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    September 06, 2023

    Plan Fiduciaries Continue to Defeat Blackrock Target Date Fund Class Actions

    Kimberly A. Jones, Monica A. Novak, John W. Fogarty and Emily A. Kile-Maxwell, Faegre Drinker Biddle & Reath LLP

    Last year, a string of cases were filed against fiduciaries of large 401(k) plans that offer the BlackRock target-date funds (TDFs) as investment options to plan participants. All of the complaints, filed by the same law firm, were nearly identical and alleged that the plan fiduciaries breached their fiduciary duties under ERISA by choosing the lower-fee BlackRock funds, despite what plaintiffs alleged was the funds’ underperformance relative to other target date funds.

    Litigation against plan fiduciaries of 401(k) plans is nothing new. But in most cases, plaintiffs allege that the plan sponsor imprudently invested the plan in high-fee investment options. Here, plaintiffs instead challenged plan fiduciaries’ selection of the concededly low-cost BlackRock TDFs, leading many fiduciaries to feel they were between a rock and a hard place in selecting a TDF option for their 401(k) plans.

    The months since the wave of initial filings have shed some light on how plaintiffs’ newfound theory will fare. Thus far, three district courts have dismissed BlackRock complaints with prejudice, in cases against Booz Allen Hamilton, Capital One and Microsoft. In all three cases, the district court held that the plaintiffs had failed to allege any facts about the plan fiduciaries’ process for selecting and monitoring the BlackRock TDFs and that plaintiffs’ reliance on the BlackRock TDFs’ alleged underperformance alone was insufficient to state a claim for breach of fiduciary duty. The courts uniformly rejected the plaintiffs’ reliance on comparisons between the BlackRock TDFs and other comparator TDF suites, the S&P Index, and the Sharpe ratio. And in all three cases, the district court ultimately dismissed the plaintiffs’ complaint with prejudice, meaning that the plaintiffs were not allowed to amend their complaints in response to the dismissal.

    Other district courts have followed suit in dismissing BlackRock complaints for similar reasons but have to date dismissed those cases without prejudice, allowing the plaintiffs the chance to try and replead with viable claims. In a case against Advanced Publications, the district court found that the plaintiff failed to allege facts to support any of his breach of fiduciary duty claims and agreed with the above courts that bare allegations of the BlackRock TDFs’ short-term underperformance compared to other popular TDF suites was insufficient to establish that the fiduciary’s process was flawed. The court summarily stated that the plaintiff’s pleading deficiencies “might be cured by amendment”; therefore, a dismissal without prejudice was appropriate. It appears from the decision that the court granted the plaintiff leave to amend based on his representations that discovery in the case (which was not stayed during the pendency of the motion to dismiss) had “further borne out Plaintiff’s claims.” Given the prior results in this line of cases, it is likely that leave to amend would not have been permitted without the plaintiff’s representation of newly-obtained evidence.

    A similar result was reached in cases against Stanley Black & Decker, Inc., Wintrust Financial Corp., and Cisco Systems, Inc., where the courts dismissed the complaints but allowed plaintiffs to take another shot and file an amended complaint.

    Motions to dismiss in the other BlackRock cases are pending, and although it remains to be seen how the district courts will rule in those cases, it’s worth noting that no court has denied a motion to dismiss in any of the BlackRock cases to date. In other words, no court has held that the plaintiffs’ complaints about the BlackRock TDFs state a plausible claim of breach of fiduciary duty under ERISA. And the plaintiffs are not appealing the three recent dismissals with prejudice, either. The Booz Allen Hamilton and Capital One plaintiffs filed notices of appeal but later voluntarily dropped the appeals. The Microsoft plaintiffs simply did not appeal.

    Takeaway for Plan Fiduciaries

    Plan fiduciaries should continue to monitor the TDFs and other investment options in their plans and carefully consider the pros and cons of all investment options, including fees and historic investment performance. But as it stands, decisions in the BlackRock cases — all of which relied on nothing more than allegations about the BlackRock TDFs’ alleged underperformance relative to other TDF suites, and not allegations of plan fiduciaries’ actual conduct in selecting and monitoring the BlackRock TDFs — have uniformly favored plan fiduciaries.

      Kimberly A. Jones

      Partner, Faegre Drinker

      Monica A. Novak

      Partner, Faegre Drinker

      Emily A. Kile-Maxwell

      Associate, Faegre Drinker

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