CVS Wins Round Over Stable Value Fund Investments in 401(k) Plan

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By Carmen Castro-Pagan

CVS Health Corp. won a round in a proposed class action accusing it of violating ERISA by allocating its workers’ retirement savings to a stable value fund that allegedly yielded negligible returns ( Barchock v. CVS Health Corp. , D.R.I., No. 1:16-cv-00061-ML-PAS, report and recommendation 1/31/17 ).

The workers’ amended complaint failed to provide sufficient facts to raise an inference of imprudent investment management by Galliard Capital Management Inc., the manager of the stable value fund, Magistrate Judge Patricia A. Sullivan said Jan. 31 in recommending dismissal of the lawsuit. Because the allegations against Galliard were insufficient, allegations that CVS allegedly breached its duty to select and monitor Galliard must also fail, Sullivan concluded.

This is the participants’ second attempt to avoid dismissal of their lawsuit under the Employee Retirement Income Security Act. In June, Sullivan recommended dismissal of the original complaint against CVS because the participants failed to allege that the stable value fund’s short-term fixed-income holdings were unreasonable.

In the new ruling for CVS, Sullivan expressly rejected the participants’ reliance on decisions by other courts that declined to dismiss lawsuits against Ameriprise Financial Inc., Fidelity Management Trust Co. and Union Bank & Trust Co. These rulings, Sullivan said, relied either on inferences of self-dealing or disloyalty by the manager—claims that weren’t raised by the CVS plan participants.

Insufficient Allegations

Although their new allegations—that the fund’s asset allocation, the duration of its investments and its performance deviated from industry averages—rest firmly on a substantial factual foundation, they are insufficient to permit an inference of imprudence under ERISA, Sullivan said.

“Deviation from the average, standing alone, means nothing,” Sullivan said. What matters is whether the duration of the investments and the allocation of the assets chosen by Galliard conformed to the plan’s disclosed investment objective of preserving capital while generating a higher rate of return than a money market fund, she added.

The participants’ new allegations may claim that various features of the stable value fund deviated from industry averages, but without more, that doesn’t permit an inference either of imprudence or prudence, Sullivan said. In ruling for CVS, Sullivan agreed with its argument that the participants’ amended allegations gave more heft to their claim but did nothing to alter the fatal failing of the original pleading—that the claim remains implausible because it is built on nothing more than a “post hoc critique” of how the stable value fund was managed.

Schneider Wallace Cottrell Konecky Wotkyns LLP and Sonja L. Deyoe represent the participants. O’Melveny & Myers LLP and Whelan Corrente Flanders Kinder & Siket LLP represent CVS.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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