A 401k participant has filed a proposed class action lawsuit against her former employer, Seattle-based independent risk management, benefits and technology firm Milliman, Inc., claiming its retirement plan’s fiduciaries violated ERISA by losing up to $85 million by investing in high-cost and poor-performing target risk funds for which it served as a subadvisor.
The complaint was filed last Thursday in federal court in Washington state by Milliman 401k plan participant Joanna Mattson on behalf of a proposed class of thousands. It accuses the defendents, Milliman plan fiduciaries, of breaching their fiduciary duty by failing to prudently monitor and failing to remove three of the plan’s poorly performing investment options.
In 2013, the plan’s investment committee selected a suite of target risk funds: the Unified Trust Wealth Preservation Strategy Target Growth Fund, Unified Trust Wealth Preservation Strategy Target Moderate Fund, and Unified Trust Wealth Preservation Strategy Target Conservative Fund as three investment options for plan participants.
Having only been launched in November 2012, the Unified Funds were brand new, had no investment track record, and were untested. By the end of 2013, the plan was the sole investor in the Moderate and Conservative Funds and represented about 97% of the assets of the Aggressive Fund, according to Department of Labor filings.
During the nine years since their introduction to the plan in 2013, the Unified Funds have significantly underperformed meaningful benchmarks, which include both benchmark indexes (including the index preferred by the Unified Funds’ investment manager itself) and comparable target risk funds.
Since January 1, 2013, the Aggressive Fund’s investment return underperformed a key investment benchmark by a cumulative total of over 62%; and it ranks in the bottom 90th percentile among the funds in its peer universe, according to Morningstar.
“Despite this abysmal record of significant underperformance year-after-year, and a marketplace teeming with hundreds of better performing investment options, the Milliman Defendants did not remove any of the Unified Funds from the Plan,” the suit states.
Calling the ongoing decision to take no action both imprudent and injurious to the plan and its participants, the plaintiff is seeking class-action status for the lawsuit, saying that participants who invested in any of the target-risk funds since Jan. 13, 2016, are affected.
“No prudent investor would have sat idly by in the face of such underperformance. This failure to act has had devastating consequences for participants’ retirement accounts.”
– Complaint filed against Milliman retirement plan fiduciaries
“No prudent investor would have sat idly by in the face of such underperformance. This failure to act has had devastating consequences for participants’ retirement accounts,” the complaint states.” To date, these Unified Funds have taken in nearly a quarter billion dollars of retirement investments from Plan participants. The Milliman Defendants’ imprudent decision to retain the Unified Funds has simultaneously impaired the Plan’s overall investment performance and squandered millions in participants’ retirement savings.”
Milliman’s retirement plan has approximately 4,500 participants and $1.7 billion in assets under management. Plan participants have invested nearly $250 million in the Unified Funds as of November 30, 2020.
The complaint was brought by law firms Byrnes Keller Cromwell and Sanford Heisler Sharp. Milliman has declined to comment on the suit, saying the company doesn’t comment on ongoing litigation.
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