Judge Allows ERISA Suit Over Discount Tire Retirement Plan Investments to Continue 

A federal judge in Arizona has refused to dismiss a proposed class action lawsuit accusing Discount Tire’s parent company and its board of breaching their fiduciary duties under federal retirement law by offering allegedly underperforming investment options in the company’s employee retirement plan. 

In an order dated March 4, Senior U.S. District Judge Douglas Rayes of the U.S. District Court for the District of Arizona ruled that plaintiff Cory McGeathy plausibly alleged that fiduciaries of the Discount Tire/America’s Tire Retirement Plan imprudently retained a suite of target-date funds that lagged comparable investments for years, allowing the Employee Retirement Income Security Act case to move past the pleading stage.  

The judge denied a motion by Reinlalt-Thomas Corporation—the parent company of Discount Tire—and its board of directors to dismiss the lawsuit brought by plan participant McGeathy. 

McGeathy filed the proposed ERISA class action alleging the company and its fiduciaries breached their duties by selecting and retaining the American Century lineup of target-date funds that significantly underperformed peer investments. 

According to the court’s order, the Discount Tire/America’s Tire Retirement Plan is a profit-sharing retirement plan covering roughly 16,000 employees and beneficiaries, with about $1.2 billion in assets, as of December 2023. 

Nearly $519.5 million—about 43.5% of the plan’s assets—were invested in the American Century Target Fund Suite, the actively managed investment lineup at the center of the lawsuit. 

The complaint alleges that the American Century funds were among the worst-performing target-date fund suites on the market and that plan fiduciaries kept the investments in the retirement plan lineup for more than 15 years, despite persistent underperformance. 

McGeathy claims the decision harmed plan participants by reducing their retirement savings, estimating the losses at between $11 million and $44 million over the relevant time period. 

In seeking dismissal, the defendants argued that underperforming investments alone cannot support an ERISA fiduciary-breach claim and that the complaint failed to identify meaningful benchmarks to measure the funds’ performance. 

Rayes rejected those arguments at this stage of the case. 

The court found that the plaintiff identified several comparable target-date fund suites—including those from American Funds, Fidelity, State Street, Vanguard and Voya—that could serve as plausible benchmarks for evaluating performance. 

Because the complaint sufficiently alleged that the American Century funds lagged those fund suites and the plan’s own stated benchmark index over a prolonged period, the judge ruled that McGeathy had plausibly pleaded a claim for breach of the fiduciary duty of prudence. 

The court also allowed a related claim for failure to monitor fiduciaries to proceed, finding it derivative of the prudence claim. 

The lawsuit stems from McGeathy’s participation in the company’s retirement plan and his investment in the American Century Target Fund Suite. 

Target-date funds automatically adjust their asset allocations as investors approach retirement and are commonly used as default investments in employer-sponsored retirement plans. The funds are typically evaluated against peer target-date suites and benchmark indexes designed to reflect similar investment strategies and risk levels. 

McGeathy alleges that despite the widespread availability of better-performing and lower-cost alternatives, the plan’s fiduciaries failed to replace the American Century funds. 

The ruling does not determine liability but allows the case to proceed to discovery, which could increase the likelihood of a settlement.