Citi Retirement Plan Poorly-Performing BlackRock TDFs ERISA Class Action

Defined contribution plans, such as 401(k) plans, have become the main form of retirement savings in the US. Unfortunately, companies do not have the same incentives to look after these plans as they did with defined benefit plans. The complaint for this class action alleges that Citigroup, Inc., its Board of Trustees, and the Administrative Committee of its Citi Retirement Savings Plan breached their fiduciary duties to the plan by selecting and/or retaining poorly-performing investment options in place of readily-available superior alternatives. The complaint brings suit under the Employee Retirement Income Security Act of 1974 (ERISA).

The class for this action is all participants in, and beneficiaries of, the Citi Retirement Savings Plan, at any time between July 29, 2016 and the date of judgment in this case, or any earlier date determined by the court, including any beneficiary of a deceased person who was a participant in the plan at any time during the class period.

The Citi Retirement Savings Plan has more than 109,000 participants and account balances and assets of nearly $18 billion, which puts it in the top 0.1% of similar plans by size. The complaint therefore argues that the plan has significant bargaining power in the marketplace.

Participants in the plan can invest their contributions, and Citi’s matching contributions, in a number of investment options, which the complaint alleges include “various mutual funds, collective trust funds and the Citigroup Common Stock Fund.” (The complaint defines collective trusts as “mutual funds without the SEC regulation.”)

The particular investments complained of are the BlackRock LifePath Index Funds, a series of target date funds (TDFs), which are mutual funds that shift their investments depending on how near participant are to retirement. Many companies now offer TDFs, and the complaint argues that better series of TDFs were available to the fiduciaries of the Citi plan at the time.

The complaint alleges, “The Blackrock TDFs are significantly worse performing than many of the mutual fund alternatives offered by TDF providers and, throughout the Class Period, could not have supported an expectation by prudent fiduciaries that their retention in the Plan was justifiable.”

The complaint features numerous graphs and tables to support this allegation, comparing the BlackRock TDFs with other similar funds, like Vanguard Target Retirement, T. Rowe Price Retirement, and Fidelity Freedom Funds. The charts look at things like equity allocation and three-year and five-year performance histories, including comparisons of returns at specific points during the class period.

According to the complaint, the charts show that the “BlackRock TDFs dramatically, repeatedly underperformed the average return of the Comparator TDFs for virtually the entire relevant period” at issue in this class action.

The complaint alleges, “When evaluated against the Comparator TDFs, both individually and as a group, the returns of the BlackRock TDFs, at all stages … paled in comparison to those of the readily available alternatives.” Therefore, the complaint claims, the analyses of prudent fiduciaries could not have justified retaining them in the plan.

Article Type: Lawsuit
Topic: Employment
Tags: Breach of Fiduciary Duty, ERISA, Employment Benefits, Retirement Plans