Centerra 401(k) lawsuit can proceed as judge rejects most of defendants' dismissal requests

A federal court judge in Florence, S.C. has rejected most of the requests by Centerra Group LLC and Aon Investments USA Inc., formerly known as Aon Hewitt Investment Consulting, to dismiss ERISA claims filed against them by participants in a Centerra 401(k) plan, thus allowing the complaint to proceed to trial

The ruling by U.S. District Judge Sherri A. Lydon on Sept. 16 supported most allegations by the plaintiffs who argued that Centerra and its fiduciaries, as well as Aon, the plan's investment manager, violated ERISA's rules of prudence in the management of the plan's investment lineup. Centerra, which provides security services, is a subsidiary of Constellis, Herndon, Va.

In a complaint filed in December 2020, the plaintiffs criticized the fiduciaries' decision in 2016 to replace a mutual fund-based target-date series with an Aon collective trust-based series.

In her ruling, the judge noted that the plaintiffs alleged that the Aon product was a poor performer that caused "substantial losses" compared to the target-date series it had replaced.

They also accused Aon of having a conflict of interest in offering its target-date series, adding that Aon was an inexperienced investment manager because its product had less than five-years performance history.

The judge agreed that the plaintiffs had stated a claim against Aon for breach of duty of prudence as well as a duty of loyalty in the case of Williams et al vs. Centerra Group LLC et al.

The judge also ruled that plaintiffs had effectively stated a breach-of-duty-of-prudence claim against Centerra. "Plaintiffs allege the Centerra defendants allowed an inexperienced investment manager to replace established and well-performing investments," the judge wrote. "These allegations are sufficient" to state a claim for breach of duty of prudence.

The judge also wrote that the plaintiffs' allegations against Centerra about high record-keeping fees adequately stated a claim for breach of ERISA's duty-of-prudence guidelines.

According to the original complaint, Centerra's 401(k) plan had $350 million in assets as of Dec. 31, 2018. Effective January 1, 2019, the plan's assets and participants were transferred to the Constellis 401(k) Plan, producing a plan with approximately $400 million in assets.