Society problems

BlackRock TDF targeted in another lawsuit

Claiming that the plan’s trustees “…employed a fundamentally irrational (i.e. inconsistent with their duty of care) decision-making process contrary to basic economics and established investment theory – a new lawsuit involving target date funds BlackRock LifePath has been filed.

The lawsuit—filed[1] by three former participants of the $38 billion Microsoft 401(k) plan and 135,000 participants in the U.S. District Court for the Western District of Washington — claims — like half a dozen similar lawsuits recently filed — that fiduciary defendants breached their fiduciary duties under the plan, having “…selected, retained and/or ratified underperforming investments instead of offering more conservative alternative investments that were readily available at the time”.
There are a few distinguishing features to this plan, compared to the others being sued this week – there’s apparently a separately managed account and an employee stock ownership plan (ESOP) component, the latter of which has been frozen to transfers or news. contributions since 2016, depending on the suit.


Notwithstanding these “differences”, the violation alleged here (Beldock et al. against Microsoft Corporation et al., case number 2:22-cv-0108) deals with the same matter as the series of related lawsuits mentioned above – the (allegedly poor) performance of the BlackRock LifePath Index funds. The lawsuit claims – as others have recently – that BlackRock TDFs are “significantly underperforming most mutual fund alternatives offered by TDF providers and, throughout the class period, could not have supported the expectation of the prudent trustees that their retention in the plan was justifiable.And – as alleged in the other cases (the record is essentially a copy/paste of the other documents), the alleged problem is exacerbated by the designation of these funds as the plan’s qualified default investment alternative, where the suit alleges that 24% of the plan’s assets have been invested (as of 12/31/20).

The plaintiff participants here – again, as in the other lawsuits – claim that BlackRock TDFs significantly underperformed four of the five target date benchmark funds (Vanguard, T. Rowe Price, American Funds, Fidelity[2]) which are the largest in terms of market share. The lawsuit asserts that “When evaluated against comparator TDFs, both individually and as a group, the returns of BlackRock TDFs, at all stages of the slide trajectory from aggressive to conservative, pale in comparison. compared to those of readily available alternatives. As a result, the analytical frameworks employed by prudent trustees could not have supported a determination that the expected returns of the BlackRock TDFs would justify their retention in the plan.

“Considerably more aggressive”

The lawsuit claims that the BlackRock TDFs were “considerably more aggressive” than the so-called “comparator” TDFs, “from the vintage aimed at the youngest investors through those with a maturity of 2050”. They go on to state that “for the 2045 to 2030 vintages, the latter of which is managed for investors currently within ten years of their expected retirement date, the difference in equity allocations between the BlackRock TDFs and the comparator TDFs is negligible. Although the BlackRock TDFs become considerably more conservative in the 2025 vintage and in retirement, each of the comparator TDFs eventually achieves a terminal equity allocation equal to or less than 40% of the BlackRock TDFs.

Here too, plaintiffs peremptorily rebut the (potential) defense that it is inappropriate to compare TDFs with a retirement date orientation (like BlackRock TDFs) to those with a glide path designed for the purpose of completing retirement.

“Defendants could have requested such comparative feedback data at any time from Fidelity in its capacity as Registrar (since Fidelity routinely provides such data to their customers), as well as from the Plan’s other service providers, or, at alternatively, get them themselves in real time with a few clicks of a computer mouse,” the suit alleges.

Ultimately, Plaintiffs claim that “Defendants selected and retained the funds at issue and throughout the Class Period. Since defendants have discretion to select the investments made available to participants, defendants’ breaches are the direct cause of the losses alleged here. »

Stay tuned.

Photo: Shutterstock


[1] As in the other cases, Miller Shah LLP is representing the participants bringing the action, and in this case, the Terrell Marshall Law Group PLLC.

[2] Here, as in the other lawsuits, Fidelity Freedom funds – a target of plaintiffs’ counsel in separate actions – are set aside as “an unwise selection for the Plan for the duration of the Class Period due to a myriad of quantitative and qualitative red flags after undergoing a strategy overhaul in 2014.”