Posted August 22nd, 2019.
Suit says poorly performing funds were ‘devastating’ to retirement accounts.
Walgreen Co. is being sued for $300 million by a group of its 401(k) plan participants who allege that the company breached its fiduciary duties by adding to the plan a group of “poorly performing funds” and keeping them for nearly a decade despite their lackluster returns.
The complaint, which was filed in the US District Court of Northern Illinois, alleges Walgreens failed to remove from its employee retirement plan a suite of 10 Northern Trust target retirement date funds that underperformed their investment benchmarks and other similar collective investment funds significantly for nearly a decade. The lawsuit alleges that the Walgreen Profit-Sharing Retirement Plan has cost its employees millions of dollars in retirement savings.
“Walgreen’s decision to select the Northern Trust Funds resulted in a swift and devastating blow to participants’ retirement accounts,” said the complaint, which also said that during the first two years the plan offered the funds, they underperformed relative to the comparator funds by more than $200 million.
“To this day, the investment performance of each of the 10 Northern Trust Funds has continued its downward spiral to the bottom of their respective Morningstar Category for the preceding three-and five-year periods,” said the complaint. “Most of the Northern Trust Funds have performed worse than between 70% and 95% of the hundreds of funds within their respective Morningstar categories for the past three-year and five-year periods.”
According to law firm Sanford Heisler Sharp, which is representing the plaintiffs, the plan participants invested more than $3 billion in the 10 target retirement date funds, which made up nearly one-third of the plan’s assets.
“ERISA’s fiduciary standards are strict and exacting,” David Sanford, counsel for the plaintiffs, said in a statement. “Since 2013, Walgreen has offered its employees these poor-performing target retirement date options which have been highly detrimental to the retirement savings of plan participants. Walgreen and the plan committees should be held to the highest standard as fiduciaries.”
The complaint also said that Walgreen should have known the funds were underperforming, but didn’t because the company failed to prudently monitor the investment performance of the plan options as required by ERISA.
“A reasonable investigation by the Walgreen defendants would have revealed the funds’ chronic underperformance and prompted Walgreen to remove and replace them with superior options,” said the complaint.
The plaintiffs are seeking approximately $300 million for financial losses to plan participants and beneficiaries, divestiture of imprudent investments, and the removal of the fiduciaries who the suit alleges violated their duties under ERISA.