A federal district court judge has denied most motions to dismiss filed by American Airlines in a case accusing the firm of including affiliated funds in its retirement plan investment lineup though they were more expensive and lower-performing than other funds.
The core of the plaintiffs’ claims relate to the use of American Beacon Funds in the plan. AMR Corp., American Airlines’ parent company, created a line of mutual funds that were managed by another subsidiary of AMR Corp. This fund manager was later renamed American Beacon Advisors, Inc. in 2005. These mutual funds were then known as American Beacon Funds.
According to the court opinion, AMR Corp. sold American Beacon Advisors, Inc. in 2008 to Lighthouse Holdings, Inc. As a part of this deal, AMR Corp. received an equity stake in Lighthouse Holdings, Inc. Plaintiffs contend that this sale was premised on American Airlines' continued use of American Beacon Funds in the plan. Although American Airlines employed an independent third party to approve the continued use of American Beacon Funds in the Plan, Plaintiffs allege that this was done merely to “whitewash” American Airlines’ actions.
Plaintiffs claim that the defendants breached their fiduciary duties because a prudent fiduciary would not retain the American Beacon Funds because they were more expensive than similar alternatives; American Beacon Funds underperformed compared to other similar investments; and American Beacon Funds were not included in other 401(k) plans. Plaintiffs also allege that defendants breached their duty of loyalty by not removing the overly expensive and underperforming American Beacon Funds.
In 2015, Lighthouse Holdings, Inc. sold its interest in American Beacon Advisors, Inc. According to the plaintiffs, this eliminated any financial interest American Airlines had in the plan’s use of American Beacon Funds. Then, later in 2015, the plan’s fiduciaries removed the American Beacon Funds. And shortly thereafter, the American Beacon Funds ceased to exist because, according to plaintiffs, they were marketplace failures that prudent investors would not choose.
Defendants American Airlines Inc., the Pension Asset Administration Committee, the Benefits Strategy Committee (BSC), the Pension Benefits Administration Committee (PBAC), and the Employee Benefits Committee filed a motion seeking to have all of plaintiffs’ claims dismissed. NEXT: The opinion