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A federal court judge in Tennessee granted judgment in favor of AutoZone and its investment committee in an Employee Retirement Income Security Act (ERISA) case involving investment choices in its company 401(k) plan. After a bench trial, the judge ruled that plan participants failed to show that AutoZone improperly managed 401(k) plan investment options. The case is Iannone et al. v. AutoZone Inc., case number 2:19-cv-02779, U.S. District Court for the Western District of Tennessee.
A former AutoZone employee originally filed the suit against the company in 2019, alleging that company officials failed to remove overly costly investment options from its 401(k) plan. A second employee joined the suit under an amended complaint filed in 2021. More specifically, the employees claimed that AutoZone failed to timely replace the Prudential Guaranteed Income Fund, an unprofitable fixed annuity, and GoalMaker, an investment allocation service that appeared to favor higher-fee investment options. According to the former employees, AutoZone's choices led to some $60 million in investment losses for retirement plan participants. In 2022, the judge granted class action status to the case.
According to the judge's ruling, AutoZone presented evidence that its investment committee met quarterly and consistently monitored the fund. The committee also instituted major changes to the 401(k) plan at times to lower fees and replace default investment options within a reasonable and prudent timeframe. As a result, the judge concluded that AutoZone had not breached its fiduciary duties under ERISA.
The judge further reasoned that the class members failed to identify any specific funds that consistently and significantly underperformed. Therefore, the class members failed to present sufficient evidence that AutoZone should have removed the investment options earlier.
In his opinion, the judge also emphasized that AutoZone wasn't required to pursue the most aggressive investment funds with the highest yields if doing so would substantially increase investment risks for plan participants. The class members also failed to show that AutoZone had "failed to negotiate a higher fee," as the fee was set by contract.
Class members also accused Northern Trust of improperly advising AutoZone. The company reportedly had a vested interest in promoting the higher-fee funds, as it received about $1 million in management fees per year. Before the bench trial occurred, Northern Trust settled these claims for about $2.5 million.
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