Edelson Lechtzin LLP has filed a class action lawsuit in the U.S. District Court for the District of Arizona alleging that the fiduciaries of the Stantec 401(k) Plan violated the Employee Retirement Income Security Act of 1974 ("ERISA") by imprudently including unreasonably expensive and underperforming funds among the Plan's investment options. The proposed class is comprised by:
The lawsuit alleges that Defendants failed to select the lowest-cost share class available for the Plan's mutual fund offerings, which are identical to the mutual funds in the Plan in every way except for their lower cost. The chart below shows funds in the Plan that are available lower-cost share classes.
Moreover, Defendants selected JPMorgan SmartRetirement target retirement date funds for which lower-cost share classes were available, but Defendants failed to transfer these investments to the lowest cost R6 share class until after December 31, 2017. Even then, Defendants failed to select the even lower cost Collective Investment Trust versions of such funds. Specifically, the following funds in the Plan were available as lower cost collective trusts throughout most of the Class Period:
In addition, the JPMorgan SmartRetirement target retirement date funds underperformed their respective benchmark indices and Morningstar fund categories for the 3- and 5-year periods ending on June 30, 2020, while the comparable Vanguard Target Retirement date funds and BlackRock LifePath Index funds mirrored or exceeded the performance of the same benchmark indices and Morningstar fund categories. Given such prolonged underperformance, it was imprudent for Defendants to retain the JPMorgan SmartRetirement target retirement date funds as investment options in the Plan.
Similarly, it was imprudent for Defendants to select and retain the American Beacon Large Cap Value R5 fund, which has an unreasonably high expense ratio of 0.63% and has underperformed comparable investment options that are benchmarked to the same index â€“ the Russell 1000 Value Index. Funds with expense ratios as low as 0.17% (a staggering 115% difference in cost), outperformed the American Beacon Large Cap Value R5 fund over 1-, 3-, 5- and 10-year periods as of the quarter ended June 30, 2020.
Yet another underperforming Plan investment offering is the PIMCO All Asset All Authority Institutional fund, which has an unreasonably high expense ratio of 1.24%, and routinely falls short of its benchmark index. Indeed, this fund has had negative returns over the most recent 1- and 3-year periods, and over the past 10 years had a paltry return of only 1.86%. Thus, it was imprudent for Defendants to select and retain the PIMCO All Asset All Authority Institutional fund during the Class Period given its anemic performance.
The case is Gotta v. Stantec Consulting Services, Inc., Case No. 2:20-cv-01865-GMS (D. Ariz. Sept. 23, 2020). A copy of the Complaint is available here.