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Southwest Airlines Sued for ‘Chronically Underperforming’ 401(k) Fund
Participants allege that the airline failed to remove a large-cap growth investment option after ‘15 years of underperformance.’
Southwest Airlines Co. and its 401(k) plan committee were sued on Tuesday, with plan participants alleging the airline company failed to replace a “chronically underperforming” fund from the 401(k) plan, thus violating its fiduciary duty.
In Anderson et al v. Southwest Airlines Co. et al, filed in U.S. District Court for the Northern District of Texas, Southwest is accused of repeatedly refusing to remove the underperforming investment despite “more than 15 years of poor performance.”
According to the complaint, the plan committee selected the Harbor Capital Appreciation Fund in or before 2010 as an investment option for the plan. The committee first selected a mutual fund version of the fund and later migrated the assets to a collective investment trust. The fund is a large-cap growth strategy managed by the large-cap growth investment team at Jennison Associates LLC.
The plaintiffs allege that by December 31, 2018, the cumulative investment performance of the Harbor Fund had lagged its designated benchmark “over the preceding three, five and nine-year periods. The fund also underperformed other large-cap growth alternatives over the same time periods,” according to the lawsuit.
“The results have been disastrous for plan participants,” the complaint states. “As of December 31, 2023, plan participants had invested about $2.3 billion of their retirements savings in the Harbor Fund. Overall, about 17% of all plan assets were invested in the Fund. … By failing to remove the Harbor Fund, [Southwest] caused participants to lose millions of dollars in retirement savings since the start of the class period.”
The Southwest Airlines Co. Retirement Savings Plan is a merged plan and contains the assets of the Southwest Airlines Co. 401(k) Plan and Southwest Airlines Co. ProfitSharing Plan. As of May 31, 2024, Southwest transferred and merged the net assets of the profit-sharing plan into the 401(k) plan. According to its most recent Form 5500 filing, the Southwest 401(k) plan has more than $9 billion in assets and 68,980 participants.
To remedy Southwest’s “breach of fiduciary duty,” the plaintiffs seek plan-wide equitable or remedial relief for the plan.
As stated in the complaint, the plaintiffs do not have “actual knowledge of the specifics of the Southwest defendants’ decision-marking process with respect to the plan, including the Southwest defendants’ processes for monitoring and removing plan investments” because this information is solely within the possession of Southwest, prior to discovery.
The plaintiffs are represented by the Sloan Law Firm and Sanford Heisler Sharp McKnight LLP.
Southwest, which has not yet named its representatives in the case, declined to respond to a request for comment.
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