Southwest 401(k) Lawsuit Survives Motion to Dismiss, Signals Lower Bar for Fiduciary Claims
A decision issued Wednesday by a judge in the ERISA class action lawsuit against Southwest Airlines could have significant implications for how courts evaluate fiduciary breach claims tied to underperforming 401(k) investments.
In the in the U.S. District Court for the Northern District of Texas, Judge Karen Gren Scholer denied the defendants’ Motion to Dismiss the first Amended Complaint in the case of Anderson et al v. Southwest Airlines Co. et al, concluding that there is sufficient support for the existence of a failure to monitor claim.
“This decision creates a pleading standard that one underperforming fund in a 401(k) retirement plan is sufficient to establish a claim for breach of fiduciary duty and move the case into discovery.”
Charles Field, Sanford Heisler Sharp McKnight
The case, originally filed in Jan. 2025 on behalf of more than 60,000 plan beneficiaries, centers on allegations that Southwest failed for years to remove the Harbor Capital Appreciation Fund—the only actively managed large-cap growth fund with more than $2 billion in plan assets comprising roughly 17% of the Plan’s assets—from the Southwest Airlines Co. Retirement Savings Plan. It was not removed despite persistent underperformance against its benchmark and peer funds, which plaintiffs argue cost employees millions in retirement savings.
The ruling addresses whether allegations tied to even a single imprudent investment option are sufficient to proceed past the pleading stage.
“This decision creates a pleading standard that one underperforming fund in a 401(k) retirement plan is sufficient to establish a claim for breach of fiduciary duty and move the case into discovery,” said Sanford Heisler Sharp McKnight’s Charles Field, lead counsel for employees.
Specifically, Plaintiffs claim that by Dec. 31, 2018, the Harbor Fund had underperformed its self-selected target benchmark and comparator funds identified by Plaintiffs over the preceding 3-, 5-, and 9-year periods. Plaintiffs further claim a prudent fiduciary would have removed the Harbor Fund from the Plan no later than January 2019.
From Jan. 1, 2019, through Dec. 31, 2024, the Harbor Fund allegedly continued to cumulatively underperform the benchmark and the comparator funds. Therefore, Plaintiffs say Defendants breached their fiduciary duties by retaining the Harbor Fund, and breached their duty to monitor fiduciaries to which they delegated responsibilities.
This lawsuit follows a trend of ERISA litigation against large companies regarding investment options, including a recent $69 million settlement by UnitedHealth Group. In 2024, Sanford Heisler Sharp McKnight, together with co-counsel, also obtained final approval of a $61 million settlement in a long-running ERISA class action against General Electric. The UnitedHealth and GE settlements were among the most significant ERISA settlements in recent years. They were also among the highest value settlements ever in cases involving allegedly poor-performing plan investments.
Earlier this year, Field told 401(k) Specialist that his most recent case filed in January against Bloomberg’s 401(k) continues this trend, as a plan sponsor did not remove investment options despite an extensive track record of low returns. He says that wasn’t especially hard to demonstrate, as it was all based on public records.
“In our Bloomberg filing, we noticed that two funds had underperformed for 10 to 15 years. Fifty basis points over an employee’s lifetime career investments might reduce their savings by $100,000 or more. That’s a big deal,” Field said.
Under ERISA, fiduciaries are obligated to actively monitor investment options and remove those that become imprudent.
Plaintiffs in Anderson et al v. Southwest Airlines Co. et al seek recovery of all investment losses caused by the fiduciary breach, the removal of any imprudent investments from the Plan, and the removal of the fiduciaries who have violated their duties to the Plan’s participants and beneficiaries under ERISA, among other forms of relief.
Read Wednesday’s decision here.
SEE ALSO:
• Southwest 401(k) Hit with Lawsuit for Underperforming Fund
• $70 Million ERISA Lawsuit Filed Against Bloomberg 401(k) Alleging Plan Mismanagement
• How Not to Get Sued: A 401(k) Specialist Deep Dive
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.