Federal Judge Allows 401(k) Class Action Suit Against Southwest Airlines
Plaintiffs say the 401(k) plan invested in a large-cap growth strategy fund that lagged its benchmark and peer funds for years.
A federal judge allowed a proposed class action against the Southwest Airlines Co. related to its 401(k) plan investments to move forward, rejecting the company’s attempt to dismiss claims that it failed to remove a long-underperforming fund.
In a March 25 ruling in Anderson et al. v. Southwest Airlines Co. et al., U.S. District Judge Karen Gren Scholer denied Southwest’s motion to dismiss the complaint, ruling that plan participants had plausibly alleged breaches of fiduciary duty under the Employee Retirement Income Security Act.
The complaint, filed in U.S. District Court for the Northern District of Texas by several plan participants on behalf of a broader class, centers on the Harbor Capital Appreciation Fund, a large-cap growth strategy that plaintiffs say lagged its benchmark and peer funds for years. According to the complaint, a prudent fiduciary would have removed the fund by early 2019, after extended periods of underperformance.
Scholer concluded that the plaintiffs’ allegations supported a reasonable inference that Southwest’s process for monitoring and retaining the fund may have been flawed.
The ruling clears the way for the case to proceed to discovery, where the plaintiffs will seek internal records related to how the airline and its plan committees evaluated investment options.
Case Background
The case stems from a January 2025 lawsuit accusing Southwest and its retirement plan committee of breaching their fiduciary duties by keeping the Harbor Capital fund in the plan despite years of weak results.
Participants alleged the fund had “more than 15 years of poor performance” and consistently lagged both its benchmark and comparable large-cap growth funds across multiple time horizons.
By the end of 2023, the plan had roughly $2.3 billion—about 17% of total plan assets—invested in the fund, amplifying the alleged harm to participants’ retirement savings, according to the plaintiffs’ initial filing.
Judge Rejects Key Defense Arguments
Southwest had argued that the case should be dismissed because allegations of underperformance alone are insufficient to establish imprudence and because the plaintiffs failed to identify meaningful benchmarks for comparison.
Scholer declined to adopt a strict “meaningful benchmark” requirement at the pleading stage, noting that neither the Supreme Court nor the U.S. 5th Circuit Court of Appeals has formally imposed such a standard. Scholer also rejected arguments that the plaintiffs could not base a fiduciary breach claim on a single fund and that the plan’s monitoring process—acknowledged in the complaint—undermined the allegations. Instead, she stressed that fiduciaries must not only monitor investments, but also remove imprudent ones when necessary.
In addition, Scholer allowed a related “failure to monitor” claim against plan fiduciaries to proceed, finding sufficient support in case law for such claims at this stage.
The plaintiffs are represented by the Sloan Law Firm and Sanford Heisler Sharp McKnight LLP. Morgan Lewis & Bockius LLP represents Southwest Airlines and related defendants.