Posted October 12th, 2018.
By Emily Brill
Law360 (October 12, 2018, 8:51 PM EDT) — Home Depot Inc. workers fired back Thursday at their employer’s attempt to torpedo a proposed class action over 401(k) plan management, telling a Georgia federal judge the retail giant sat back and watched as the plan underperformed and workers paid excessive fees for algorithm-generated investment advice.
By failing to replace 11 subpar investment options and find cheaper, better financial advisers than Financial Engines LLC and Alight Financial Advisors LLC, Home Depot breached its fiduciary duty to 401(k) plan participants under the Employee Retirement Income Security Act, the workers said in a response in opposition to Home Depot’s motion to dismiss.
“By failing to replace the lagging funds with any of the numerous superior funds on the market, Home Depot caused plan participants to suffer millions of dollars of losses,” the workers wrote. “Furthermore, Home Depot ignored numerous red flags concerning FE and AFA’s fees.”
In response to Home Depot’s contention that the workers didn’t identify a flaw in the retailer’s fiduciary decision-making process, the workers said they didn’t need to.
“Information about Home Depot’s process is uniquely in defendants’ possession, not plaintiffs’. Plaintiffs are under no obligation to ‘plead details to which [they have] no access,’” the workers said.
Though they couldn’t provide information about Home Depot’s decision-making process, the workers could point to the result of that process, they said.
Since the result was a 401(k) plan that allegedly charged high fees for automated financial advice and offered investments that allegedly chronically underperformed, the judge should be able to infer that something was wrong with the fiduciary decision-making process, the workers argued.
“After all, prudent fiduciaries will remove poor performing investments,” the workers said.
The workers hit Home Depot, Financial Engines and Alight with the ERISA suit in April, alleging Home Depot’s 401(k) plan mismanagement was so severe that the average plan participant would have to work 18 years past retirement age to recoup his or her share of the money lost to fees and bad investments.
The companies filed motions to dismiss the suit in August. Home Depot claimed the workers didn’t explain where the company went wrong in its fiduciary decision-making process, while Financial Engines and Alight argued that they weren’t fiduciaries.
In responses to Financial Engines’ and Alight’s motions, the workers said the companies did have fiduciary obligations and both failed to fulfill those obligations.
Both companies “had a fiduciary obligation to monitor participants’ accounts and respond to participants’ instructions,” but they didn’t do that, the workers claimed, citing the companies’ lack of oversight over workers’ financial situations and the long wait times workers faced when trying to reach Alight or Financial Engines on the phone.
The workers’ attorney, Charles Field, said Friday that Financial Engines and Alight failed Home Depot workers by providing computer-generated investment advice that didn’t take workers’ changing circumstances into account. The companies, sometimes called “robo-advisers,” offer investment advice software that generates advice through an algorithm.
“You have not a human being but some algorithm making investment decisions for these people, so they didn’t get a lot of good info. We feel they didn’t get enough to recommend a good investment strategy for these folks,” Field said. “[The companies] didn’t follow up with [workers] to see if their circumstances had changed. Overall, it was not a good thing for the investor.”
A spokesperson for Alight said the company does not comment on litigation. An attorney for Financial Engines, David Levine, said he hadn’t gotten authorization to comment from his client as of Friday afternoon.
Counsel for Alight, counsel and spokespeople for Home Depot, and spokespeople for Financial Engines did not respond to requests for comment Friday.
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.