Noting that “…as many Courts of Appeals have said, ERISA demands ‘prudence, not Prescience,’” defendants in one of a series of suits challenging holdings of the BlackRock LifePath target-date funds have moved to dismiss the suit.
The suit in question is one of about a dozen targeting plans that offered the BlackRock Lifepath target-date funds. 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.”
Motion to Dismiss
In moving to dismiss the suit—with prejudice (Tullgren v. Booz Allen Hamilton Inc., E.D. Va., No. 1:22-cv-00856, motion to dismiss 10/10/22)—the Booz Allen defendants (represented by Morgan, Lewis & Bockius LLP) cite several reasons. “First, every Court of Appeals to have addressed similar challenges to target-date funds in ERISA plans by comparing them to other target-date funds—including the Sixth, Eighth, and Ninth Circuit—has affirmed Rule 12(b)(6) dismissal of those claims because the alleged comparator target-date funds were not plausibly shown to be ‘meaningful benchmarks’ to the funds being challenged”—a flaw they say also exists in this suit. They cite none other than the Department of Labor’s statement that “there are considerable differences among TDFs offered by different providers, even among TDFs with the same target date.” The defendants note that the suit itself acknowledges that the “BlackRock TDFs have a different glide path, different equity holdings, and different investment strategies than each of the four Comparator TDFs. This means the Comparator TDFs cannot be ‘meaningful benchmarks’ as a matter of law, and the Complaint fails on this basis alone.”
That said, “even if Plaintiff had alleged meaningful benchmarks (and he does not), he cannot state a plausible imprudence claim merely based on alleged investment underperformance,” the motion to dismiss reads. Citing the recent CommonSpirit Health decision, they note, “As the Sixth Circuit recently put it, ‘[m]erely pointing to another investment that has performed better in a five-year snapshot of the lifespan of a fund that is supposed to grow for fifty years does not suffice to plausibly plead an imprudent decision.’” They go on to note that holds true here—and “especially since the Complaint alleges there are at least 28 different target-date-fund suites in the market, but only compares the BlackRock TDFs to four of them. Assuming arguendo that four out of at least 28 target-date suites (sometimes) performed better than the BlackRock TDFs, that still permits no inference that the BlackRock TDFs were imprudent or that the fiduciary process for the Plan was flawed. And it certainly does not show that offering those investments fell outside the ‘range of reasonable judgments’ fiduciaries make.”
‘Undermine Any Assertion’
Beyond that, citing “publicly available market ratings and assessments of the BlackRock TDFs” the motion notes those “squarely undermine any assertion that they were ‘deplorable’ and ‘vastly inferior’ investments, as the Complaint charges.” Here, they turn to the Morningstar 2022 Target-Date Strategy Landscape report—the very one cited in the original suit—where “Morningstar gives the BlackRock TDFs a ‘Gold’ analyst rating, the same as or higher than all the Comparator TDFs. The Complaint’s cited Morningstar Report likewise shows that investors continue to flock to—not away from—the BlackRock TDFs, investing tens of billions of new dollars in the funds in the past few years.”
And—if all that were not enough, the fiduciary defendants point to the plaintiffs’ own comparative performance charts[i] that “…focus on modest underperformance of the type that courts have repeatedly found insufficient to support a claim of imprudence. Equally important, the Complaint itself reflects that the BlackRock TDFs outperformed many (and sometimes all) of the four Comparator TDFs across the three- and five-year periods ending more recently in 2021 and 2022—i.e., across virtually the full putative class period reaching back to 2016. If anything, those allegations are reflective of a strong and prudent process for selecting investments, not evidence of an imprudent fiduciary process.”
Beyond that, the motion cautions that “it is almost always possible to find a better performing investment in the market, especially with the benefit of hindsight. But that does not plausibly support any inference that the Plan’s inclusion of the BlackRock TDFs in the investment lineup was a fiduciary breach. If that were the test, it would expose virtually every 401(k) plan and every plan fiduciary to “extensive and costly claims of class-wide fiduciary breach because, under that so-called ‘test,’ any enterprising plaintiff’s attorney can find an ‘imprudent’ investment in virtually every plan.”
“For these reasons, Booz Allen Hamilton, Inc., the Board of Trustees of Booz Allen Hamilton Inc. (the ‘Board’), and the Administrative Committee of the Booz Allen Hamilton Inc. Employees’ Capital Accumulation Plan (the ‘Committee’) (together, ‘Booz Allen’) request that the Court dismiss Plaintiff’s Complaint in its entirety and with prejudice under Rule 12(b)(6).”
Will the court be persuaded? Stay tuned.
[i] More specifically, the motion points out a specific example involving one of the named plaintiffs in the suit. “For starters, the most that the Complaint’s allegations show is that the BlackRock TDFs modestly underperformed the Comparator TDFs over certain selected periods. Take the BlackRock 2050 TDF as an example—one of the only two funds that Plaintiff alleges he personally selected. See Compl. ¶ 9. As of Q3 2019, in the heart of the putative class period, the Complaint alleges that the while the BlackRock 2050 TDF ranked “last” among the Comparator TDFs, it only underperformed the “Best Performing Comparator TDF” by less than 1% on both a three- and five-year basis (0.84% over three years, and 0.99% over five years). Id. ¶ 39 at 21. Even if investment underperformance by itself could state a plausible claim of imprudence in some theoretical case (and the case law dictates otherwise), this sort of modest performance discrepancy is surely not enough. See, e.g., Gonzales v. Northwell Health, Inc., 2022 WL 4639673, at *8 (S.D.N.Y. Sept. 30, 2022) (finding that rolling three- and five-year underperformance ranging from 0.32% to 2.57% was “not the type of substantial underperformance over a lengthy period that gives rise to a plausible inference that a prudent fiduciary would have removed these funds from the plan’s menu of options.”
