CenturyLink Inc. has survived a class-action 401(k) lawsuit brought by a Denver-area personal-injury lawyer known for his television persona.
A federal judge on March 5 granted the telecommunication firm’s motion for summary judgment, finding that the plan sponsor did not violate the Employee Retirement Income Security Act. The lead plaintiffs in the case, Bonnie Birse and Gerad Detwiler, alleged CenturyLink breached its fiduciary duty under ERISA by poorly designing and failing to monitor the large-cap fund used within the plan.
The case is one of several 401(k) class actions brought over the past several years by Franklin D. Azar & Associates, which for decades has advertised its personal-injury practices on television in Colorado. Mr. Azar has branded himself as “The Strong Arm.”
Litigation has become a major concern over the past decade for companies that sponsor defined-contribution plans such as 401(k)s. While the first 401(k)-fee cases were brought by firms such as Schlichter, Bogard & Denton, law firms that hadn’t previously dabbled in ERISA litigation have since followed, and the volume of class-action complaints has ballooned.
Azar & Associates has also filed 401(k) cases on behalf of clients against Nationwide Insurance Co. and Pioneer Natural Resources, the latter of which was settled in late 2018 for $500,000.
Mr. Azar did not immediately respond to a request for comment, and it is unclear whether the plaintiffs in this case plan to appeal. CenturyLink is pleased with the outcome of the case, a spokesman wrote in an email.
CenturyLink’s Dollars and Sense 401(k) Plan represented $5.1 billion among nearly 43,000 participants at the end of 2018, according to BrightScope, which reports Labor Department data. The lawsuit was filed in 2017 in U.S. District Court for the District of Colorado.
Central to the case are allegations that CenturyLink Investment Management Active Large Cap U.S. Stock Fund was imprudently designed.
“The evidence in the record shows that CIM’s design of the fund was prudent and that CIM diligently monitored the fund,” U.S. District Judge Christine Arguello wrote in her order. “The evidence plaintiff has submitted does not create a genuine dispute of material fact and, therefore, defendant CIM is entitled to summary judgment.”
The plaintiffs alleged the fund failed to keep pace with its benchmark, the Russell 1000 Stock Index. Because the large-cap fund was a major component of the plan’s target-date funds, the lower returns affected many participants, according to the lawsuit.
The fund used a multi-manager design, with portions of the assets managed by Cornerstone Investment Partners, Fiduciary Management, Ivy Investment Management Company and Systematic Financial Management, the plaintiffs wrote in the complaint. Some of the assets were also invested in the T. Rowe Price Institutional Growth Fund and the State Street Global Advisors Russell Large Cap Index Fund, according to the complaint.
“Although the fund trailed its benchmark for the majority of its five-year existence, nevertheless, the fund provided substantial gains for plan participants,” the judge’s order read. Over those five years, the cumulative return was 83%, the judge noted.
The plan’s investment committee was provided with monthly performance reports and evaluated the investment options quarterly, the judge wrote, and the investment options were given annual reviews, during which the investment managers were evaluated.
The investment committee did make changes to the fund beginning in 2016, prior to which it “concluded that the underperformance was driven by market conditions,” according to court records.
Afterward, the investment committee replaced some investment managers and changed the percentage of assets each managed, according to court records, before the fund was merged with its Small Cap Fund in 2017.