A class action complaint was filed Tuesday in the U.S. District Court for the Northern District of Texas by Sanford Heisler Sharp McKnight alleging that Southwest Airlines Co. breaches basic fiduciary duties under ERISA and violates its employees’ trust by mismanaging the company’s Retirement Savings Plan.
“With the Harbor Capital Fund, this obligation is especially critical because this one fund makes up 17% of the plan’s assets. We believe the Southwest Defendants neglected their sacred fiduciary duties.”
Charles Field, Sanford Heisler Sharp McKnight
The complaint filed on behalf of more than 60,000 plan beneficiaries claims Southwest failed to remove from the Plan the Harbor Capital Appreciation Fund, an investment option with over $2 billion in plan assets that has significantly underperformed its investment benchmark and similar large cap growth funds for over 15 years.
According to a press release this morning from Sanford Heisler Sharp McKnight, Southwest selected the Harbor Capital Fund as a plan investment option on or before 2010. By December 2018, the cumulative investment performance of the Harbor Capital Fund lagged its benchmark—the Russell 1000 Growth Index—over the preceding 3, 5, and 9 years. It also underperformed other large cap growth alternatives over the same periods. Yet, Southwest took no action to replace the Harbor Capital Fund.
“Its underperformance continues to this day. As alleged, the consequences for employees are substantial: the decision not to remove the Harbor Capital Fund has cost the Southwest Retirement Savings Plan millions of dollars in retirement savings,” the press release states.
The two named plaintiffs filed this case on behalf of the Southwest plan which has approximately 60,000 participants and $14 billion in assets. Named as Defendants are Southwest Airlines, its Board of Directors, the Committee that manages the Retirement Savings Plan, the Committee that managed two predecessor plans that merged into the Retirement Savings Plan, and individual members of the Board and the Committees.
“Plan participants have invested over $2 billion in the Harbor Capital Fund. As fiduciaries to the Plan, Defendants are obligated to monitor the plan to ensure that all investments are prudent,” said Charles Field, partner at Sanford Heisler Sharp McKnight and counsel for plaintiffs and the proposed class. “With the Harbor Capital Fund, this obligation is especially critical because this one fund makes up 17% of the plan’s assets. We believe the Southwest Defendants neglected their sacred fiduciary duties.”
David Tracey, a partner at Sanford Heisler Sharp McKnight and counsel for Plaintiffs and the proposed class, added that as fiduciaries of the plan, Defendants are duty bound to monitor the plan’s investments continuously and remove imprudent ones. “It is precisely that duty that this complaint alleges the Defendants have breached by failing to remove the Harbor Capital Fund. Cases like this are a critical tool for ensuring retirement security for employees,” Tracey said.
As relief, Plaintiffs and the class seek (1) repayment of the Plan’s financial losses; (2) removal of imprudent investments; and (3) the removal of the fiduciaries who have violated their duties to the Plan’s participants and beneficiaries under ERISA.
Sanford Heisler Sharp McKnight files the Southwest ERISA complaint on the heels of several significant ERISA class settlements in 2024. In December 2024, the firm filed for preliminary approval of a record $69 million settlement in its multi-year class action against UnitedHealth Group. Earlier in 2024, the firm, 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 of 2024. They were also among the highest value settlements ever in cases involving allegedly poor-performing plan investments.
According to Encore Fiduciary, which held a webinar Tuesday on the current state of excess fee and imprudent investment litigation, performance claims litigation tend to be against conservatively managed investments, usually compared to the best-performing funds in hindsight that achieved better results with a higher allocation of stock and a higher risk profile.
In its Summary of 2023 Excess Fee and Performance Litigation, Encore Fiduciary noted a troubling trend in investment imprudence cases in which plaintiff firms allege fiduciary imprudence even when the purported underperformance is less than one or two percent compared to the highest returning fund they can find.
SEE ALSO:
• UnitedHealth Group Agrees to Historic $69 Million 401(k) ERISA Settlement
• $61 Million Settlement Finalized in GE ERISA Case
• Judge Finds American Airlines Liable for ESG Investing in 401(k) Plan
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.