Suit Challenging TDFs in Walgreen Retirement Plan to Proceed

In a concise order, U.S. District Judge Charles Ronald Norgle of the U.S. District Court for the Northern District of Illinois has declined to dismiss a lawsuit alleging fiduciaries of the Walgreen Profit-Sharing Retirement Plan breached their fiduciary duties by selecting and retaining poorly performing target-date funds (TDFs) for the plan.

The defendants say that the lawsuit should be dismissed for failure to state a claim, arguing that the complaint cannot be based solely on the funds’ underperformance but must contain more specific allegations regarding the defendants’ conduct and fund-selection process. In addition, the defendants say the funds to which the plaintiffs compare the plan’s TDFs are not proper and that the proper benchmark is one that “actually reflects the funds’ investment strategy.”

Nagle cited previous cases which found “whether a particular investment choice was imprudent is a particularly fact-sensitive inquiry that would not be appropriate to resolve on a motion to dismiss,” and “[Employee Retirement Income Security Act] plaintiffs generally lack the inside information necessary to make out their claims in detail unless and until discovery commences.” Nagle said discovery in the case will proceed.

He did, however, dismiss claims regarding two of the funds in the TDF series, agreeing with the defendants that the plaintiffs lacked standing to sue regarding funds in which they did not personally invest.

Nagle warned that the “plaintiffs’ claims may ultimately fail if they rely solely on evidence of underperformance.”