It’s a case of same funds, same issues, same lawyers, and same court—but a different plaintiff and plan have been “targeted” in the latest 401(k) litigation.
Lifting not only the approach, arguments, and much of the text[i] from a suit just filed against the Allstate 401(k) plan (and plan fiduciaries) the law firms of Scott+Scott Attorneys at Law LLP and Law Offices of Michael M. Mulder—have now charged (Callaway v. Northern Tr. Co., N.D. Ill., No. 1:20-cv-06497, complaint 11/2/20) that the fiduciaries of Northern Trust’s own 401(k) plan “did not effectively use” the leverage of a large plan “to identify and select prudent target date options for Plan participants.”
As did the Allstate suit involving the same target-date family, this suit (also) claims that “despite a market flush with better-performing alternatives, Defendants selected the Northern Trust Focus Funds to be the Plan’s target date asset class investment option,” funds that the plaintiff claims “significantly underperformed their benchmark indices and comparable target date funds since Northern Trust launched them in 2010.” The same “comparator” funds were used (American Funds, T. Rowe Price and Vanguard) to demonstrate the performance shortfalls, as were the benchmark Dow Jones US Target Date (DJ US TD) Index and S&P Target Date (S&P TD) Index. All in all, the suit alleges that “the overall breadth and depth of the Northern Trust Focus Funds’ underperformance raises a plausible inference that Defendants’ fund selection and monitoring process for the Plan was tainted by a failure of competency or effort.”
There are some differences, of course.[ii] Plaintiff and (now) ex-participant Katrina L. Callaway was in the plan, and those funds (specifically the Northern Trust Focus 2030 Fund) from 2016 until the spring of 2020. Additionally, since both the time period in question and the plan assets involved were different, this suit claims that “based on an analysis of data compiled by Morningstar, Inc.” that the plan “lost upwards of $34 million in retirement savings since 2014 because of Defendants’ decision to retain the Northern Trust Focus Funds in the Plan instead of removing them.”
Proprietary Position
Excessive fee suits have cropped up against a number of money managers for offering their own funds in their plans, generally alongside allegations that such arrangements served to benefit the bottom line of the organizations, or propped up the assets invested in otherwise mediocre offerings. However, while the funds here were acknowledged as “proprietary,”[iii] those other allegations did not appear to be a factor in this suit.
In sum, this suit (also) alleges that defendants “breached their fiduciary duties through their imprudent process for investigating, evaluating, and monitoring investments. The faulty process resulted in a plan loaded with the Northern Trust Focus Funds that have exhibited chronic poor performance for almost a decade. Defendants failed to remove the Funds despite their historical underperformance relative to other target date collective investment trusts and relevant benchmark indexes.”
The suit also challenged the lack of oversight of the individuals making those decisions on behalf of the plan, specifically for “failing to monitor their appointees, to evaluate their performance, or to have a system in place for doing so, and standing idly by as the Plan suffered enormous losses as a result of their appointees’ imprudent actions and omissions with respect to the Plan.” As well as “failing to ensure that the monitored fiduciaries had a prudent process in place for evaluating and ensuring that the Funds were prudent; and failing to remove appointees whose performance was inadequate in that they continued to allow imprudent investment options to remain in the Plan to the detriment of Plan participants’ retirement savings.”
Looks like the plaintiffs’ bar has a new target—and a different angle.
[i] Ironically, while the text is somewhat different, both suits are also 43 pages long.
[ii] In view of the similarity in cause of action, it’s a little surprising that the plaintiff’s attorneys did as much “tweaking” as they did to the text of the filing. For example, in the Allstate case, it was phrased “For almost a decade, Defendants have failed to remove the Funds from the Plan despite their abysmal underperformance,” whereas in the suit against Northern Trust, “Defendants failed to remove the Funds from the Plan despite their abysmal underperformance for almost a decade.”
[iii] In what may have been an accidental carryover, the Allstate suit also speaks to the Northern Trust Focus Funds as being “proprietary.”
