IBM Hit With 401(k) Complaint Over TDF Monitoring 

Former IBM employees filed a complaint accusing the company of breaching its fiduciary duties under the Employee Retirement Income Security Act for not replacing underperforming target-date funds. 

According to the complaint filed in U.S. District Court for the Southern District of New York, IBM breached its fiduciary duties by retaining several underperforming propriety TDFs and several Vanguard mutual funds that consistently underperformed similar options, such as those from Fidelity and T. Rowe Price, costing plan participants $1.9 billion in returns.  

The allegations focus on IBM’s proprietary suite of All-in-One Life Cycle funds, which includes both target-date retirement and target-risk funds used as default investment options. 

Moreover, the plaintiffs argue that the inclusion of three Vanguard mutual funds on the plan’s investment menu further contributed to the plan’s underperformance. According to the complaint, all three funds underperformed their peers over a trailing three-year period for as long as nine consecutive years. 

As of the end of 2024, approximately $13.4 billion of the nearly $60 billion (about one-fifth) of the plan’s assets was allocated to IBM’s proprietary funds, while an additional $454 million was invested in the three Vanguard mutual funds.  

According to the complaint, from 2016 to 2024, IBM’s target-retirement and target-risk funds underperformed comparable funds by as much as 20% to 30%, depending on the particular vintage. 

For instance, the 2020 vintage achieved a return of 57.1% during this timeframe, whereas similar offerings from Vanguard and T. Rowe Price returned 74.2% and 87.8%, respectively, continuously underperforming in other vintages.  

The complaint also claims that IBM used “custom benchmarks” to monitor the funds’ performance, which obscured the alleged underperformance.  

The plaintiffs are represented by Kahn Swick & Foti LLC. 

The IBM 401 (K) Plan had approximately $60.4 billion in assets with 156,865 plan participants at the end of 2024, according to its most recent Form 5500 filing.  

IBM declined to comment.