with Defendant that the amended complaint does not contain sufficient factual allegations to state a claim of breach of the duty of loyalty under ERISA.”
Judge Torres also commented that the fiduciary defendant argued that the participant-plaintiff here “offers no direct allegations of an imprudent fiduciary process, and his circumstantial allegations simply assert that the Plan offered one popular and highly rated TDF that failed to consistently outperform four other popular and highly rated TDFs and a composite index during some quarters over a narrow range of time.” She commented as well that the defendants here had argued that “Plaintiff has not plausibly alleged that the returns of the comparator TDFs or composite index are reasonable proxies for underperformance.” In response, she commented that the plaintiff claimed that the fiduciary defendants were attempting to “sidestep both ERISA and the applicable standard of review,” stating that “[t]he relevant inquiry at this stage is whether it is reasonable to infer that the Plan’s fiduciaries failed to engage.”
Allegations of Underperformance Insufficient
That said, Judge Torres held that she “need not reach this argument to resolve the pending motion,” and that “after a diligent search of the amended complaint, the Court concludes that it does not contain sufficient factual allegations to state a claim of breach of the duty of prudence under ERISA.” She continued, “In so many words, Plaintiff alleges that the BlackRock TDFs underperformed,” but that “Allegations of underperformance are insufficient to support Plaintiff’s cause of action for breach of the duty of prudence,” citing rulings from the Microsoft and Capital One cases noted above, as well as Locascio v. Fluor Corp. and Smith v. CommonSpirit Health, which have been regularly cited as demanding more than a mere assertion of excessive fees, but needing to also reference services provided for those fees in order to establish a “plausible” argument sufficient to move past a motion to dismiss.
And while the plaintiff here claims to have “squarely” addressed those shortcomings in an amended filing, Judge Torres determined that the “plaintiff provides no facts to support his assertion that ‘the Plan’s fiduciaries failed to engage in an appropriate monitoring process,’” and that while “the Court has read the pleadings in the light most favorable to Plaintiff, it cannot reasonably infer an imprudent process based on the allegations in the amended complaint.”
“Instead”, she wrote, “the amended complaint invites the Court to speculate about, e.g., ‘performance woes and other issues with the BlackRock TDFs,’” which she said was impermissible under the standards outlined in the Twombly case. “These deficiencies pervade other allegations in the amended complaint, including those based on comparators and other performance metrics,” she wrote. “In other words, Plaintiff’s conclusory allegations are insufficient to state a claim”—and she granted the defendants’ motion to dismiss on that basis. Similarly, she tossed the allegations that the defendants “fail[ed] to act in accordance with the documents and instruments governing the Plan,” as well as allegations that there was a failure to monitor the actions of the plan fiduciaries.
As for granting another bite at the litigation “apple,” Judge Torres acknowledged that although the plaintiff had already amended his suit once, “because the deficiencies described in this order might be cured by amendment, Plaintiff may amend his complaint.”
What This Means
This court joins a growing number that are requiring a higher-than-traditional standard for moving past a motion to dismiss—basically acknowledging that what makes a fee unreasonable is not just a comparison with other plans of similar size (assets and/or participants), but some indication as to the services provided for those fees.
This is the fourth of this genre of suits filed by the law firm of Miller Shah in various federal court districts, and thus far, their claims—and attempts to remedy the shortfalls in those claims—have been unsuccessful.
