Skip to main content

You are here

Advertisement

Lowe’s Strikes Settlement; Consultant Challenge Remains

Fiduciary Rules and Practices

Plan fiduciaries have struck a deal in a suit alleging imprudent investments—but the investment consultant who recommended the challenged funds is still facing trial.

The suit was filed nearly two years ago against the plan fiduciaries of the $5.2 billion Lowe’s 401(k) plan and Aon Hewitt Investment Consulting, Inc. (which served as the plan’s fiduciary investment consultant) for breach of their fiduciary duties under ERISA for what participant-plaintiff Benjamin Reetz alleged was an imprudent selection and retention of the Hewitt Growth Fund for the plan. 

The suit charged that the fund was retained though it was a new and largely untested fund at the time it was added to the plan, that it underperformed its benchmark, that it was not utilized by fiduciaries of any similarly sized plans and was “generally unpopular” in the marketplace. The suit claimed the move of some $1 billion in assets to that fund cost participants $100 million.

At this point, we don’t know the particulars of the settlement—only a notation (Reetz v. Lowe’s Cos. Inc. et al., case number 5:18-cv-00075, in the U.S. District Court for the Western District of North Carolina) that the plaintiffs have come to terms with Lowe’s and its administrative committee. The claims against Aon Hewitt Investment Consulting Inc.—set to go to trial in June—remain open. The settlement follows the court’s rejection earlier this year of a move for summary judgment by both parties, insisting that a jury trial was required to consider the facts presented in the case.

What This Means

Aside from the size of the plan in question, and while the challenge of an imprudent investment is a relatively common theme in this type of litigation, the facts here appear to be relatively unique. The plaintiff alleged that the investment consultant here pursued an aggressive push for investment in a set of collective investment trusts following the merger of three previously unaffiliated firms (EnnisKnupp, Hewitt Associates and Aon Investment Consulting). Essentially that, with a financial interest in not only making fund recommendations, but now in actually managing those funds, the plan’s investment consultant made a self-interested recommendation, and that the plan fiduciaries went along with it, all to the detriment of participants.  

As noted previously, there’s only so much you can learn from a settlement—where the parties seem to basically agree to disagree, conceding that the outcome—for good or ill (depending on your perspective)—under a full adjudication (much less appeal) is uncertain at best, and as likely to wind up costing twice as much (in time and expense, if not settlement amount) as to be tossed out by a judge (though those time and expense costs remain).

It is perhaps worth noting, however, that the plaintiffs in this case are represented by Nichols Kaster PLLP (and Tharrington Smith LLP), the former having brought a number of similar suits in recent years, including against John Hancock, where a settlement was announced just last week, as well as in cases involving Putnam Investments, Oklahoma’s BOKF NA, M&T Bank, MFS, SEI, Goldman Sachs, Deutsche Bank Americas Holding Corp., BB&T and American Airlines.