At a Glance

• There have been a series of cases filed against fiduciaries of 401(k) plans that offer BlackRock target date funds (TDFs) as investment options to plan participants.
• Since last August, district courts have dismissed these BlackRock complaints with prejudice, in cases against Booz Allen Hamilton, Capital One and Microsoft, saying the plaintiffs had failed to allege any facts about the plan fiduciaries’ process for selecting and monitoring the BlackRock TDFs.

Last August, we summarized the string of cases filed against fiduciaries of401(k) plans that offer the BlackRock target date funds (TDFs) as investment options to plan participants. All of the complaints were nearly identical and alleged that the plan fiduciaries breached their fiduciary duties under ERISA by choosing the lower-fee BlackRock funds, despite what plaintiffs alleged was the funds’ underperformance relative to other target date funds.

Litigation against plan fiduciaries of 401(k) plans is nothing new. But in most cases, plaintiffs allege that the plan sponsor imprudently invested the plan in high-fee investment options. Here, plaintiffs instead challenged plan fiduciaries’ selection of the concededly low-cost BlackRock TDFs, leading many fiduciaries to feel they were between a rock and a hard place in selecting a TDF option for their 401(k) plans.

The months since the wave of initial filings have shed some light on how plaintiffs’ newfound theory will fare. Since our last update in August, three courts have dismissed BlackRock complaints with prejudice, in cases against Booz Allen Hamilton,¹ Capital One² and Microsoft.³ In all three cases, the district court held that plaintiffs had failed to allege any facts about the plan fiduciaries’ process for selecting and monitoring the BlackRock TDFs and that plaintiffs’ reliance on the BlackRock TDFs’ alleged underperformance alone was insufficient to state a claim for breach of fiduciary duty. The courts uniformly rejected plaintiffs’ reliance on comparisons between the BlackRock TDFs and other comparator TDF suites, the S&P Index and the Sharpe ratio. And in all three cases, the district court dismissed plaintiffs’ complaint with prejudice, meaning that the plaintiffs were not allowed to amend their complaints in response to the dismissal.

Most recently, another court followed suit in dismissing a complaint against Advanced Publications based on the above theory but broke away from the pack by dismissing the complaint without prejudice.⁴ The court found that the plaintiff failed to allege facts to support any of its breach of fiduciary duty claims and agreed with the above courts that bare allegations of the BlackRock TDFs’ underperformance compared to other popular TDFs was insufficient to establish that the fiduciary’s process was flawed. The court summarily stated that plaintiff’s pleading deficiencies “might be cured by amendment,” therefore, a dismissal without prejudice was appropriate. It appears that the court granted the plaintiff leave to amend due to plaintiff’s representations that discovery had “further borne out Plaintiff’s claims.” Given the prior results in this line of cases, it is likely that leave to amend would not have been permitted without plaintiff’s representation of newly obtained evidence.

Motions to dismiss in the other BlackRock cases are pending, and although it remains to be seen how courts will rule in those cases, it’s worth noting that no court has denied a motion to dismiss in any of the BlackRock cases to date. In other words, no court to date has held that the plaintiffs’ complaints about the BlackRock TDFs state a plausible claim of breach of fiduciary duty under ERISA. And plaintiffs are not appealing the three recent dismissals, either. The Booz Allen Hamilton and Capital One plaintiffs filed notices of appeal, but later voluntarily dropped the appeals. The Microsoft plaintiffs did not appeal.

Faegre Drinker Takeaway

Plan fiduciaries should continue to monitor the TDF and other investment options in their plans and carefully consider the pros and cons of all investment options, including fees and historic investment performance. But as it stands, decisions in the BlackRock cases — all of which relied on nothing more than allegations about the BlackRock TDFs’ alleged underperformance relative to other TDF suites, and not allegations of plan fiduciaries’ actual conduct in selecting and monitoring the BlackRock TDFs — have uniformly favored plan fiduciaries.

FOOTNOTES

1. Tullgren v. Booz Allen Hamilton, No. 1:22-cv-000856, 2023 WL 2307615 (E.D. Va. March 1, 2023).
2. Hall v. Capital One Financial Corp., No. 1:22-cv-000857, 2023 WL 2333304 (E.D. Va. March 1, 2023).
3. Beldock v. Microsoft Corp., No. 2:22-cv-01082, 2023 WL 3058016 (W.D. Wash. April 24, 2023).
4. Anderson v. Advance Publications, No. 1:22-cv-06826, 2023 WL 3976411 (S.D.N.Y. June 13, 2023).