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Despite Second Shot, Plaintiffs (Still) Strike Out in BlackRock TDF Suit


Given another shot at making their case, the participant-plaintiffs in another of the suits targeting retirement plan holders of the BlackRock Lifepath target-date funds have struck out.

As a reminder, this is one of the dozen or so suits filed in federal courts around the nation, all basically alleging that the plan fiduciaries “chased low fees” rather than being attentive to fund performance, at least as measured by a series of allegedly comparative target-date fund suites (though those comparisons used a “through” versus a “to” retirement date-focused glidepath). 

This particular one involved the fiduciaries of Microsoft’s 401(k), which had been sued in August 2022, subsequently filed a motion to dismiss the suit, and got that in February 2023—albeit with an opportunity to cure the shortcomings that U.S. District Judge James L. Robart identified in that suit. 

More specifically that “Plaintiffs ask the court to infer, based on the quarterly charts of three- and five-year annualized returns they present in their complaint, that Defendants must have breached their fiduciary duty of prudence when they did not divest from the BlackRock TDFs. They allege no facts, however, that would ‘tend to exclude the possibility’ that Defendants had reasons to retain the BlackRock TDFs that were consistent with their fiduciary duties.” And that, “Absent such allegations, Plaintiffs fail to raise their claim above a speculative level.”

Better Benchmarks?

So—how did these plaintiffs—represented by Miller Shah LLP (as are all the plaintiffs in this series[i] of cases, along with a series of local law firms, depending on the jurisdiction)—attempt to shore up their case?  They “added comparisons of the BlackRock TDFs against the S&P Target Date Indices”, and also added “a new metric—the Sharpe ratio—to illustrate the BlackRock TDFs’ risk-adjusted returns relative to the Comparator TDFs.” 

Judge Robart went on (Beldock et al. v. Microsoft Corp. et al., case number 2:22-cv-01082, in U.S. District Court for the Western District of Washington) to note that “plaintiffs describe the S&P Target Date Indices as “a composite of the disparate strategies and styles present in the broad universe of investable alternative TDFs” and assert that they “represent an appropriate, meaningful benchmark comparator for the BlackRock TDFs.” 

He went on to explain that “consistent with this assertion, Plaintiffs now include a metric showing the BlackRock TDFs’ performance relative to the S&P Target Date Indices in three- and five-year performance charts for each quarter between the second quarter of 2016 and the third quarter of 2019, along with the performance of the BlackRock TDF, the best performing Comparator TDF, and the worst performing Comparator TDF”. 

As for the Sharpe ratio, he commented that “plaintiffs allege that the Sharpe ratio, which is “commonly prescribed as a component of a fiduciary investment monitoring process by retirement plan investment policy statements…” 

Judge Robart went on to note that, “according to Plaintiffs, the metrics they present in their amended complaint were easily accessible to Defendants and “would have been sufficient to convince a fiduciary following a prudent process to investigate alternatives and ultimately replace the BlackRock TDFs.”

“Sharpe” Shooters?

As it turns out, the additions of the S&P Target Date Indices and Sharpe ratio benchmarks had also been attempted as a remedy for the shortcomings identified in nearly identical lawsuits filed in the other side of the country (U.S. District Court for the Eastern District of Virginia) involving Capital One and (separately) Booz Allen Hamilton

It was rejected soundly by that court—and it fared no better here.  Commenting that “the Sharpe ratio metric and comparisons to the S&P Target Date Indices are “merely additional measurements of investment performance” beyond those Plaintiffs included in their original complaint,” Judge Robart wrote, “As the court noted in its prior order, courts across the country have rejected claims for breach of the fiduciary duty of prudence under ERISA where the plaintiffs allege nothing more than underperformance relative to other investment vehicles”.

He concluded “Plaintiffs’ allegations, which again are based solely on the BlackRock TDFs’ alleged poor performance during a brief timeframe, are insufficient, without more, to raise Plaintiffs’ claim above the level of speculation and into plausibility.

Accordingly, the court again DISMISSES Plaintiffs’ claim for breach of the fiduciary duty of prudence under ERISA.”  And having tossed that main issue, he summarily dismissed the secondary claims of breach of the fiduciary duty of loyalty.

And this time – having provided the participant-plaintiffs with not one, but TWO “opportunities to sufficiently plead their claims…” Judge Robart denied them another opportunity to fix things – and dismissed their claims, this time with prejudice.

That said, this same law firm, which has made essentially the same arguments, and lost in two previous cases—has recently said they plan to appeal those decisions.  It seems likely that they’ll copy that decision as well. 

What This Means

I’ve noted previously that one needs to have only a rudimentary understanding of ERISA fiduciary law to expect that a suit alleging a myopic focus on fees that sacrificed performance would have an uphill fight on their hands.

Indeed, fiduciary suits have long reminded us that it’s about prudence and a documented process, whereas these particular suits have basically assumed that those were not possible with what they alleged were inferior results.

Thus far the track record on these suits is about what you might expect – well, other than the repeated opportunities that the courts have continued to provide plaintiffs to “fix” their claims.  That’s a lot of time, effort and money on the part of plan fiduciaries to defend these actions – that might arguably be spent on more meaningful pursuits.

[i] The suits have been filed on behalf of participants in in the 401(k) plans of Citigroup Inc., Cisco Systems Inc., Genworth, Capital One, Booz Hamilton Allen, Stanley Black & Decker Inc., Marsh & McLennan Cos., Advance Publications, and Wintrust Financial Corp.