A recent Fourth Circuit decision in a suit challenging Genworth Financial Inc.'s inclusion of target-date fund investments as employee retirement plan options will make it tougher to certify similar class actions and could have a ripple effect in a broader range of cases, experts told Law360.
Tuesday's published opinion knocked out a certified class of more than 4,000 current and former 401(k) plan participants who alleged Genworth violated the Employee Retirement Income Security Act by offering and retaining a suite of underperforming BlackRock Inc. target-date fund investments. BlackRock isn't named as a defendant in the suit, which ex-workers filed in 2022.
The three-judge panel held that the certification of a mandatory, no-opt-out class under Rule 23(b)(1) of the Federal Rules of Civil Procedure was inappropriate because of the varying experience of investors in the BlackRock funds, which adjust risk based on proximity to retirement.
The panel said target-date fund investors' differing experiences undermined commonality needed for certification under Subsection b(1) and that the plaintiffs would need to pursue certification under Rule 23(b)(3), which is designed to preserve the due process concerns of absent class members by giving them notice and allowing them to opt out.
The panel also found that target-date fund investors' individual circumstances meant they didn't all suffer the same injury, as some fund investors fare better than comparison funds in the ex-workers' complaint.
Certifying an opt-out class requires a more rigorous analysis from the court on whether common questions outweigh the issues of individual class members.
"It's big, and it's significant, because I think it alters the playing field in terms of the way in which fiduciary breach claims can be litigated under ERISA, but it's also based on fundamental notions of what Rule 23 and class action litigation is all about," Gerald Maatman, chair of Duane Morris LLP's class action defense practice, said of the Genworth decision.
Maatman, an adjunct professor at Northwestern University Pritzker School of Law, said he's planning to add the case to his curriculum for the next semester.
"I think it's a great read, and if one takes a look at it, you learn a lot about the way in which ERISA class action litigation should be ordered and thought about. So it's going to have a significant impact on future litigation patterns," Maatman said.
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