3M, the Minnesota-based Post-it notes multinational conglomerate, selected a suite of target-date funds to be the default investment in a pair of retirement plans covering more than 58,000 people. These funds, which pay investment management fees to an internal 3M investment adviser, “paled in comparison” to similar alternatives and should have been removed from the plans, according to the suit.
“Rather than acting diligently and prudently,” 3M breached its fiduciary duties “by retaining the 3M TDF Series as investment options for the Plans” despite the target date funds “having underperformed its peer benchmarks on a trailing-three-years basis for at least eight consecutive years (2016-2023),” according to the suit. As of 2024, approximately $3.78 billion, or 30.5%, of the Plans’ total assets, was invested in the 3M TDF Series.
If 3M fiduciaries “fulfilled their duty with the care and skill of a prudent fiduciary, they would have seen in real-time that the 3M TDF Series underperformed its benchmarks,” according to the suit.
So far this year, similar underperforming plan funds lawsuits have been filed:
- Nokia was hit with a $100 million 401(k) underperforming plan funds lawsuit in July, on behalf of more than 27,000 employees.
- UnitedHealth agreed to pay a record-setting $69 million settlement in June in its “poorly performing” 401(k) target date funds lawsuit, which allegedly depleted the retirement savings of 350,000 employees.
- Discount Tire was sued by 16,000 employees in May, alleging the plan’s target date funds from American Century Investments should have been replaced.
In April, the Supreme Court took a worker-friendly approach on behalf of the Cornell University’s 28,000 employees in it 403(b) excessive fees suit – another recurring theme in the recent surge of retirement plan lawsuits. “This ruling effectively invites a new wave of litigation that could burden plan fiduciaries,” said Tim Rouse, Executive Director of the SPARK Institute, whose members serve over 110 million participants in 401(k) and other defined contribution plans.