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BlackRock TDF Targeted in Another Suit


Claiming that the plan fiduciaries “…employed a fundamentally irrational decision‐making process (i.e., inconsistent with their duty of prudence) contrary to basic economics and established investment theory”—a new suit involving the BlackRock LifePath target-date funds has been filed.

The suit—filed[i] by three former participants of the $38 billion, 135,000 participant Microsoft 401(k) plan in U.S. District Court for the Western District of Washington—claims—as have a half dozen similar suits filed recently—that the fiduciary defendants have breached their fiduciary duties to the plan, having “…selected, retained, and/or otherwise ratified poorly‐performing investments instead of offering more prudent alternative investments that were readily available at the time.”

There are a couple of distinctive features to this plan, compared with the others sued this week—there is apparently a separately managed account, and an employee stock ownership plan (ESOP) component, the latter having been frozen to transfers in or new contributions since 2016, according to the suit.

‘Under’ Stood? 

Those “differences” notwithstanding, the breach alleged here (Beldock et al. v. Microsoft Corporation et al., case number 2:22-cv-0108) deals with the same as the series of related suits noted above—the (allegedly poor) performance of the BlackRock LifePath Index funds. The suit claims—as have the rest filed recently—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.” And—as alleged in the other cases (the filing is basically a copy/paste of the other filings), exacerbating the problem alleged is the designation of these funds as the plan’s qualified default investment alternative, where the suit alleges that 24% of the plan’s assets were invested (as of 12/31/20).

The participant-plaintiffs here—again, as in the other suits—claim that the BlackRock TDFs significantly underperformed four of the five comparative target-date funds (Vanguard, T. Rowe Price, American Funds, Fidelity[ii]) that are the largest by market share. The suit claims that, “When evaluated against the Comparator TDFs, both individually and as a group, the returns of the BlackRock TDFs, at all stages along the glide path from aggressive to conservative, paled in comparison to those of the readily available alternatives. Accordingly, the analytical frameworks employed by prudent fiduciaries could not have supported a determination that the expected returns of the BlackRock TDFs would justify their retention in the Plan.”

‘Considerably More Aggressive’

The suit claims that the BlackRock TDFs were “considerably more aggressive” than the so-called “comparator” TDFs, “from the vintage intended for the youngest investors through those with a target date of 2050.” They go on to state that “For the 2045 through 2030 vintages, the latter of which is managed for investors currently within ten years of their anticipated retirement date, the difference in equity allocations between the BlackRock TDFs and the Comparator TDFs is negligible. Though the BlackRock TDFs become considerably more conservative in the 2025 vintage and at retirement, each of the Comparator TDFs ultimately reach a terminal equity allocation that is at or below the 40% of the BlackRock TDFs.”

Here too the plaintiffs peremptorily push back on the (potential) defense that it’s inappropriate to compare TDFs with a “to” retirement date glidepath orientation (like the BlackRock TDFs) to those with a glidepath designed with an eye toward carrying “through” retirement.

“Defendants could have sought this comparative returns data at any time from Fidelity in its capacity as recordkeeper (since Fidelity regularly provides such data to their customers), as well as from the Plan’s other service providers, or, in the alternative, obtained it themselves in real time through just a few clicks of a computer mouse,” the suit alleges.

Ultimately, the plaintiffs claim that the “defendants selected and retained the funds at issue and throughout the Class Period. Since Defendants have discretion to select the investments made available to participants, Defendants’ breaches are the direct cause of the losses alleged herein.”

Stay tuned.

Photo: Shutterstock

[i] As in the other cases, Miller Shah LLP is representing the participants filing suit, along with—in this case—the Terrell Marshall Law Group PLLC.

[ii] Here, as in the other suits, the Fidelity Freedom funds—a target of the plaintiffs’ counsel in separate actions—is set aside as “an imprudent selection for the Plan for the duration of the Class Period due to myriad quantitative and qualitative red flags after undergoing a strategy overhaul in 2014.”