Alternative Investment

CUNA’s 401(k) Latest Targeted in BlackRock TDF Suit

The law firm of Miller Shah LLP has targeted yet another plan they claim “appear[s] to have chased the low fees charged by the BlackRock TDFs without any consideration of their ability to generate return.”

This time (Abel v. CMFG Life Ins. Co., W.D. Wis., No. 3:22-cv-00449, complaint 8/19/22) it’s the fiduciaries of the $865 million CUNA Mutual 401(k) Plan for Non-Represented Employees sued by plaintiffs Christine Abel, Steven Auld, and David Pennington—all former participants (invested in the BlackRock LifePath Index 2035, 2030 & 2050 Funds, respectively) of the 4,461-participant plan (as of Dec. 31, 2020, anyway). They’re also (as most 401(k) litigation does these days) filing suit (this time in the U.S. District Court for the Western District of Wisconsin, where CUNA is based) against the parties that appointed, and ostensibly had the responsibility for monitoring the committee’s activities.

“Defendants were responsible for crafting the Plan lineup and could have chosen from a wide range of prudent alternative target date families offered by competing TDF providers, which are readily available in the marketplace, but elected to retain the BlackRock TDFs instead, an imprudent decision that has deprived Plan participants of significant growth in their retirement assets.”

‘Consistently Deplorable Performance’

The plaintiffs here claim that despite “…consistently deplorable performance of the BlackRock TDFs” that they allege was “visible at the suite level throughout the pertinent period,” that the 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.” Moreover, the plaintiffs assert that the defendants “employed a fundamentally irrational decision-making process (i.e., inconsistent with their duty of prudence) based upon basic economics and established investment theory, they clearly breached their fiduciary duties under ERISA—which are well-understood to be the “highest known to law.” And—as other suits in this vein have alleged, they note that “exacerbating Defendants’ imprudent decisions to add and retain the BlackRock TDFs is the suite’s designation as the Plan’s Qualified Default Investment Alternative (QDIA).”

As in the other suits (let’s face it, the basic allegations are identical, as are the funds and preferred benchmarks in question), this one argues that, rather than comparing the target-date suite to a selected custom benchmark, the funds would be better compared with the performance of what it calls “comparator” TDFs, basically the leading target-date funds[i] (at least in terms of assets and market share). And though they have different glidepaths (they’re all of the “through” retirement focus, rather than “to” retirement date, as the BlackRock set is focused), the plaintiffs argue that BlackRock TDFs de-risk at a quicker pace than most of the Comparator TDFs, and that what they call “the resulting equity allocation discrepancy” is only reflected in the two funds that are closest to the retirement date. The point seems to be that, despite its ostensibly more conservative glidepath nearing retirement, that—overall—it’s as equity-laden as the others, and thus, they constitute a fair comparison, certainly as they are performing for younger workers (the more aggressive part of the glidepath).

Ultimately, the suit claims that the fiduciary defendants “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. Since Defendants have discretion to select the investments made available to participants, Defendants’ breaches are the direct cause of the losses alleged herein.”

For those keeping count, this appears to be the 11th time an employer has been sued over these same BlackRock target-date funds in the past month, including suits filed against Genworth Financial Inc., MicrosoftCisco Systems Inc., Booz Allen Hamilton Inc., Stanley Black & Decker Inc., Wintrust Financial Corp., and Marsh & McLennan Cos

And it doesn’t seem likely to be the last.

NOTEIn 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] As noted in previous suits in this series, the complaint calls out for special criticism Fidelity’s Freedom Funds—which the Miller Shah firm has targeted in a similar, albeit different, set of suits—but here they throw in that those “would have been 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 (the point of that other litigation). That said, the suit notes that, even though the Freedom Funds would have been inappropriate, “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”—which, they claim in a footnote to be “…even further confirmation of the inability of the BlackRock TDFs to provide competitive returns throughout the Class Period.”

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