The U.S. District Court for the District of Colorado has ruled once again in the case of Birse v. CenturyLink Inc., this time dismissing the lawsuit outright for its failure to state an actionable claim.
This ruling comes after a complex procedural history in the case, which saw multiple versions of the complaint filed and various recommendations and orders filed by the court.
Case documents show CenturyLink appointed CenturyLink Investment Management Co. (CIM) as an investment fiduciary for its 401(k) plan. One of the investment options offered by CIM was the Active Large Cap U.S. Stock Fund, which was also included in the plan’s 12 target-date funds (TDFs). The plaintiffs argue the fund underperformed its benchmark nearly every quarter over the life of the fund, and that a prudent retirement plan fiduciary would have cut the fund as an investment option for participants.
The new ruling states that the goal of the fund at its inception was to “obtain excess returns over the Russell 1000 Stock Index (Russell 1000), with increased downside and wealth protection, at a reasonable price over the long term.”
“Although the fund trailed its benchmark for the majority of its five-year existence, nevertheless, the fund provided substantial gains for plan participants,” the ruling states. “In fact, participants who invested in the fund throughout its life received an 83% cumulative return on their initial investment.”
In arguing their case, the plaintiffs suggested that the fund “underperformed immediately and consistently due to its flawed and imprudent design, and CIM failed to appropriately monitor and adjust the fund because it lacked any formal process or guidelines for doing so.” Additionally, the plaintiffs asserted that “CenturyLink, as the plan sponsor and a co-fiduciary, in turn failed in its duty to monitor CIM.”
The CenturyLink defendants, by contrast, argued that “all of the evidence demonstrates that CIM employed a prudent process in designing and monitoring the fund.” Further, the defendants asserted that CIM “engaged in a robust monitoring process and implemented appropriate structural changes to the fund over the course of its life.”
After weighing both arguments, District Judge Christine Arguello concludes the evidence in the record “shows that CIM’s design of the fund was prudent and that CIM diligently monitored the fund.”
“The evidence plaintiff has submitted does not create a genuine dispute of material fact and, therefore, defendant CIM is entitled to summary judgment on plaintiffs’ breach of fiduciary duty claims,” the decision states. “As such, plaintiffs’ derivative claims against CenturyLink fail as a matter of law.”
In addition to emphasizing that the Employee Retirement Income Security Act (ERISA) forbids the use of hindsight in analyzing fiduciaries’ investment decisions, the text of the decision also points to testimony made by CIM executives who were involved in the design and operation of the fund in question as important in reaching this decision.
“CIM’s highly qualified team of professionals rigorously analyzed the purpose the fund would serve, how it would accomplish that purpose and the fund’s strategic place within the overall portfolio of the plan,” the ruling states. “Defendants’ expert, Charles Porten, reviewed the above-referenced procedures that CIM employed in designing the fund. Mr. Porten has over three decades of experience in the investment management industry as an investor, equity analyst, research director, portfolio manager, chief investment officer and business manager. Additionally, Mr. Porten has been employed at institutions similar to CIM, and he has experience managing portfolios similar to the ones at issue. Mr. Porten concluded that ‘CIM’s investment processes and practices were thorough and consistent with industry standards,’ and that the process CIM employed in designing the fund was similarly ‘very thorough and analytical.’ … CIM has shown that it satisfied its duty of prudence with respect to the fund’s design.”
The decision concludes that the common theme of the plaintiffs’ arguments is that the defendants did not sufficiently document their procedures.
“Notably, however, plaintiffs do not cite a single case in their motion that indicates defendants’ alleged conduct would constitute a breach of the duty of prudence,” the ruling states. “Rather, plaintiffs rely—almost exclusively—on Roger Levy’s opinion that the alleged conduct constitutes a breach of defendants’ fiduciary duties. Plaintiffs’ strategy is flawed because Mr. Levy’s opinion of what constitutes a breach of the duty of prudence is distinct from what ERISA requires. In fact, a [different court] recently gave Mr. Levy’s opinions about an ERISA fiduciary’s obligations ‘no weight’ because at trial, Mr. Levy acknowledged that his approach has not won wide acceptance in the retirement plan industry, with only 14 to 16 retirement plans out of approximately 500,000 conforming to these standards.”
While the Colorado District Court agrees with Mr. Levy that fiduciaries should strive to attain the standards he champions, “they are not the standards ERISA requires.”
The full text of the ruling is available here.