Discount Tire store in Humble, TX. Credit: Brett/Adobe Stock
On the heels of several significant ERISA class settlements in 2024, law firm Sanford Heisler Sharp McKnight has filed a class action lawsuit, on behalf of a former participant in the plan, against Discount Tire’s 401(k) plan, alleging the plan’s target date funds from American Century Investments were “one of the worst-performing investment suites .. in the Plan for over 15 years” and should have been replaced.
Cory McGeathy, on behalf of approximately 16,000 participants, filed this case on behalf of the Discount Tire plan, which has over $1 billion in assets. The Reinalt-Thomas Corporation, d/b/a Discount Tire, The Reinalt-Thomas Board of Directors and Empower Trust Company are also named in the lawsuit.
The complaint was filed on April 30 by Sanford Heisler in the U.S. District Court for the District of Arizona, alleging that Discount Tire, as well as Empower Trust Company, breached basic fiduciary duties under ERISA.
Discount Tire and Empower allegedly failed to remove from the plan a family of nine target date retirement funds managed by American Century Investment Management that have significantly underperformed investment benchmarks and similar target date retirement funds for over 15 years, costing participants millions of dollars in retirement savings, according to the complaint.
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The American Century funds have over $500 million in plan assets invested in them, representing nearly half the value of the Plan. The funds have been in the Plan since 2010. By December 2019, the cumulative investment performance of each of the nine target date funds had lagged their investment benchmark – Standard & Poor’s Target Retirement Date Index – for 10 years.
Each of the nine funds also underperformed other target date retirement fund alternatives over the same period. American Century’s underperformance continues to this day. Yet, Discount Tire “took no action to replace American Century with an alternative,” according to the lawsuit. The decision not to remove the Funds has cost the Discount Tire/America’s Tire Retirement Plan and its participants millions of dollars in retirement savings, according to the complaint.
“As fiduciaries of the plan, Defendants are duty-bound to monitor the plan’s investments continuously and remove imprudent ones,” said Charles Field, Co-Chair of the Sanford Heisler’s Financial Mismanagement and ERISA Litigation Practice Group. “This obligation is especially critical since these nine funds make up over 40% of the Plan’s assets. Cases like this are an important tool for protecting the hard-earned retirement savings of employees.”
In 2024, Sanford Heisler filed for preliminary approval of a record $69 million settlement in its multi-year class action against UnitedHealth Group and obtained final approval of a $61 million settlement in a long-running ERISA class action against General Electric. The two settlements were among the most significant ERISA settlements of 2024, as well as among the highest value settlements ever in cases involving allegedly poor-performing plan investments.
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“Plan participants have over $500 million invested in these nine target retirement date funds,” said Leigh Anne St. Charles, Co-Chair of Sanford Heisler Sharp McKnight’s Financial Mismanagement and ERISA Litigation Practice Group. “As fiduciaries to the Plan, Discount Tire and Empower are obligated to monitor the Plan to ensure these investments are prudent. It is precisely that duty that this complaint alleges the Defendants have breached by failing to remove the American Century Funds.”
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
