Home Depot Can’t Flee 401(k) Suit, But Financial Advisers Can

Posted September 23rd, 2019.

As It Appeared On
Law360

By Emily Brill

Law360 (September 23, 2019, 7:16 PM EDT) — Home Depot can’t escape a proposed class action accusing it of mismanaging its 401(k) plan, but two financial advisers the retailer worked with can, a Georgia federal judge has ruled.

Financial Engines Advisors LLC and Alight Financial Advisors LLC don’t belong in the suit as defendants because they had no direct control over Home Depot’s 401(k) plan, and the services they provided the plan didn’t give them functional control over it, U.S. District Judge William M. Ray II said Friday in an order granting the advisers’ motion to dismiss and denying Home Depot’s.

Therefore, only Home Depot, which had direct authority over the plan, should face allegations of violating the Employee Retirement Income Security Act by overcharging workers to participate in an underperforming plan, Judge Ray wrote.

Home Depot workers had insisted that Financial Engines and Alight Financial, which offered algorithm-generated investment advice to Home Depot 401(k) plan participants, should face allegations that they overcharged for their services and provided terrible customer service.

But the companies can’t be sued under ERISA unless they were plan fiduciaries, and they didn’t have enough authority over the plan to make them fiduciaries, Judge Ray wrote. They also didn’t have enough indirect authority to make them de facto fiduciaries, the judge said.

The Home Depot workers argued that the advisers’ setting of their fees should be treated as a fiduciary action, because it affected plan participants.

But Judge Ray disagreed, writing that “a service provider does not become a fiduciary simply by negotiating its compensation in an arm’s-length bargaining process.”

Home Depot, on the other hand, was a plan fiduciary, Judge Ray wrote. And the retailer should have to stand down allegations that it made a bad decision in contracting with Financial Engines and Alight Financial and failed to properly oversee its 401(k) plan’s performance, breaching its fiduciary duty of prudence under ERISA, he said.

“Plaintiffs have alleged high fees, chronic underperformance against benchmarks and comparable funds, and specific legal and financial warning signs as circumstantial evidence of the imprudence of Home Depot’s management of the plan,” Judge Ray wrote. “These facts could support the reasonable inference that a prudent fiduciary would have made different decisions in managing the plan’s investments.”

A proposed class of Home Depot workers sued the retailer, Financial Engines and Alight Financial in April 2018, saying the 401(k) plan was mismanaged so badly that employees would need to work 18 years past the retirement age to recoup all the money lost to fees and bad investments. The companies filed motions to dismiss in August 2018.

A spokesperson for Financial Engines and counsel for Home Depot and Alight Financial said they had no comment Monday. Spokespeople for Home Depot and Alight and counsel for Financial Engines and the workers did not respond to requests for comment.

The workers are represented by T. Brandon Welch of Stillman Welch, Charles Field, Edward Chapin, Kevin H. Sharp, Leigh Anne St. Charles and David Tracey of Sanford Heisler Sharp LLP, and Norman Blumenthal of Blumenthal Nordrehaug Bhowmik De Blouw LLP.

The Home Depot entities are represented by David Tetrick Jr., Darren A. Shuler, Danielle Chattin and Benjamin B. Watson of King & Spalding LLP.

Financial Engines is represented by Sarah M. Adams, David N. Levine, Edward J. Meehan, Andrew D. Salek-Raham and Meredith F. Kimelblatt of Groom Law Group, and Anthony L. Cochran of Chilivis Cochran Larkins & Bever LLP.

Alight Financial is represented by Craig C. Martin, Amanda S. Amert, Ashley M. Schumacher and Brienne M. Letourneau of Jenner & Block LLP, and Halsey G. Knapp Jr. of Krevolin & Horst LLC.

The case is Pizarro et al. v. The Home Depot Inc. et al., case number 1:18-cv-01566, in the U.S. District Court for the Northern District of Georgia.

–Editing by Aaron Pelc.

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