Compliance

CVS Participants' Stable Value Fund Suit Fails Again

Fiduciaries have a lot of responsibilities, but they are not required to predict the future, and cannot be held liable for deciding to avoid risks that, in hindsight, could have been tolerated.

By Rebecca Moore editors@plansponsor.com | February 06, 2017
Page 1 of 2

U.S. Magistrate Judge Patricia A. Sullivan of the U.S. District Court for the District of Rhode Island has recommended that claims in a suit against CVS Health Corporation, its Benefits Plan Committee and its stable value fund manager Galliard Capital Management be dismissed.

Sullivan previously recommended that the plaintiffs’ first complaint be dismissed because they offered “the Court nothing from which to conclude that the Stable Value Fund’s short-term fixed income holdings were unreasonable in view of all the considerations a prudent fiduciary might have found relevant, much less that the Fund’s fiduciaries failed to use appropriate methods to investigate and make those investment allocation decisions.”

The plaintiffs filed an amended complaint and the defendants again filed a motion to dismiss.

Sullivan found the new material adds little more than substantial factual support for the allegation found to be legally insufficient in the first go-round—that hindsight reveals that the stable value fund’s allocation did not maximize returns. In addition, Sullivan said that although the plaintiffs’ new claim—that the fund’s asset allocation, the duration of the fund’s investments and the fund’s performance deviated from industry averages—rest firmly on a substantial factual foundation, they too are insufficient to permit an inference of imprudence.

Sullivan noted in her opinion that fiduciaries are not required to predict the future, and cannot be held liable for deciding to avoid risks that, in hindsight, could have been tolerated. Nor are they held to the standard of looking to the average and copying what they see.

Sullivan pointed out the absence of any allegation permitting the inference that Galliard Capital Management, Inc. failed to adhere to the plan’s guidelines and investment objectives: to preserve capital while generating a steady rate of return higher than money market funds provide. Instead, the complaint relies on its detailed comparison of industry averages to the fund’s investment duration, asset allocation and (to a limited extent) performance.

NEXT: Deviation from the average “means nothing.”