As federal courts turn their attention(s) to a series of suits challenging plans with a series of BlackRock target-date funds on their hands, the American Retirement Association has joined the fray in a “friend of the court” brief.
The amicus[i] brief (Tullgren v. Booz Allen Hamilton Inc., E.D. 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 in support of the Booz Allen defendants in one of about a dozen such suits[ii] filed in federal courts around the country by Miller Shah LLP.
The plaintiffs in these suits basically alleged that the plan fiduciaries “chased low fees” to the exclusion of any consideration for performance. More specifically, that “Defendants… could have chosen from a wide range of prudent alternative target date families offered by competing TDF providers, which are readily available in the marketplace, but elected to retain the BlackRock TDFs instead, an imprudent decision that has deprived Plan participants of significant growth in their retirement assets.” And that, in so doing, “Defendants failed to act in the sole interest of Plan participants and breached their fiduciary duties by imprudently selecting, retaining, and failing to appropriately monitor the clearly inferior BlackRock TDFs.”
The Booz Allen fiduciary defendants filed their motion to dismiss the suit earlier this month.
‘Cherry-Picked So-Called Comparators’
The amicus filing notes that “the Plaintiff here claims imprudence exclusively based on the fiduciaries’ selection of a BlackRock fund suite that allegedly underperformed—solely on short-term returns—a set of four cherry-picked so-called comparators with little in common with the challenged BlackRock funds beyond the ‘target date fund’ label.”
It goes on to cite the plaintiff’s “myopic fixation on a single variable among many that fiduciaries must consider in determining plan investment offerings,” explaining that doing so “creates a particularly menacing prototype for fiduciary strike suits, seeking a declaration that a fund suite is per se imprudent notwithstanding its fees, risk profile, or rating among market analysts—all of which the Complaint and its sources acknowledge are exemplary for the BlackRock fund suite here—among other factors.”
The brief also points out that asserting “that it is imprudent to offer a fund that earned smaller returns for specified past periods than the top performers in the same broad fund category… will subject every plan that does not select the #1 fund in each asset category to costly litigation, a catastrophic outcome for both the court system and the private retirement system.”
‘Out of Sync’
Beyond that, the brief noted that this “theory is also badly out of sync with the law on fiduciary duties,” going on to comment that “it is beyond dispute that if a fiduciary made annual decisions based solely on past performance, the fiduciary would breach his or her duty of prudence by ignoring the vast majority of other factors that must be considered, including risk tolerance, diversification, quality of management, and the nature of the covered workforce. Indeed, if the Complaint (or any of its roughly one dozen identical copies filed simultaneously against other plan fiduciaries) survives a motion to dismiss, plan fiduciaries across the United States will be rendered vulnerable to suit for including any fund options that prioritize low management fees, risk mitigation, or any other factor a prudent fiduciary may consider over past returns. Such an approach would also lead to disastrous fiscal results, with plan fiduciaries consistently buying high and selling low, all in the futile pursuit of past performance.”
The brief cautions that the end result of permitting these type allegations to proceed to trial means that “plaintiffs’ counsel will simply use their surviving claims[iii] as a bargaining chip, leveraging the threat of costly discovery to secure settlements that generate a big payday for plaintiffs’ firms but negligible benefits for plan participants. Faced with mounting litigation and insurance costs and conflicting judicial guidance as to what types of imprudence allegations are sufficient to survive a motion to dismiss, smaller sponsors may simply decline to provide defined contribution plans at all. For those that do, plan fiduciaries choosing investment options will be left to navigate between many competing interests with the threat of exorbitant litigation costs ever looming.”
Indeed, it concludes that “nothing in the ERISA prudence case law compels this outcome. Quite the opposite, in fact. In grappling with the surge of ERISA fiduciary breach cases over the past fifteen years, courts have recognized that they should not substitute their judgments for those of fiduciaries charged with making complex discretionary decisions. Plan fiduciaries face an array of such decisions in structuring the menu of investment options available to plan participants, who may vary in widely their investment needs and objectives. Because a range of reasonable considerations and choices exist, courts do not find fiduciary breaches simply because one fund choice underperformed a set of cherry-picked hypothetical alternatives on a single metric for a fixed period of time. And this is doubly so where, as here, the BlackRock fund suite and the alleged comparators featured wholly different investment strategies that would, by design, be expected to perform differently under different market conditions.”
Essentially, the brief points out that the plaintiffs in this case are asking the court “to allow a suit to move forward based on a legal theory that would open the floodgates to lawsuits against every plan in the country and force the plans’ fiduciaries to act in a way that is clearly contrary to law.”
We’ll see if the court takes note.
[i] Amicus Curiae is literally translated from Latin—"friend of the court." Plural is "amici curiae." It generally refers to a person or group who is not a party to an action, but has a strong interest in the matter, and who—in filing the brief is attempting to inform/influence the court’s decision. Such briefs are called "amicus briefs."
[ii] To date that includes suits 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.
[iii] The brief explains that “notwithstanding the discretion built into ERISA’s prudence requirement, plan sponsors and fiduciaries have been subject to a steadily growing tide of litigation alleging breaches in their duty of prudence over the past decade.5 In recent years, this tide has grown into a tsunami, with over 180 such federal suits being filed since 2020.6 More than half of United States district courts now have at least one such case pending, and the suits have expanded from pursuing large employer plans with over $1 billion in plan assets to targeting plans sponsored by smaller companies and non-profits, such as health systems and educational institutions. This proliferation of cases is fueled in large part by plaintiffs’ firms’ use of cookie-cutter complaints—i.e., copy-and-pasted complaints making identical allegations (in the same language and sometimes even featuring the same typos) against different plans—usually filed contemporaneously across many different districts. The present case provides a ready example, as it is one of eleven identical cases filed by the same plaintiffs’ firm in seven different district courts across the United States within days of one another.