Defendable. Documented. Rinse and repeat.
Timothy R. Yee, AIF, CPFA?, C(k)P?, CHSA, NQPA, CSRIC?, RI(k)
President at Green Retirement, Inc.
A federal judge has dismissed with prejudice a lawsuit against Cisco Systems Inc. over its 401(k) plan’s use of BlackRock Lifepath target date funds (TDFs). The case, part of a series of similar suits, alleged fiduciary breach by Cisco for not properly monitoring the TDFs. Despite three attempts by plaintiffs to amend their claims, U.S. District Judge Edward J. Davila ruled that the plaintiffs failed to present a plausible argument.
The judge rejected new arguments comparing the Lifepath TDFs to BlackRock’s Dynamic TDFs, citing the latter’s lack of performance history. Additionally, previously dismissed claims were reasserted without substantial changes. With this ruling, the case is permanently closed.
The decision highlights the challenges of pursuing fiduciary breach claims without strong evidence and underscores the resilience of fiduciaries who defend against meritless lawsuits.
What is surprising is that in spite of being given three chances to get this lawsuit right, the plaintiff's attorney did not correct the pointed out deficiencies. For example, the plaintiffs claimed that a different target date suite would have been a more prudent choice yet at the time of comparison, the different target date suite had no performance history. How exactly is that prudent?
What this brings to mind is the need to have a defendable and repeatable investment evaluation process. The process needs to be applied on a consistent basis (quarterly in my practice). The results and subsequent actions need to be documented. Yes, it takes time to explain our thinking and why we do what we do, but it is time well spent.
From there, it is a matter of "rinse and repeat". This is not a difficult concept to understand but rather the right way to oversee plan investments. What is difficult to understand is not getting something right on the third go. Also difficult to understand is the filing of meritless lawsuits in the hopes of a settlement. These latter two points are not likely to go away any time soon.