401(k) plans souring on Northern Trust target-date funds — including its own

The three publicly traded companies that listed the Northern Trust Focus Funds in their investment options lineup in their 11-K filings in 2020 all removed them, according to a comparison of companies 11-K filings with the SEC in June and last year's filings.

That included Northern Trust Corp., Chicago, replacing its proprietary target-date fund series in its own 401(k) plan with the BlackRock LifePath Index Fund series. As of Dec. 31, the Northern Trust Co. Thrift-Incentive Plan had $3.1 billion in assets, according to its most recent 11-K filing. As of that same date, the BlackRock target-date funds had $535 million in plan assets.

A participant in Northern Trust Co.'s 401(k) plan had filed a class-action lawsuit in November 2020 against the bank and its benefit administrative committee, alleging a breach of fiduciary duties related to its target-date fund lineup.

Allstate Corp., Northbrook, Ill., replaced the Northern Trust series with a series managed by State Street Global Advisors in the investment options lineup of its 401(k) plan last September, according to its June 28 11-K filing with the SEC. As of Dec. 31, the Allstate 401(k) Savings Plan had $7.1 billion in assets, including $1.1 billion the SSGA target-date funds, according to its 11-K filing.

Allstate's new 11-K filing did not provide a specific reason for the change. A number of Allstate 401(k) plan participants filed lawsuits in 2020 and 2021 in U.S. District Court in Chicago, alleging a series of ERISA violations, specifically regarding the plan retaining a "poorly performing" target-date series. The Allstate defendants "loaded the plan with a suite of poorly performing funds called the Northern Trust Focus Retirement Trusts," said the second complaint filed in January 2021.

Allstate spokesman Alwyn Scott declined to comment.

Finally, Nordson Corp., Westlake, Ohio, also removed the Northern Trust Focus Funds from its lineup, replacing it with an SSGA-managed series of target-date funds. As of Dec. 31, the Nordson Employees' Savings Trust Plan had $844 million in assets, including $158 million in the target-date funds, according to the new 11-K filing.

The three plans that removed the Northern Trust Focus Funds were not the first to do so in recent years. In 2020, PPL Corp., Allentown, Pa., removed the Northern Trust Focus Funds from its lineup, according to a comparison of the company's two most recent Form 5500 filings for the PPL Defined Contribution Master Trust. The trust, which comprises the assets of the PPL Employee Savings Plan, PPL Deferred Savings Plan, PPL Employee Stock Ownership Plan, and the LG&E and KU Savings Plan, replaced the Northern Trust funds with a passive target-date fund series managed by BlackRock. As of Dec. 31, 2020, the PPL Defined Contribution Plan Master Trust had $2 billion in assets, according to the most recent Form 5500 filing. As of that same date, the BlackRock funds had a total of $639 million in plan assets.

Current and former employees of PPL Corp. sued the company, a subsidiary and fiduciaries this January, alleging violations of ERISA in the management of four retirement plans related to its retaining the "unproven" Northern Trust Focus Funds.

Last October, Walgreen Co. reached a $13.75 million settlement in a similar lawsuit filed by profit-sharing plan participants that included an agreement to remove the Northern Trust Focus Funds from the plan. As of Dec. 31, 2020, the Walgreens Profit-Sharing Retirement Trust had $12.7 billion in assets, according to the company's most recent Form 5500 filing. As of that same date, the Northern Trust Focus Funds had $4.5 billion in plan assets.

None of the lawsuits named Northern Trust as a defendant. Northern Trust spokesman Doug Holt did not reply to requests for comment.

Jennifer Flodin, Chicago-based senior consultant and defined contribution segment leader at Mercer, said in a phone interview that plan sponsors are quite nervous to do anything that's not middle of the road.

"Anybody can get sued for anything," Ms. Flodin said, "We have discussed the pros and cons of current managers, and there are clients who still use active management in target-date funds, but when they try to secure their fiduciary liability insurance, that's a strike against you. They only want to insure passive managers."

While she said her firm builds the case that an active target-date fund manager is an appropriate manager, a majority of sponsors might drop that manager, "because somebody is in the news, because they don't want to be more at risk than they were."