AutoZone’s Use of Prudential GoalMaker Criticized in New Lawsuit

The lawsuit alleges that GoalMaker served Prudential’s interests at the expense of participants’ by funneling retirement savings into proprietary investment products and into investments that paid revenue sharing to Prudential.

AutoZone Inc. is the latest national employer to face an Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit alleging imprudence and disloyalty in the operation of the company’s retirement plan.

Plaintiffs filed their proposed class action in the U.S. District Court for the Western District of Tennessee. While the complaint does not name Prudential as a defendant, the fiduciary breach allegations discuss Prudential’s GoalMaker investment solution, which was offered by AutoZone to its employees during the period at question in the lawsuit.

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“Plaintiffs bring this action because of AutoZone’s extraordinary breaches of its fiduciary duties under ERISA, including the approval, maintenance and recommendation of an abusive ‘GoalMaker’ asset allocation service furnished by Prudential Insurance Company that served Prudential’s interests,” the lawsuit states.

According to the complaint, AutoZone described GoalMaker to participants as a service that would “guide you to a model portfolio of investments available, then rebalance your account quarterly to ensure your portfolio stays on target.” AutoZone also represented, according to plaintiffs, that GoalMaker’s allocations “are based on generally accepted financial theories that take into account the historic returns of different asset classes.”

“The representations were and remain false,” the lawsuit states. “Here, GoalMaker served Prudential’s interests by funneling participants’ retirement savings into Prudential’s own shamelessly overpriced proprietary investment products and into investments that paid kickbacks to Prudential. GoalMaker brazenly excluded the reliable, low-cost index funds in the plan’s investment menu available from reputable providers that did not pay kickbacks to Prudential. This resulted in the participants paying excessive investment management fees, administrative expenses, and other costs, which over the class period cost participants more than $60 million in retirement savings.”

Plaintiffs suggest that AutoZone “could have easily stopped these abuses at any time,” by replacing the “high-fee, chronically underperforming GoalMaker funds with reliable, low-fee Vanguard index funds already in the plan’s investment menu.”

“Year after year, AutoZone chose to retain GoalMaker, ignoring the abusive fees and costs of the GoalMaker funds, the conflicts of interest inherent in Prudential’s asset allocation scheme, and the misrepresentations repeatedly made to participants on behalf of the plan,” the complaint states. “From a fiduciary standpoint, AutoZone’s GoalMaker was not a model of asset allocation but a model of plan mismanagement.”

The complaint goes on to suggest that, although AutoZone “cloaked GoalMaker in Morningstar’s credibility in recommending the service,” Morningstar itself did not assume any responsibility for Prudential’s GoalMaker service.

“In fact, Morningstar specifically disclaimed any responsibility for the review or approval of the information provided to the participants in the AutoZone plan,” the complaint says. “Participants enrolled in Prudential’s GoalMaker service were told they could not change the recommended allocations without being dis-enrolled in the service. Moreover, AutoZone made GoalMaker the plan’s default investment option. This combined with AutoZone’s touting of the service resulted in a large portion of participants’ retirement savings being allocated by GoalMaker.”

Plaintiffs conclude that AutoZone “did not have the competence, exercise the diligence, or have in place a viable methodology to monitor the GoalMaker allocation service and investment options. AutoZone knew, or would have known had AutoZone implemented a prudent investment methodology, that GoalMaker was designed to steer plan participants’ retirement savings to investment options that paid investment management fees and kickbacks to Prudential. AutoZone did not need to scour the marketplace to find prudent investments. AutoZone needed only to look to the Vanguard funds included in the Plan’s investment menu that did not pay kickbacks or investment management fees to Prudential and were therefore excluded from GoalMaker.”

Neither AutoZone nor Prudential have responded to a request for comment.

The full text of the complaint is available here.