The lawsuit alleges that the fiduciaries of The Home Depot FutureBuilder 401(k) Plan violated ERISA by allowing it to pay unreasonably high fees and retaining consistently underperforming investment funds. Shortly before Judge Ray recused himself, he heard arguments from both sides seeking summary judgment. At the time, he recommended that these be re-filed for fuller consideration by Judge Grimberg. With a pending motion that the case be re-assigned yet again, consideration of the substantive ERISA issues seems to be stalled.
Arguments for and against recusal
Beginning in 2018, Judge Grimberg was an uncompensated member of the U.S. Chamber of Commerce Technology Litigation Advisory Committee. Plaintiffs allege that he remained a member at the time that Judge Ray allowed the Chamber to file an amicus brief supporting the Home Depot’s motion for summary judgment and that his association with the group could raise questions about his impartiality in the case.
Counsel for The Home Depot contend that recusal is unwarranted. They argue that the plaintiff’s motion is founded on “speculation” and “innuendo,” which does not satisfy the standards for recusal. Those standards require recusal only when:
- an objective, disinterested, lay observer
- fully informed of the facts underlying the grounds on which recusal was sought
- would entertain a significant doubt about the judge’s impartiality.
Was the plan so mismanaged that fiduciaries broke the law?
As summarized by the Department of Labor:
“The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. Fiduciaries must act prudently and must diversify the plan's investments in order to minimize the risk of large losses.”
The Home Depot FutureBuilder 401(k) Plan is one of the largest in the country, holding about $9 billion in assets for hundreds of thousands of participants. The class action lawsuit covers roughly 300,000 employees who participated in the plan since 2012.
Poorly performing investment options
Plaintiffs allege, first, that the fiduciaries retained poorly-performing investment options among which plan participants choose. They calculate that the average Home Depot plan participant earned $100,000 less than participants in plans of similar size. The $100,000 disparity translates into an additional 18 years of work for the average participant.
Home Depot allegedly loaded the plan with several poorly-performing investment options, including the TS&W Small Cap Value Fund, the Stephens Small Cap Growth Fund, the J.P. Morgan Stable Value Fund, and the suite of Black Rock Life Path funds. Further, the fiduciaries failed to monitor the statistically poor performance of these funds and to remove them the menu of participant options.
Excessive advisory fees
Excessive advisory fees, the participants claim, made their retirement earnings situation worse. Their Complaint especially highlights the performance of Financial Engines Advisors LLC. Financial Engines offered investment advisory services to participants who opted into its Professional Management Account Program. Financial Engines is a “robo advisor,” which means that a robot uses mathematical formulas to pick an investment portfolio for the investor.
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Notwithstanding, Financial Engines charged larger fees than comparable investment managers. In addition, rather than charging a flat fee, Financial Engines charged a fee that increased with the amount that the participant chose to invest with them. In sum, the participants allege that the advisory fees charged by Financial Engines were excessive because it did virtually nothing to earn them.
It should be noted that the plan’s financial advisors, themselves, are no longer defendants in the lawsuit, having been dropped earlier in the progress of the litigation. As it stands. Pizarro relates solely to the fiduciaries’ breach of ERISA duty.