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TDF Choice Draws Fiduciary Breach Suit


ERISA litigationA $10 billion 401(k) plan has been sued for breach of fiduciary duty for selecting – and keeping – an underperforming target-date fund family on its fund menu.

The plaintiffs here (Chandra V. Brown-Davis, Yolanda Brown, Ronald Dinkel, Siobhan E. Fannin, Daphne G. Jacob, Kristie Kolacny, Dianna J. Martin, Sherri Nelson, Becky S. Ray, Timothy M. Renaud, Lisa Smith and Susan Weeks), individually and as representatives of a class of participants and beneficiaries of the $10 billion Walgreen Profit-Sharing Retirement Plan, have sued the Walgreen Co., the Retirement Plan Committee For Walgreen Profit-Sharing Retirement Plan and their members, and the Trustees for the Walgreen Profit-Sharing Retirement Trust and their members for breach of fiduciary duties under the Employee Retirement Income Security Act.

Fiduciary ‘Focus’

Specifically, the suit (Brown-Davis v. Walgreen Co., N.D. Ill., No. 1:19-cv-05392, complaint 8/9/19) claims that, “in 2013, they loaded the plan with a suite of poorly performing funds called the Northern Trust Focus Target Retirement Trusts,” and that they “kept these Funds throughout the Class Period despite their continued underperformance.” 

How much underperformance? The suit claims that, “for nearly a decade, these investment options performed worse than 70 to 90 percent of peer funds.”

Worse, according to the plaintiffs – who are represented by Sanford Heisler Sharp LLP and Maddox Hargett & Caruso PC – not only has Walgreen failed to remove those funds, “since 2017 Walgreen actually has added to the Northern Trust Funds’ lineup. Walgreen has even selected the Northern Trust Funds as the Plan’s default investment options,” and those funds “now comprise eleven of the twenty-four investment options on the Plan and collectively hold over $3 billion in Plan assets, which represents over 30% of the Plan’s assets,” according to the suit. 

‘Average’ Bearing

The suit claims that, “based on an analysis of data compiled by Morningstar, Inc., Plaintiffs project the Plan lost upwards of $300 million in retirement savings since 2014 based on the decision to retain those funds.” On a per participant basis, the plaintiffs cite Brightscope in noting that “the average Plan participant could earn $193,925 less in retirement savings than employees in top-rated retirement plans of a similar size” – and that, they say, “translates to an additional 10 years of work per participant.”

Most of the 54-page filing is devoted to a fund-by-fund comparison of the individual funds, their performance, and the performance shortfalls relative benchmarks, ultimately calling for restitution of the $300 million the plaintiffs claim the plan lost as a result.