Retirement: Company kept low-performing funds in retirement plan

Where a company sued for failing to remove low-performing investment options in its retirement plan argued that a hypothetical prudent fiduciary in its position would have made the same decision, but the finder of fact could decide otherwise, its motion for summary judgment was denied.

Background

Peter Trauernicht and Zachary Wright, on behalf of themselves, the Genworth Financial Inc. Retirement and Savings Plan and all other similarly situated individuals, filed suit against Genworth Financial Inc., alleging that Genworth breached its fiduciary duties under the Employee Retirement Income Security Act, or ERISA, because it failed to appropriately monitor, and as a result, imprudently retained, the BlackRock LifePath Target Date Funds, or TDFs, in the Plan despite their significant underperformance. Genworth has filed a motion for summary judgment on two issues: loss causation and the statute of limitations.

Loss causation

The fiduciary carries its burden on loss causation by showing that “its ultimate investment decision was ‘objectively prudent.’” To determine what a hypothetical prudent fiduciary would have done, courts consider what others “in a like capacity” would do “under the circumstances then prevailing.”

According to Genworth, at the time plaintiffs say Genworth should have removed the BlackRock TDFs from the Plan, market analysts and sophisticated plan fiduciaries considered them to be sound investments. Genworth therefore says that, under the circumstances then prevailing, there is no dispute that the BlackRock TDFs were objectively prudent-a hypothetical prudent fiduciary would have made the same decision to retain the BlackRock TDFs in the Plan.

The Plan’s Investment Policy Statement, or IPS, provided specific criteria to consider when evaluating the BlackRock TDFs for removal. Under that framework, plaintiffs’ expert found that the BlackRock TDFs’ performance fell below the objectives set forth in the Plan’s IPS, and therefore, opined that Genworth would have dropped the BlackRock TDFs for a better-performing investment product had the Committee been adequately monitoring the Plan’s investments. Plaintiffs say that Genworth’s focus on the retirement plan industry as a whole overlooks the performance criteria explicitly identified in the IPS.

On this record, the court cannot say, as a matter of law, that a hypothetical prudent fiduciary in Genworth’s position would have made the same decision to retain the BlackRock TDFs under the circumstances. Genworth’s evidence regarding the broader retirement investment community is relevant to, but not dispositive of, the issue of loss causation. It must be weighed against plaintiffs’ evidence and expert testimony applying this Plan’s IPS to the facts of the case. That weighing of evidence is not appropriate at the summary judgment stage.

Statute of limitations

Genworth also contends that plaintiffs’ claims are time­barred because the BlackRock TDFs allegedly became imprudent outside of the six-year limitations period. The Supreme Court has held, however, that a breach of fiduciary duty can occur not only at the time of investment selection, but also during the period in which the fiduciary had a continuing duty to monitor the investments.

Plaintiffs claim that, as part of its continuing duty to monitor, Genworth should have met to review the BlackRock TDFs’ alleged underperformance in late 2016 and should have decided to remove the funds by the first quarter of 2017. Those dates fall within the limitations period which begins on Aug. 1, 2016, six years before the date the

complaint was filed.

Defendant’s motion for summary judgment denied.

Trauernicht v. Genworth Financial Inc., Case No. 3:22-cv-532, Aug. 29, 2024. EDVA at Richmond (Payne). VLW 024-3-462. 16 pp.