Walgreen Sued for Keeping Underperforming TDFs in 401(k)

A group of current and former participants in the Walgreen Profit-Sharing Retirement Plan, individually and as representatives of a class of participants and beneficiaries of the plan, have filed a lawsuit on behalf of the plan for breach of fiduciary duties under the Employee Retirement Income Security Act (ERISA).

The lawsuit names as defendants Walgreen Co., the Retirement Plan Committee For Walgreen Profit-Sharing Retirement Plan and its members, and the Trustees for the Walgreen Profit-Sharing Retirement Trust and its members.

The complaint notes that as fiduciaries, the Walgreen defendants must prudently curate the plan’s investment options. They must regularly monitor plan investments and remove ones that become imprudent. The lawsuit alleges that the defendants breached these fiduciary duties by adding to the plan in 2013 a suite of poorly performing funds called the Northern Trust Focus Target Retirement Trusts and keeping these funds in the plan despite their continued underperformance.

Despite a market “teeming with better-performing alternatives,” the plaintiffs say, Walgreen selected the Northern Trust Funds, which already had a history of poor performance. According to the complaint, they had significantly underperformed their benchmark indexes and comparable target-date funds since Northern Trust launched the funds in 2010.

The lawsuit contends it was predictable that the Northern Trust Funds continued underperforming through the present. For nearly a decade, these investment options performed worse than 70% to 90% percent of peer funds, according to the complaint. The plaintiffs say not only does Walgreen refuse to remove the funds, it has actually added Northern Trust funds to the plan’s investment lineup, and selected the Northern Trust target-date funds as the plan’s default investment.

According to the complaint, the funds now comprise 11 of the 24 investment options in the plan and collectively hold more than $3 billion in plan assets, which represents more than 30% of the plan’s assets. “Walgreen’s imprudent decision to retain the Northern Trust Funds has had a large, tangible impact on participants’ retirement accounts. Based on an analysis of data compiled by Morningstar, Inc., Plaintiffs project the Plan lost upwards of $300 million in retirement savings since 2014 because of Walgreen’s decision to retain the Northern Trust Funds instead of removing them,” the complaint states.

It further says, “The Northern Trust Funds have also impaired the Plan’s overall performance. According to Brightscope, the average Plan participant could earn $193,925 less in retirement savings than employees in top-rated retirement plans of a similar size. The $193,925 disparity translates to an additional 10 years of work per participant.”

The plaintiffs are seeking to enforce the Walgreen defendants’ personal liability under ERISA to make good to the plan all losses resulting from each breach of fiduciary duty occurring during from January 1, 2014, to the date of judgment. In addition, they seek such other equitable or remedial relief for the plan as the court may deem appropriate.

Notably, given the impending U.S. Supreme Court decision in the case of Intel v. Sulyma regarding when “actual knowledge” actually starts for retirement plan participants for use in deciding when a case is filed beyond the statutory limits under ERISA, the Walgreen complaint says the plaintiffs did not have knowledge of all the material facts until shortly before they filed the complaint. “Further, Plaintiffs do not have actual knowledge of the specifics of the Walgreen Defendants’ decision-making processes with respect to the Plan, including the Walgreen Defendants’ processes for monitoring and removing Plan investments, because this information is solely within the possession of the Walgreen Defendants prior to discovery,” the complaint states.