Posted March 17th, 2020.
By Adam Lidgett
Law360 (March 17, 2020, 4:51 PM EDT) — An Illinois federal judge mostly denied Walgreens’ bid to toss a suit claiming it cost workers nearly $300 million in retirement savings by not eliminating subpar funds from its plan, saying it was too early to tell if the workers’ claims about the 401(k) plan’s underperformance held water.
U.S. District Judge Charles Ronald Norgle on Monday turned back the company’s attempt to torpedo the entirety of a proposed Employee Retirement Income Security Act class action claiming it loaded the plan with poorly performing Northern Trust target-date retirement funds and then refused to remove them.
While Walgreen Co. took issue with the benchmarks and other funds the plaintiffs used as comparators to measure the Northern Trust funds’ performance, the judge said that at this point in the case it wasn’t clear whether those comparisons were appropriate, so discovery can move forward.
“Plaintiffs have met the notice-pleading requirements at this stage of the litigation, and discovery should proceed on both counts,” the judge said. “Plaintiffs have alleged that a prudent fiduciary would have acted differently.”
The judge did, however, agree that the workers can’t challenge two of the funds at issue because they didn’t actually invest in them. That means they can still challenge eight funds.
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 peer funds for nearly a decade. The participants claimed they have lost out on nearly $300 million in retirement savings since 2014.
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.
The funds are still underperforming when measured against relevant benchmarks and comparator funds, the plan participants claim. 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 say.
Walgreens urged the court in November to toss the suit, arguing the funds it picked were conservative and inexpensive compared with other options and 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.
Charles Field of Sanford Heisler Sharp LLP, who represents the plaintiffs, told Law360 on Tuesday that “We had looked at this case for some time and we noticed that Walgreen had put into the plan target date funds that were managed by Northern Trust, and we did a performance analysis of these funds … and they had been underperforming almost nonstop since the day they were created about 10 years ago.”
A Walgreens representative declined to comment on Tuesday.
The participants are represented by Charles Field, Kevin Sharp, Paul Blankenstein, Robert Van Someren Greve and David Tracey of Sanford Heisler Sharp LLP and Ben Barnow, Erich P. Schork and Anthony 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 Alyssa Miller.