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 

In response, the CVS defendants maintain that by the plaintiffs’ own account, the CVS stable value fund option “was at all times structured to meet—and did in fact meet—its stated investment objectives: to preserve capital while generating a steady rate of return higher than money market funds provide.” The defendants further note that, under those circumstances, plaintiffs’ contentions that the retirement plan could have “predictably” earned higher returns by means of a different investment allocation, constitutes “improper hindsight critique.”

Regarding the plaintiffs’ reliance on industry averages to support a claim of imprudent investment in higher cash and cash-equivalent holdings, the defendants note that actually “the salient question is whether the fund’s portfolio conformed to its investment objective, which it concededly did.”

Explaining its current decision to side with CVS, the Rhode Island district court defers heavily to the January 2017 R&R document.

As that document lays out, the complaint includes no allegations from which it could be inferred that Galliard failed to adhere to the plan’s guidelines and investment objectives. Nor do the plaintiffs assert that Galliard assessed unreasonable or excessive fees or that it materially deviated from the disclosures in the plan documents. Instead, the newly asserted facts in the most recently amended complaint focus primarily on the extent and duration of the fund’s investment in cash or cash-equivalent assets, as compared to industry averages, and are intended to permit an inference that Galliard’s conduct was inconsistent with its duty of prudence.

“With the benefit of 20/20 hindsight, the plaintiffs assert, inter alia, that if the fund’s allocation to cash had been invested in the same manner as the fund’s other assets, the fund would have earned more,” the district court explains. “Although that may have been the outcome in this particular case, the plaintiffs appear to suggest that, rather than keeping the fund’s assets diversified, it would have been more prudent to put more eggs into the same basket, in the anticipation of a greater gain while assuming that such a strategy would entail no additional risk.”

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.”

The full text of the latest decision is here.