The U.S. 4th Circuit Court of Appeals declined a motion to rehear a 401(k) fiduciary breach case against Genworth Financial Inc. that could limit class actions in complaints against defined contribution plans.
The plaintiffs in Trauernicht v. Genworth Financial Inc. filed a petition in April requesting an en banc hearing in the case, following the March decision by a three-judge panel rejecting class certification. The panel ruled that the plaintiffs’ claims were too individualized to proceed as a mandatory class action.
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The plaintiffs, in appealing to the full appellate panel, claimed the 4th Circuit’s initial ruling represented a fundamental misinterpretation of the Employee Retirement Income Security Act and failed to account for Supreme Court precedent and the law as it has been interpreted in every other circuit court in the U.S., according to their request for a rehearing.
Case Background
According to the original complaint, BlackRock target-date funds that were options on the plan investment menu underperformed comparable options such as Vanguard, Fidelity, T. Rowe Price and American Funds. The plaintiffs sought to recover alleged investment losses from the plan’s continued use of BlackRock funds.
The U.S. District Court for the Eastern District of Virginia certified a class of participants whose accounts were invested in the BlackRock LifePath Index Funds from August 1, 2016, to the judgment date. The court found class certification appropriate under Rule 23(b)(1), as ERISA fiduciary-breach actions are brought on behalf of the plan.
Genworth requested interlocutory review, and the 4th Circuit agreed to hear the appeal of the class certification in 2024.
Writing for the three-judge panel, U.S. Circuit Court Judge Paul Niemeyer noted that defined contribution plans make participants’ claims inherently individualized, as each participant’s retirement benefit depends on the performance of their individual account—unlike defined benefit plans, in which assets are pooled and benefits are fixed.
In response to the plaintiffs’ petition for a rehearing, Genworth Financial argued the court should reject it, since many plaintiffs benefited from investing in BlackRock funds, while only some participants saw losses in certain years.
With the 4th Circuit’s full bench rejecting the rehearing request, the litigation returns to the district court, where the plaintiffs may attempt to certify a class under a different rule—one that would require notice to class members and allow them to opt out.
