The latest example of Employee Retirement Income Security Act (ERISA) litigation has been filed in the U.S. District Court for the Western District of North Carolina, targeting both the Lowe’s company and Aon Hewitt Investment Consulting for a number of alleged fiduciary breaches.
The core of the complaint is presented as follows: “Lowe’s imprudently selected and retained the Hewitt Growth Fund for the Plan, in consultation with Hewitt (which served as the plan’s fiduciary investment consultant), despite the fact that (1) the Hewitt Growth Fund was a new and largely untested fund at the time it was added to the plan; (2) the Hewitt Growth Fund was underperforming its benchmark at the time it was added to the plan and continued to underperform after it was added to the plan; and (3) the Hewitt Growth Fund was not utilized by fiduciaries of any similarly-sized plans and was generally unpopular in the marketplace.”
According to the text of the complaint, defendants placed $1 billion of the Lowe’s 401(k) plan’s assets into the new fund. At least some of the money, plaintiffs allege, was inappropriately reallocated from eight existing funds in the plan, “which were generally performing well,” when the Hewitt Growth Fund replaced these options on the investment menu.
“Prior to this $1 billion investment by the plan, the Hewitt Growth Fund had struggled to attract capital from other investors and had only $350 million in total assets, such that the plan’s investment resulted in a four-fold increase in the size of this fund,” the complaint alleges. “Hewitt had a conflict of interest in recommending this proprietary fund for the plan, and improperly did so to further its own financial interests instead of the interests of the plan’s participants. Lowe’s should have recognized this conflict of interest, and should have recognized (as other 401(k) plan fiduciaries did) that the Hewitt Growth Fund was inappropriate for the plan. By causing the Plan to include and retain this fund, defendants breached their fiduciary duties under Section 404 of ERISA (29 U.S.C. § 1104) and caused the plan to suffer millions of dollars in investment losses.”
Technically, the proposed class of plaintiffs brings this action to “recover losses, disgorge the profits that Hewitt received on account of its fiduciary breaches, and obtain equitable relief and other appropriate relief as provided by Sections 409 and 502 of ERISA (29 U.S.C. §§ 1109, 1132).”
The full text of the complaint lays out additional details regarding the process by which plan fiduciaries introduced the Hewitt Growth Fund. Notably, according to plaintiffs, at the time the Growth Fund was added to the plan, it reported negative returns (-0.67%) from its inception in Q4 2013 through Q3 2015. By contrast, over the same period, the eight funds it replaced had a weighted average return of 7.30%.