Another BlackRock TDF ERISA Challenge is Dismissed

A federal court in California dismissed a breach of fiduciary duty lawsuit brought against Cisco under the Employee Retirement Income Security Act, though plaintiffs were given the opportunity to amend their lawsuit.

This case is one of a series of lawsuits brought by the Miller Shah law firm which alleges that BlackRock Inc.’s LifePath target-date-fund suite underperformed other TDFs in the market and that sponsors that selected the TDF series as their QDIA only did so to pursue lower fees, not with overall performance in mind.

The case, Robert Bracalente vs. Cisco Systems, was heard in the US District Court for the Northern District of California San Jose Division.

Miller Shah did not respond to a request for comment.

In addition to Cisco, similar complaints brought against Microsoft, Capital One, Booz Allen Hamilton, and Advance Publications have also been dismissed.

District Court Judge Edward J. Davila explained that the BlackRock fund series underperforming other TDFs from 2016 to 2021, such as those offered by Vanguard or T. Rowe Price, does not automatically make selection of the BlackRock funds an imprudent one. “Merely pointing to another investment that has performed better in a five-year snapshot of the lifespan of a fund that is supposed to grow for fifty years does not suffice to plausibly plead an imprudent decision,” Davila wrote in the decision.

According to the judge, in order for ERISA fiduciary duty to apply to investment underperformance, it must be accompanied by other facts, such as evidence of an imprudent process: “to the extent Plaintiffs attempt to state an ERISA claim for imprudence based solely on the BlackRock TDFs’ underperformance, the Court cannot reasonably infer from underperformance alone that the BlackRock TDFs were imprudent investments.”

Further, fiduciaries are not required to select the highest performing investments, and there are a range of choices that are consistent with prudence, Davila wrote:  “The Supreme Court has recognized that ‘the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.’”

Davila continued, “’underperformance-only’ theory, however, would flatten this nuanced prudence evaluation into a one-dimensional comparison that considers only the funds’ three- and five-year performance data.”

The court also noted that though the class period ended in 2021, starting in the first quarter of 2022, the BlackRock TDF series outperformed the competitors listed in the lawsuit, underscoring the role of TDFs as a long-term investment. It would also lend support to the arguments found in industry amicus briefs that the plaintiffs in these cases were cherry picking the time periods to which their claims pertained.

Davila also signaled that he was aware of other U.S. district courts that rejected the same arguments in similar cases and that this influenced his decision.

“It is also worth noting that at least two other district courts have recently dismissed ERISA complaints with near-identical allegations also relating to the same BlackRock TDFs and their disappointing three- and five-year performance data,” Davila wrote.