A California federal district court judge dismissed a proposed class action lawsuit alleging that CAES Systems LLC violated the Employee Retirement Income Security Act (ERISA) when it retained poorly performing investment options in its $930 million retirement plan. The company creates advanced electronics for the aerospace and defense industries. In its ruling, the judge found that the plaintiff workers failed to show that the company’s review process of the retirement plan was improper and relied only on allegations that one of the plan investment options resulted in poor returns. However, the judge also granted the plaintiffs leave to amend their complaint within 14 days of the Court’s order, potentially allowing them another chance to pursue their suit.
The case is Phillips et al. v. Cobham Advanced Electronic Solutions Inc. et al., Case Number 5:23-cv-03785, U.S. District Court for the California Northern District.
The workers originally filed suit against CAES Systems in 2023, focusing on the American Century Target Date Series group of target date funds (TDFs). The workers claimed in their lawsuit that the group of investment funds at issue, which held $155 million of the plan’s assets as of 2020, consistently underperformed to the extent that plan administrators should have replaced it with a better-performing fund.
In response, CAES Systems argues that it did not breach its fiduciary duty based on the alleged mismanagement of a distinct group of investment funds. The company also challenged the funds that the workers used in comparison to the American Century TDFs, stating that they were not meaningful indicators of the fund group’s deficient performance.
The judge ruled that the workers’ argument was circular, focusing only on the original allegation that CAES Systems should have replaced the fund group based on its inferior performance. However, the workers failed to address how the company’s deficient evaluation process led to the mismanagement or improper retention of the investment funds. Since the workers’ failure to monitor claim rested on its imprudence claim, the judge also dismissed that breach of fiduciary duty claim.
Finally, CAES systems had argued that the workers had no standing to bring the suit because they had alleged no real injuries, in that they failed to specify which target year TDFs they invested in and when they made their investments. Nonetheless, the judge agreed that the workers had standing to challenge the American Century TDFs on behalf of all plan members, as they all invested in at least one of the funds in the American Century TDFs at issue and thus showed a potential injury.
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