American Airlines Challenged for Not Offering Stable Value Fund in 401(k)
The airline company offered the AA Credit Union Fund as its capital preservation vehicle, which the plaintiffs in a lawsuit say yielded “tremendously” poor returns.
Plaintiffs in a case challenging American Airlines’ (AA) decision not to include a stable value fund in its 401(k) investment menu has filed a motion for class action certification.
According to the original complaint, the plan does not offer a stable value fund as its “income producing, low risk, liquid fund.” Instead, it offered during the class period the AA Credit Union Fund, which yielded “tremendously” poor returns throughout the relevant time period.
“The AA Credit Union Fund effectively delivered, at all material times, the returns of a poorly managed checking account. The AA Credit Union Fund consistently failed to outpace inflation and was at all times thus a categorically imprudent retirement investment under ERISA [Employee Retirement Income Security Act]. Therefore, Defendants violated their duties of prudence under ERISA by including it as a retirement investment option in the Plan’s menu of investment options,” the complaint states.
The complaint notes that as of November 5, 2015, the one-month return for the AA Credit Union Fund was 0%. As of November 29, 2015, the one-month return for the fund was 0.07%, and as of January 3, 2016, the one-month return for the fund was 0%. At the same time, the AA Federal Credit Union has an actual checking account option called a “Priority” checking account that, according to the AA Federal Credit Union Internet site, is currently paying interest rates of up to 2.27%.
The plaintiffs allege that stable value funds are commonly used by large 401(k) plans like the American Airlines’ plan and typically offer more in return than the AA Credit Union Fund.
“In light of stable value funds’ clear advantages and enhanced returns compared to the AA Credit Union Fund, when deciding which fixed income investment option to include in a defined contribution plan, a prudent fiduciary would have included a stable value fund—and not the AA Credit Union Fund,” the complaint states. “Had the funds invested in the AA Credit Union Fund instead been invested in a stable value fund returning average benchmark returns, as represented by the Hueler Index during the proposed class period here, Plaintiffs and other Plan participants would not have lost tens of millions of dollars of their retirement savings, and would not continue to suffer additional losses as a result of the AA Credit Union Fund being retained in the Plan.”
Last November, U.S. District Judge John McBryde of the U.S. District Court for the Northern District of Texas denied American Airlines’ motion to dismiss the case saying, “The court is satisfied that plaintiffs have met their pleading burden. The arguments defendants make go to the merits of the claims and would more properly be presented by motions for summary judgment.”