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Capital One Sued for Mismanagement of $7.85 Billion 401(k) Plan

On August 1, 2022, Andre Hall and Jermaine Minitee (collectively, “Plaintiffs”) filed a complaint on behalf of themselves and similarly situated class members against Capital One Financial Corporation (“Capital One” or “Defendants”) in the United States District Court for the Eastern District of Virginia.

Capital One is the plan sponsor for the Capital One Financial Corporation Savings Plan (the “Plan”). As of December 31, 2020, the Plan had over 60,000 participants with account balances and assets totaling approximately $7.85 billion, placing it in the top 0.1 percent of all defined contribution plans by plan size.

Plaintiffs, represented by Miller Shah LLP and Tycko & Zavareei LLP, allege that Capital One breached its fiduciary duties to the Plan under the Employee Retirement Income Security Act of 1974 (“ERISA”), a federal statute that protects workers by establishing standards, known as fiduciary duties, to ensure that investments offered to employees are prudently selected and monitored.

Plaintiffs allege that Capital One violated ERISA’s fiduciary requirements by selecting, retaining, and otherwise ratifying poorly-performing investments, instead of offering more prudent alternatives that were readily available throughout the Class Period.

Specifically, Plaintiffs allege that Defendants imprudently selected and retained the BlackRock LifePath Index Funds (“BlackRock TDFs”), a suite of ten Target Date Funds (“TDFs”). [1] Plaintiffs argue that the BlackRock TDFs are “significantly worse performing” than alternatives offered by competing TDF providers. The complaint explains that “the entire suite, bar [one] vintage, ranked in the bottom half among the Comparator TDFs.” Plaintiffs contend that a simple comparison of the BlackRock TDFs to other available TDF suites “would have resulted in the selection of a more consistent, better performing, and more appropriate” suite. Instead, according to Plaintiffs, “as is currently in vogue, Defendants appear to have chased the low fees charged by the BlackRock TDFs without any consideration of their ability to generate return.”

Furthermore, Plaintiffs maintain that Defendants imprudently designated the BlackRock TDFs as the Plan’s Qualified Default Investment Alternative (“QDIA”), the predetermined, automatic investment option for participants who do not indicate a specific fund for their retirement contributions. Plaintiffs argue that since the vast majority of participants are not sophisticated investors, “many, by default, concentrate their retirement assets in TDFs,” magnifying the impact of Defendants’ imprudent decision-making process. Indeed, as of December 31, 2020, over a third of the Plan’s assets were invested in the BlackRock TDFs, resulting in the loss of millions of dollars in potential retirement savings for participants.

Defendants have not yet filed a response to Plaintiffs’ complaint. The Honorable Patricia T. Giles, United States District Judge in the Eastern District of Virginia, is assigned to the case.

Updates will be posted to this blog as the matter progresses. The case caption is Hall et al. v. Capital One Financial Corporation et al., No. 1:22-cv-00857, filed in the Eastern District of Virginia.

The legal team at Miller Shah LLP has extensive experience representing class action matters. If you have any questions regarding this subject or this post, please contact Alec Berin (ajberin@millershah.com) or Anika Keuning (askeuning@millershah.com). The Firm can also be reached toll-free at (866) 540-5505.

[1] TDFs are mutual funds offering an all‐in‐one retirement solution through a portfolio of underlying funds that gradually shifts to become more conservative as the assumed target retirement year approaches.

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