Lawsuit Claims Underperforming TDFs Caused $65M Loss to 401(k)

A former participant in the Allstate 401(k) plan accuses plan fiduciaries of keeping poorly performing target-date funds on the investment menu and as the plan's default investment.

A former participant in the Allstate 401(k) Savings Plan has filed a lawsuit accusing fiduciaries of breaching their duties under the Employee Retirement Income Security Act (ERISA) by continuing to include allegedly poorly performing target-date funds (TDFs) on the plan’s investment menu.

The complaint recognizes that the plan participants can invest their retirement savings in any fund the fiduciaries select for the plan. However, it says plan fiduciaries have a duty to prudently select investment options, regularly monitor them and remove ones that become imprudent. Further, the plaintiff claims that the plan’s fiduciaries made the situation worse than it would have been by using the Northern Trust Focus Funds—the TDFs in the plan—as the default investment option when enrolling employees into the plan.

According to the complaint, “The Northern Trust Focus Funds have significantly underperformed their benchmark indices and comparable target-date funds since Northern Trust launched them in 2010. For nearly a decade, the Northern Trust Focus Funds have performed worse than 70% to 90% of peer funds.” Still, the plaintiff says, the plan’s fiduciaries did not remove the funds from the investment menu.

“Based on an analysis of data compiled by Morningstar Inc., the plaintiff projects the plan lost upwards of $65 million in retirement savings since 2014 because of the defendants’ decision to retain the Northern Trust Focus Funds in the plan instead of removing them,” the lawsuit alleges.

The lawsuit seeks to enforce the defendants’ personal liability under ERISA to make good to the plan all losses resulting from each breach of fiduciary duty occurring from October 30, 2014, through December 31, 2019. The plaintiff also “seeks such other equitable or remedial relief for the plan as the court may deem appropriate.”

This is not the first lawsuit challenging the use of the Northern Trust Focus Funds in a 401(k) plan investment lineup. In August 2019, a group of current and former participants in the Walgreen Profit-Sharing Retirement Plan filed a similar complaint. Northern Trust was not named as a defendant in the Walgreen suit or the Allstate suit.

Allstate has not yet responded to a request for comment.