Challenge

In the last decade, dozens of class-action cases have been brought against investment management companies challenging how they manage their own funds. For American Century, a leading asset manager based in Kansas City, the allegation was that the company breached ERISA fiduciary duties by creating a 401(k) plan that included only American Century-affiliated investment options when supposedly better-performing and cheaper investment alternatives existed.

Approach

In preparing for trial, the Goodwin team recognized that American Century’s ability to demonstrate that it employed a prudent process for selecting and retaining proprietary options in its 401(k) plan lineup would be key to defeating the plaintiffs’ breach of fiduciary duty claims. Accordingly, in the lead-up to trial, the Goodwin team focused on thoroughly preparing American Century’s 401(k) plan decision-makers to testify about the prudence of the processes that they employed in choosing to retain those options in the 401(k) plan lineup.

Outcome

After an 11-day bench trial—one of just a handful of fee cases to have had a full trial to date, and the only one concerning a challenge to a proprietary fund 401(k) lineup in a decade—the judge returned a complete defense verdict. Crucially, the judge found that, in the circumstances of this case, utilizing actively-managed proprietary funds is appropriate under ERISA. In the process, the court rejected the plaintiffs’ claims that the plan should have included index funds, competitors’ funds, a smaller plan line-up, or alternatives to mutual funds, finding instead that American Century’s process for selecting its 401(k) investments was a prudent one. If adopted by other courts, the opinion will significantly alter the landscape, and make it more difficult to successfully challenge 401(k) plan line-ups based on the plan’s inclusion of proprietary fund offerings.