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Aon Hewitt Investment Consulting Inc. must defend allegations that it acted imprudently by selecting and monitoring certain investment options, including JPMorgan’s target-date funds, in Safeway Inc.'s 401(k) plan.
The lawsuit’s allegations—that Aon offered little more than boilerplate investment advice in which it generally rubber-stamped the recommendations of JPMorgan while failing to offer meaningful advice regarding available investment alternatives—are sufficient to support allegations that its decision-making process was flawed, Judge Jon S. Tigar of the U.S. District Court for the Northern District of California held Dec. 11.
Tigar rejected Aon’s argument that it didn’t breach its fiduciary duty of prudence because it had in place a “master consulting agreement” with Safeway that established Aon’s “robust process” in providing “ongoing consulting and performance evaluation.” The terms of the agreement, standing alone, can’t establish that Aon acted prudently, and the fact that an agreement exists doesn’t prove it was followed, Tigar said.
The judge took issue with the claim that Aon—the plan’s investment adviser—allegedly breached its duty to diversify under the Employee Retirement Income Security Act. The basic contention that Aon and Safeway breached their duty by offering too few passive investment options is conclusory and fails to state a valid claim under ERISA, Tigar said in dismissing the claim.
The ruling is the latest development in a couple of lawsuits filed last year against grocery chain Safeway. The other lawsuit also accused Safeway of allowing high administrative fees and selecting and retaining “opaque, high-cost, and poor-performing investment options” in its retirement plan. Earlier this year, Tigar declined to dismiss the lawsuits against Safeway, holding that the challenges to the JPMorgan funds didn’t rest solely on fees. Rather, Safeway was allegedly influenced by JPMorgan’s “notorious history” of unlawfully steering clients toward its own proprietary funds.
Tigar’s latest ruling is noteworthy because it also allows the participant to advance her duty-of-prudence claim under the allegation that Aon was aware of the potential conflict of interest with JP Morgan and it failed to act on this information.
A growing list of companies have been sued under ERISA for allowing allegedly expensive and poorly performing target-date funds in their retirement plans. Target-date funds aim to address retirement savings needs by investing in a single fund that accounts for an investor’s retirement date, turning more conservative as the date approaches.
Earlier this year, Wells Fargo defeated a proposed class action claiming it filled its 401(k) plan with high-fee, poorly performing target-date funds affiliated with the company. A challenge over Insperity Inc.'s in-house target-date funds recently survived a motion to dismiss and won class certification.
Shepherd Finkelman Miller & Shah LLP, Duckworth Peters Lebowitz Olivier LLP, and Sahag Majarian II represent the participant. Trucker Huss APC represents Safeway. O’Melveny & Myers LLP represents Aon Hewitt.
The case is Terraza v. Safeway, Inc. , N.D. Cal., No. 3:16-cv-03994-JST, order granting in part co-defendant’s motion to dismiss 12/11/17 .
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