Another suit alleging that plan fiduciaries “chased low fees” and imprudently selected and retained the BlackRock LifePath target-date suite despite “consistently deplorable performance” has been filed by the law firm of Miller Shah LLP.
This time (we’re now up to nine such suits) it’s plaintiffs (all former participants) Alfretta Antoine, Shannon Cave, Christina Forney and Judy Gallegos—“individually in their capacity as participants of the Marsh & McLennan Companies 401(k) Savings and Investment Plan” who are filing the suit (once again, however, represented in the action by Miller Shah LLP). The suit—as is the case with a half-dozen filed in recent days—“targets” the plan’s holding of BlackRock LifePath Index Funds—and especially their selection as the plan’s default investment option (which has, according to the suit, garnered 17% of the plan’s assets).
As the other suits have claimed (using, it should be noted, nearly exactly the same arguments as in the other filings) it (Antoine v. Marsh & McLennan Cos., Inc., S.D.N.Y., No. 1:22-cv-06637, complaint 8/4/22) says the nearly $6 billion, 32,200-participant plan “selected, retained, and/or otherwise ratified poorly-performing investments instead of offering more prudent alternative investments that were readily available at the time Defendants selected and retained the funds at issue and throughout the Class Period.” And, as a result, the suit alleges that participants have missed out on “millions of dollars in retirement savings growth….”
‘Chased Low Fees’
Ironically, as excess fee litigation has dominated the ERISA litigation landscape the past several years, here the plaintiffs say the plan’s fiduciary defendants “…appear to have chased the low fees charged by the BlackRock TDFs without any consideration of their ability to generate return.” They go on to claim that if the defendants had “carried out their responsibilities in a single-minded manner with an eye focused solely on the interests of the participants, they would have come to this conclusion and acted upon it. However, 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.”
The participant-plaintiffs here—again, as in the other suits—claim that the BlackRock TDFs significantly underperformed four of the five comparative target-date funds (Vanguard, T. Rowe Price, American Funds and Fidelity[i]) that are the largest by market share. The suit claims that, “When evaluated against the Comparator TDFs, both individually and as a group, the returns of the BlackRock TDFs, at all stages along the glide path from aggressive to conservative, paled in comparison to those of the readily available alternatives. Accordingly, the analytical frameworks employed by prudent fiduciaries could not have supported a determination that the expected returns of the BlackRock TDFs would justify their retention in the Plan.”
‘To’ Versus ‘Through’
It may be worth noting that these funds stand out from the “crowd” here, in that their glidepath contemplates a “to” retirement date design, rather than the “through” focus that has come to dominate the target-date space. The suit claims that “the BlackRock TDFs are considerably more aggressive than the Comparator TDFs from the vintage intended for the youngest investors through those with a target retirement date of 2050. For the 2045 through 2030 vintages, the latter of which is managed for investors currently within 10 years of their anticipated retirement date, the difference in equity allocations between the BlackRock TDFs and the Comparator TDFs is negligible. Though the BlackRock TDFs become considerably more conservative in the 2025 vintage and at retirement, each of the Comparator TDFs ultimately reach a terminal equity allocation that is at or below the 40% of the BlackRock TDFs.” However, here—as in the other suits—the plaintiffs peremptorily push back on the (potential) defense that it’s inappropriate to compare TDFs with a “to” retirement date glidepath orientation (like the BlackRock TDFs) to those with a glidepath designed with an eye toward carrying “through” retirement.
Lest one think that these filings are complete copycats of each other, another unique element here is the allegation that the plan fiduciary defendants “also acted imprudently and disloyally in selecting and retaining the Mercer Emerging Markets Fund (‘Mercer Fund’) in the Plan.” Now, mind you, that fund was (according to the suit) “removed from the Plan lineup in November 2019,” but the suit claims not only that the fund “had such a consistently poor track record as measured against both its manager-selected benchmark, the MSCI Emerging Markets Index, and its emerging market fund peers (i.e., funds in the same Morningstar category) that the only plausible inference is that Defendants did not appropriately monitor the Mercer Fund at all during the Class Period,” but that it was added as an option (in December 2014) less than three years after the investment was launched (in May 2012).
The suit goes on to claim that Mercer Investment Management, LLC, the “manager of managers” for the fund, “is a subsidiary of Marsh & McLennan,” and “this affiliation is likely the sole reason Defendants selected for the Plan a fund with no demonstrable track record despite the availability of several prudent alternative emerging market investment options with far more developed performance histories.” In making that decision, the plaintiffs claim that “Defendants placed Mercer’s interests above the interests of the Plan and its participants and beneficiaries.”
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.
[i] Here, as in the other suits, the Fidelity Freedom funds—a target of the plaintiffs’ counsel in separate actions—is set aside as “an imprudent selection for the Plan for the duration of the Class Period due to myriad quantitative and qualitative red flags after undergoing a strategy overhaul in 2014.” However, they go further in a footnote, claiming that “…even the anemic and imprudent Freedom Funds outperformed the BlackRock TDFs during the Class Period. While the Freedom Funds were not a suitable alternative for the Plan, a fiduciary applying the requisite scrutiny to the BlackRock TDFs would have been aware of their underperformance compared to the Freedom Funds, despite the issues plaguing the Freedom Funds. This is even further confirmation of the inability of the BlackRock TDFs to provide competitive returns throughout the Class Period.” Bearing in mind, of course, that Shah Miller has also, in other actions, targeted the Fidelity Freedom funds—though not necessarily successfully.