(Article from Registered Funds Regulatory Update, July 2023
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A pilot, on behalf of two American Airlines 401(k) Plans (collectively, the “Plan”), filed a class action lawsuit against, among others, the company and Fidelity Investments Institutional for breach of fiduciary duty in violation of ERISA for making a variety of ESG funds available to Plan participants. Fidelity, as the Plan administrator, is responsible for selecting, monitoring and removing the Plan’s designated investment options.
The Complaint stated that ERISA imposes strict fiduciary duties of loyalty and prudence upon employers and other ERISA fiduciaries and mandates that the exclusive purpose of Plan investments is to maximize financial benefits for participants and beneficiaries. Therefore, Defendants violated their fiduciary duties by including numerous ESG funds as well as other funds managed by investment companies who voted for ESG policy mandates. The Complaint alleges that many ESG funds are (i) more expensive for Plan participants to own; (ii) underperform financially; and (iii) engage in shareholder activism to achieve ESG policy agendas rather than maximize risk-adjusted financial returns for Plan participants, and that such ESG funds and managers pursue nonfinancial or nonpecuniary objectives such as ESG social policy objectives, rather than investment funds that exclusively aim to maximize financial returns for investors.
This Complaint seeks, among other things, reimbursement for ESG losses and permanent injunctive relief enjoining Defendants from including ESG investment funds and funds by pro-ESG managers in the Plan. Although the lawsuit faces many headwinds, if successful, it could impact the current ESG debate and open the door for a wave of copycat litigation.
Bryan P. Spence, et al. v. American Airlines, Inc. et al., Case No. 4:23-cv-00552-O (N.D. Tex. June 2, 2023), available at: https://www.dandodiary.com/wp-content/uploads/sites/893/2023/06/American-Airlines-ERISA-complaint.pdf.