Law360 (June 10, 2021, 5:25 PM EDT) — Allstate Corp. pushed back Wednesday on a proposed class of current and former employees fighting to maintain claims they lost more than $70 million in retirement savings due to plan mismanagement, saying “the plain truth is that plaintiffs lost nothing.”
Urging an Illinois federal court to dismiss their lawsuit for good, the insurance giant argued in a reply brief that the workers’ failure to exhaust administrative remedies dooms the entire complaint, and reiterated its contention that the named plaintiffs lack standing and engaged in improper collective pleading.
Further, analysis of their arguments “belies plaintiffs’ rhetoric that they were harmed at all,” Allstate said, and they shouldn’t be allowed to continue with a case “just because they assert, however vociferously, that they did not make as much money as they would have liked, especially when they implicitly acknowledge that they lost nothing.”
The employees allege that Allstate violated the Employee Retirement Income Security Act by loading the plan up with poorly performing target-date retirement funds and refusing to remove those funds “despite their abysmal performance.”
The target-date funds, called the Northern Trust Focus Target Retirement Trusts, have performed worse than 70% to 90% of their peer funds for nearly a decade, according to the lawsuit. The funds have also consistently failed to meet their benchmark indexes since they were launched in 2010, the proposed class alleges.
But looking at the plaintiffs’ own data on those funds, while the Northern Trust funds show the lowest overall mean performance of the funds presented in the complaint, the Northern Trust fund family also exhibits the second lowest standard deviation of returns, Allstate said, meaning it’s less risky than most of the other purported comparables the workers highlight.
Plan fiduciaries are required to diversify its investments to minimize the risk of large losses, the insurer said, and it’s “this balancing of risk and returns that is required of portfolio management.” That would have been explained to the employees had they pursued administrative remedies before jumping into litigation, Allstate said.
“The well-established policy behind the exhaustion requirement applies here, where plaintiffs’ claims are nothing more than run of the mill complaints that plaintiffs’ investments should have earned more money than they did,” the insurer said. “Had plaintiffs properly utilized the procedures set forth in the plan, defendants could have addressed these arguments and explained the merit of the Focus Funds without resort to litigation.”
Additionally, the workers’ amended complaint “lumps all defendants together” without adequate detail of what actions each defendant allegedly took, requiring dismissal, Allstate said.
And none of the named plaintiffs invested in six of the Focus Funds at issue, and most lack standing to challenge fees charged for services they didn’t use, the insurer said. Nor have the workers addressed why former plan participants named in the case would have standing, the insurer said.
Urging dismissal with prejudice, Allstate said it already raised exhaustion in its first motion to dismiss, but the employees have failed to address it in two complaints since then and shouldn’t get “yet another bite at the apple.” They also shouldn’t be allowed to add additional plaintiffs, the company said.
“Plaintiffs have already cycled through three complaints and seven named plaintiffs,” Allstate said. “They have already had ample opportunity to get it right.”
Representatives for the parties didn’t immediately respond to requests for comment Thursday.
The litigation was initiated by past employee Katherine Cutrone in March but the suit has since been amended and consolidated to include claims from fellow past plan participants Mary Ellen Morgan, Mary Beth Am Rhein and Valerie Reinecke as well as current plan participants Michael W. Smutz, Stan G. Smith and Eddie D. Yousif.
They say that Allstate’s decision to keep the funds on its menu of retirement investment options despite a market “flush with better-performing alternatives” violates the insurer’s and its committees’ fiduciary duties to plan participants under ERISA.
Together they seek to represent all participants and beneficiaries of Allstate’s retirement plan who invested in any of the Northern Trust funds from Oct. 30, 2014, through the end of the litigation. They are also seeking to represent a second investment advisory class of all participants and beneficiaries of the plan who were forced to pay for investment advisory services from January 4, 2015, through the date of judgment.
They are asking a judge to order Allstate to make good on the losses it has caused plan participants, disgorge any profits the company made by allegedly breaching its fiduciary duties and reform the plan to include “only prudent investments,” among other requests.
Allstate’s plan provides retirement income for tens of thousands of current employees, former employees and beneficiaries, the suit says. It has more than $6 billion in assets under management, with more than $700 million being invested among 11 Northern Trust funds, according to the suit.
The proposed class is represented by Michael Mulder and Elena Liveris of The Law Offices of Michael M. Mulder, Garrett Wotkyns and Jing-Li Yu of Scott + Scott Attorneys at Law LLP, Alexandra Harwin, David Sanford, Kevin H. Sharp, Leigh Anne St. Charles and Charles Field of Sanford Heisler Sharp LLP and Ben Barnow and Anthony L. Parkhill of Barnow & Associates PC.
Allstate is represented by Leah R. Bruno, Jacqueline A. Giannini and Uchenna Ekuma-Nkama of Dentons.
The case is Katherine Cutrone v. The Allstate Corp. et al., case number 1:20-cv-06463, in the U.S. District Court for the Northern District of Illinois.
–Additional reporting by Morgan Conley. Editing by Ellen Johnson.