11th Circuit revives Royal Caribbean TDF suit, eases benchmark test

The 11th Circuit has revived a proposed class action over Royal Caribbean Cruises Ltd.'s target-date fund lineup, ruling that ERISA plaintiffs can plead a fiduciary breach without first producing a closely matched benchmark. The August 17 decision reverses a summary judgment order and returns the case to the district court. PLANADVISER first reported the ruling.

The lawsuit started with a switch. After a 2014 request-for-proposal process, Royal Caribbean's investment committee moved the plan's target-date assets from Vanguard to funds run by Russell. The committee liked Russell's consulting expertise but wrote down the drawbacks: relatively high pricing, a requirement that at least 75% of the plan's fund offerings be Russell funds, and the need to use a third-party recordkeeper. Ann Johnson, representing a proposed class, says those warning signs existed when the committee made the move, and that proceeding anyway breached ERISA's duty of prudence.

The district court wanted more. It required Johnson to line up the Russell funds against another target-date series with the same strategy and risk profile, an apples-to-apples comparison. The 11th Circuit called that standard too rigid. "The important point is that the law imposes no mandate that a plaintiff prove objective imprudence through apples-to-apples comparator evidence," the panel wrote. Depending on the circumstances, qualitative or quantitative evidence can be enough.

The decision sharpens a question the Supreme Court will soon take up. The justices are expected to hear Anderon v. Intel in the October term, and the issue is whether an ERISA complaint must identify a "meaningful benchmark" to survive a motion to dismiss. Royal Caribbean reached the issue later, at summary judgment after discovery, but the question underneath is the same: how exact must the comparison be before a fiduciary prudence claim can go forward.

Target-date funds rarely offer a clean comparison. Managers build different glide paths, charge different fees, and issue different share classes, so any comparator a plaintiff picks can be attacked as imperfect. That has made "meaningful benchmark" the flashpoint in ERISA investment litigation. The 11th Circuit's answer is that the comparison is useful but not essential. The test is objective prudence, and it can be shown with figures or with the record of the decision.

The 11th Circuit, which hears appeals from district courts in Alabama, Florida and Georgia, has answered that part in the plaintiffs' favor. A plaintiff without a perfect comparator can still plead imprudence. That answer will travel well in target-date litigation, where glide paths, fees and share classes often make a close comparator difficult to find.

The decision arrives in a growing market. Target-date assets have topped $5.3 trillion, Retirement Capital Daily has reported. A separate lawsuit against 3M, allowed to proceed by a Minnesota federal judge, is testing whether Fidelity's target-date series can serve as the benchmark for a plan's own funds. The two cases offer plaintiffs different templates: one built on a comparator, the other on the facts of the selection itself.

For plan sponsors, the practical takeaway is uncomfortable. A clean request-for-proposal record remains the best defense, but the absence of a comparable fund is no longer a quick path to dismissal. The 2014 RFP record, if it listed the 75% Russell requirement and the third-party recordkeeper as drawbacks, can now be read as evidence that the committee saw problems and proceeded anyway.

The ruling does not make Royal Caribbean liable. The case returns to the district court, where Johnson must show that the committee's choice was objectively imprudent. That is a harder showing than surviving summary judgment. Discovery will focus on the committee's process, not how the funds performed afterward.

For advisers and consultants who sit on such committees, the lesson is modest but specific: write down how the committee weighed the disadvantages of a chosen manager and why it decided the trade-offs were acceptable. An exact comparator is now one form of evidence, not a ticket into court.

Abuse-of-discretion review has extended to investment suits, as Retirement Capital Daily has reported, giving fiduciaries a deferential standard that makes dismissals easier and settlements less likely. The 11th Circuit's ruling pushes the other way, keeping claims alive long enough for discovery. The Supreme Court's decision in Anderon v. Intel will resolve which standard applies. If the justices require a meaningful benchmark at the motion-to-dismiss stage, the Royal Caribbean approach of pleading warning signs instead of a comparator may lose force. If they side with the 11th Circuit, more target-date cases will move from the complaint into the documents.