Former Booz Allen Hamilton employee sues over target-date funds

An ex-employee of management consulting firm Booz Allen Hamilton has filed a class-action lawsuit against his former employer, claiming the firm’s defined contribution retirement plan used poor-performing target-date funds.

The complaint filed Monday in U.S. District Court for the Eastern District of Virginia alleges that the firm, its board of trustees and the administrative committee of the firm’s Employees’ Capital Accumulation Plan breached their fiduciary duties by selecting, retaining and ratifying low-performing investments when more prudent alternative investments were available.

The lawsuit specifically faults the firm for using the BlackRock LifePath index funds, a suite of 10 target-date funds that it claims are “significantly worse performing than many of the mutual fund alternatives offered by TDF providers.”

“There were many TDF offerings that consistently and dramatically outperformed the BlackRock TDFs, providing investors with substantially more capital appreciation,” the lawyers for the plaintiff said in the complaint.

The lawsuit provides a detailed analysis of how BlackRock’s target-date funds underperformed those of competitors Vanguard, T. Rowe Price, American Funds by Capital Group and Fidelity, which it refers to as “comparator TDFs.”

“When evaluated against the comparator TDFs, both individually and as a group, the returns of the BlackRock TDFs, at all stages along the glide path from aggressive to conservative, paled in comparison to the readily available alternatives,” the plaintiff’s lawyers alleged.

The complaint compares the three- and five-year annualized returns of the BlackRock TDFs to the comparator TDFs from the second quarter of 2016 to the second quarter of 2022. BlackRock’s return for the three years ended June 30, 2016, for example, ranked last among its four largest competitors for all but one vintage of its target-date fund, according to the analysis.

“The BlackRock TDFs dramatically, repeatedly underperformed the average return of the comparator TDFs for virtually the entire relevant period,” the plaintiff’s lawyers claimed.

“Booz Allen will respond to the allegations in the complaint at the appropriate time in the legal proceeding,” a spokeswoman for Booz Allen said in an email.

Among other things, the plaintiff is seeking equitable, legal or remedial relief for all losses and/or compensatory damages.

The Booz Allen Hamilton Inc. Employees’ Capital Accumulation Plan had $6.76 billion in assets as of Dec. 31, 2020, according to its latest Form 5500.

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