A proposed class action alleges Booz Allen Hamilton Inc., its board of trustees and the administrative committee of the company’s employee retirement plan have failed to manage the plan’s assets in a prudent manner.
According to the 46-page lawsuit, the management and information technology consulting firm breached its fiduciary duties to retirement plan participants by choosing and maintaining a suite of poorly performing investment options.
The lawsuit says that the Booz Allen Hamilton plan, with 44,270 participants and assets totaling about $6.76 billion as of December 2020, is among the top 0.1 percent of all defined contribution plans by size, and that the defendants thus had “significant bargaining power” to choose low-cost administrative and investment management services and ensure that that the plan’s investment options were prudent.
Per the case, the defendants’ decision to offer and failure to remove the BlackRock LifePath Index funds, a suite of 10 target date funds (TDFs), as an investment option caused plan participants to lose millions of dollars in retirement savings that they would have achieved had a better performing option been chosen.
Booz Allen Hamilton has offered the BlackRock target date funds among its retirement plan’s investment lineup since March 2010, the complaint relays. Per the case, “[a] simple weighing of the merits and features” of other available target date funds throughout the timeframe covered by the case would have indicated to a prudent fiduciary that the BlackRock target date funds were “clearly inferior” and should have been replaced with a better-performing and more appropriate TDF suite.
“Instead, as is currently in vogue, Defendants appear to have chased the low fees charged by the BlackRock TDFs without any consideration of their ability to generate return,” the complaint contends.
Per the case, four of the five largest TDF series aside from the BlackRock TDFs represent “an ideal group for comparison” given that they are the most likely investment options to have been chosen had the defendants replaced the BlackRock TDFs. As the suit tells it, the BlackRock TDFs “dramatically, repeatedly underperformed” the average returns of all four of the comparable TDF series during the relevant timeframe.
In light of this, it is apparent, according to the case, that the defendants “failed to scrutinize” the performance of the BlackRock TDFs against comparable alternatives in order to make the most prudent decision on behalf of plan participants.
Compounding this apparent failure, the suit says, is Booz Allen Hamilton’s decision to retain the BlackRock TDFs as the plan’s qualified default investment alternative, i.e., the investment option in which participants’ assets are automatically invested if they do not indicate otherwise. According to the case, the impact of the defendants’ “imprudent selection” of the BlackRock TDFs was therefore magnified given roughly 29 percent of the plan’s assets were invested in the suite as of December 2020.
The lawsuit looks to represent all participants in and beneficiaries of the Booz Allen Hamilton employees’ capital accumulation plan at any time on or after August 1, 2016 and through the date of judgment (or any earlier date that the court determines is appropriate and just), including beneficiaries of deceased persons who were participants in the plan during that time.
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