New Lawsuits Threaten the Target-Date Fund Industry

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A new wave of lawsuits alleges that Blackrock’s target-date funds (TDFs) have underperformed. These lawsuits open the door to a related and scandalous breach of fiduciary duty – excessive risk. Just as excessive fees were ubiquitous, so too is excessive risk in TDFs. It is manifesting as excessive losses, a harm last seen in 2008.

The retirement industry is abuzz about a new batch of lawsuits against plans that use Blackrock TDFs. Miller Shah LLP, representing the plaintiffs in a class-action suit, has charged a host of plan sponsors with breaching their fiduciary responsibilities by making low fees their sole selection criterion, regardless of performance and other considerations.

It alleges that Blackrock’s TDFs have underperformed, and that fiduciaries weren’t properly or adequately monitoring the accounts containing those funds. The low-fee requirement is ubiquitous because many plan sponsors have lost lawsuits for paying excessive fees.

The courts will decide the merits of these new lawsuits. The important consequence is that a new door has been opened for TDF lawsuits, a door that can and should address a serious crime, in the same manner that lawsuits successfully corrected excessive fees.

This new door is excessive risk. Most TDFs are taking excessive risk near their target-dates.