A suit alleging fiduciary breaches says that sustained underperformance and massive fund outflows provided signals that plan fiduciaries ignored.
Manuel Esquivel, on behalf of the Whataburger 401(k) Savings Plan, claimed that defendants, Whataburger Restaurants LLC, the Board of Directors of Whataburger Restaurants LLC, the Whataburger 401(k) Savings Plan Administrative Committee, and Does No. 1–20 (current or former members of the Board and Committee or other fiduciaries of the Plan whose names are currently unknown) for “breaches of their fiduciary duties under the Employee Retirement Income Security Act (‘ERISA’), 29 U.S.C. § 1001 et seq., and related breaches of applicable law beginning six years prior to the date the action is filed and continuing to the date of judgment, or such earlier date that the Court determines is appropriate and just.”
More specifically, the suit—the plaintiff here is represented by Miller Shah LLP and by Don Bivens of Don Bivens PLLC—claims that “Defendants failed to appropriately monitor the Plan’s investments, resulting in the retention of unsuitable investments in the Plan instead of prudent alternative investments that were readily available at all times 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 directly caused the losses alleged herein.”
The Plan had 9,796 participants with account balances and assets totaling approximately $215 million, according to the suit.
"Underperformance over several consecutive three- or five-year trailing periods is a cause for both alarm and action," according to the suit (Esquivel v. Whataburger Restaurants LLC et al., case number 5:24-cv-00310, in the U.S. District Court for the Western District of Texas), which calls out for attention two funds in particular:
- MainStay Winslow Large Cap Growth Fund Class R1, which the suit says “was retained as a Plan investment option despite an inability to support an expectation of performance sufficient to justify its retention, including as evidenced by its consistent and significant underperformance relative to its benchmark, the Russell 1000 Growth Index, and prolonged negative alpha, demonstrating a persistent inability to add value in excess of the benchmark,” and
- Janus Henderson Triton Fund Class T “was also retained as a Plan investment option despite an inability to support an expectation of performance sufficient to justify its retention, including as evidenced by its consistent and significant underperformance relative to its benchmark, the Russell 2500 Growth Index, and peer funds and prolonged negative alpha, demonstrating a persistent inability to add value in excess of the benchmark. However, due to the Committee’s investment review procedures, a general lack of understanding of how to evaluate investment returns, and/or a general attitude of neglect toward the Plan, Defendants failed to appropriately scrutinize, and ultimately replace the investment.”
Both funds were said to have experienced significant outflows ($9 billion from MainStay from 2014-2022, $5 billion from the Janus offering between 2019 and 2022), which the suit claims provided plenty of evidence (a “troubling pattern”) that the continued availability of the plan menu showed a lack of attentiveness on the part of plan fiduciaries and those who appointed them.
"Simply put, other investors monitoring the performance of the MainStay fund were able to recognize the red flags associated with the fund and overwhelmingly withdrew their assets," according to the suit.
"When an investment option's track record is so poor, as is apparent here, defendants should necessarily investigate and replace the fund in the plan with an alternative that has demonstrated the ability to consistently outperform the benchmark, or, at the very least, in such an efficient segment of the market, retain an alternative that tracks the benchmark.”
Stay tuned.
NOTE: In litigation there are always (at least) two sides to every story. However factual it may turn out to be, the initial lawsuit in any action is only one side, and one generally crafted toward a particular result. In our coverage you'll see descriptions of events qualified with statements such as “the suit says,” or “the plaintiffs allege”—and qualifiers should serve as a reminder of that reality.
