Compliance

Court Rules For CVS In Stable Value ERISA Challenge

Summarizing its decision, the court observes, “It is well established that the test of prudence ... is one of conduct, and not a test of the result of the performance of the investment.”

By John Manganaro editors@plansponsor.com | April 20, 2017
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A district court judge has dismissed an Employee Retirement Income Security Act (ERISA) lawsuit filed against CVS Health Systems, representing the third victory for the company in the case.

According to the plaintiffs, the company’s leadership breached fiduciary duties owed to retirement plan investors by “imprudently investing too much of the plan’s stable value fund assets in ultra-short-term cash management funds that provided extremely low investment returns.”

Following an initial dismissal, the matter was put again before the U.S. District Court for the District of Rhode Island “on review of the second Report and Recommendation (R&R) issued previously in the case by Magistrate Judge Sullivan.” Following this third review, the district court “now adopts the R&R in its entirety.” Accordingly, the defendants’ motion to dismiss the complaint was granted in full.

According to the text of the dismissal decision, the plaintiffs are participants in the Employee Stock Ownership Plan of CVS Health Corporation and Affiliated Companies, which is sponsored by CVS and administered by a benefits plan committee designated by the CVS Board of Directors. They felt the inclusion of a stable value fund managed by Galliard represented a fiduciary breach, based on the argument that the fund was “designed for investors who are older and closer to retirement and likely to be more risk-averse.”

The plaintiffs suggest that the stable value fund was “excessively concentrated in investments with ultra-short durations, and maintained excessive liquidity far beyond any reasonable need for it.” The plaintiffs further assert that, “as a result of this approach, they were injured in the form of significantly lower crediting rates than they would have received had the stable value fund been prudently managed in accordance with industry standards regarding duration and liquidity.”

As the complaint states: “In sum, the plaintiffs assert claims of fiduciary breach against the defendants by alleging that Galliard caused the fund to invest in securities with extremely low yields, low durations, and excessive liquidity compared to what should be expected from prudently managed stable value fund investments; and CVS and the committee failed to monitor and supervise Galliard, and to cause Galliard to change its investment conduct.”

NEXT: Prudence applies to conduct, not performance 

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