Posted November 5th, 2019.
By Adam Lidgett
Law360 (November 5, 2019, 3:18 PM EST) — Walgreens wants to ax a proposed class action accusing it of costing employees nearly $300 million in retirement savings by not removing underperforming funds from its retirement plan, arguing the suit is merely an example of “Monday-morning quarterbacking.”
The company urged an Illinois federal court Monday to dismiss the Employee Retirement Income Security Act suit claiming it loaded its profit-sharing retirement plan with a group of allegedly poorly performing Northern Trust target-date retirement funds in 2013 and then refused to remove them.
Walgreen Co. said that the funds it picked were conservative and inexpensive compared to other options and argued that the current and former workers who sued it haven’t pointed to any shortcomings in how it picked the investments and oversaw the plan. On top of that, the company said the workers “cherry-picked” for comparison other funds that performed better than the Northern Trust ones.
“In short, the [amended complaint] offers nothing more than Monday-morning quarterbacking of the NT funds’ performance premised on faulty comparisons to target-date funds with different investment philosophies and inapposite benchmarks,” Walgreens said. “Without alleging facts from which the court can infer an imprudent process, plaintiffs’ claims fail as a matter of law.”
The suit was filed in August, with plan participants claiming the Northern Trust Focus Target Retirement Trusts at issue have performed worse than 70% to 90% of its peer funds for nearly a decade. The participants claimed they have lost out on nearly $300 million in retirement savings since 2014.
The company began offering the Northern Trust funds, which are the plan’s only target date options, to participants in 2013, the suit claimed. The company has also set the Northern Trust funds as their default investment option, which kicks in if a participant does not select a different investment, according to the suit.
But Walgreens’ decisions regarding the Northern Trust funds constitute a breach of fiduciary duty and have “resulted in a swift and devastating blow to participants’ retirement accounts,” the workers claimed. For example, the Northern Trust funds underperformed relative to similarly situated funds by more than $200 million within the first two years Walgreens offered them to participants, according to their suit.
The funds are still underperforming when measured against relevant benchmarks and comparator funds, the plan participants claimed. And the extent to which the funds have underperformed “raises a plausible inference that Walgreens’ selection and monitoring process was tainted by a failure of competency or effort,” they said.
“It looks to me like they’re saying that we used the wrong benchmarks and the wrong funds as comparators and therefore our complaint doesn’t state a claim,” Charles Field of Sanford Heisler Sharp LLP, who represents the plaintiffs, told Law360 on Tuesday. “Of course we disagree with their characterization of that, and we’ll respond in due course to what they have to say.”
Representatives for Walgreens did not immediately respond to requests for comment Tuesday.
The participants are represented by Charles Field, Kevin Sharp, Paul Blankenstein, David Tracey and Danielle Fuschetti of Sanford Heisler Sharp LLP and Ben Barnow, Erich P. Schork, Jeffrey D. Blake and Anthony L. Parkhill of Barnow and Associates PC.
Walgreens is represented by Sari M. Alamuddin, Deborah S. Davidson, Philip J. Pence and Abbey M. Glenn of Morgan Lewis & Bockius LLP.
The case is Chandra V. Brown-Davis et al. v. Walgreen Co. et al., case number 1:19-cv-05392, in the U.S. District Court for the Northern District of Illinois.
–Additional reporting by Lauraann Wood. Editing by Gemma Horowitz.