A bottler working for the famous soft drink company Coca-Cola is facing an Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit filed in the U.S. District Court for the Western District of North Carolina.
The plaintiffs in the case are represented by the increasingly well-known law firm Capozzi Adler, which has in the past several years filed an extensive number of ERISA complaints against some of the United States’ biggest corporations. The suits have so far reached mixed results, and it is anyone’s guess how this particular matter will play out—whether it will be summarily dismissed, settled or fully litigated.
Plaintiffs in the new complaint suggest the Coca-Cola Consolidated company’s 401(k) plan covers 10,170 participants with account balances and assets totaling approximately $784 million. The complaint summarizes the basic allegations as follows: “Defendants have breached their fiduciary duties to the plan and … have engaged in the following fiduciary breaches: (1) failed to fully disclose the expenses and risk of the plan’s investment options to participants; (2) allowed unreasonable expenses to be charged to participants; and (3) selected, retained and/or otherwise ratified high-cost and poorly performing investments, instead of offering more prudent alternative investments when such prudent investments were readily available at the time that they were chosen for inclusion within the plan and throughout the class period.”
Specifically, and again echoing other recently filed lawsuits, this complaint says the continued offering of the actively managed Fidelity Freedom Funds target-date fund (TDF) suite represented an ongoing fiduciary breach.
“Defendants were responsible for crafting the plan lineup and could have chosen any of the target-date families offered by Fidelity, or those of any other target-date provider,” the complaint alleges. “Defendants failed to compare the active and index suites and consider their respective merits and features. A simple weighing of the benefits of the two suites indicates that the index suite is and has been a far superior option, and consequently the more appropriate choice for the plan.”
The courts have sided against such broad claims alleging the use of active management is inherently imprudent under ERISA, but the facts in this case will have to be considered. The complaint, for its part, seeks to paint the actively managed TDF suite as being overly risky and expensive compared with certain available passive options.
“The active suite chases returns by taking levels of risk that render it unsuitable for the average retirement investor, including participants in the plan,” the complaint alleges. “At first glance, the equity glide paths of the two fund families (meaning the active suite and index suite) appear nearly identical, which would suggest both target-date options have a similar risk profile. However, the active suite subjects its assets to significantly more risk than the index suite, through multiple avenues.”
Beyond these allegations of an impermissible level of risk, the complaint says the additional management fees charged by the active suit were not in line with the value delivered—meaning that a prudent fiduciary would have chosen to drop the funds. Several other investment options are similarly called out in the complaint as being inappropriate, including the T. Rowe Price Mid-Cap Value Fund and the Carillon Eagle Small Cap Growth Fund. The plan fiduciaries are also accused of permitting excessive recordkeeping and administrative fees.
Coca-Cola Consolidated has not yet responded to a request for comment about the lawsuit. The full complaint is available here.