An American Airlines pilot sued the company and its fiduciaries contending that two company 401(k) plans violate ERISA by offering investments that emphasize environmental, social and governance principles.
The lawsuit features a broad-based criticism of ESG funds in general for costs, performance, strategy and philosophy, but it doesn't provide data or comparisons about specific investments in the American Airlines plans.
"Defendants have breached their fiduciary duties in violation of ERISA by investing millions of dollars of American Airlines employees' retirement savings with investment managers and investment funds that pursue leftist political agendas through environmental, social and governance strategies, proxy voting, and shareholder activism," said the lawsuit filed June 2 in a U.S. District Court in Fort Worth, Texas.
Defendants violated ERISA "by selecting and retaining ESG funds that pursue nonfinancial or nonpecuniary objectives like ESG social policy objectives, rather than investment funds that have the exclusive purpose of maximizing financial returns for investors," said the lawsuit, Bryan P. Spence vs. American Airlines Inc. et al.
Mr. Spence is seeking class-action status for participants in the American Airlines Inc. 401(k) Plan for Pilots and the American Airlines Inc. 401(k) Plan. He also sued Fidelity Investments in its role as record keeper and Financial Engines Advisors — a unit of Edelman Financial Engines — in its role as investment adviser to the plans.
Representatives of American, Fidelity and Edelman declined to comment.
The lawsuit identifies at least 25 mutual funds in the plans' lineups that it characterized as ESG funds.
"These ESG funds pursue nonfinancial and nonpecuniary ESG policy agendas as part of their investment strategies, are more expensive than similar alternative investment funds, have underperformed compared to other similar investment funds, and engage in proxy voting and shareholder activism on ESG issues," said the lawsuit without providing any individual statistics or comparison.
"Defendants did not independently investigate these ESG funds before including them as investment options under the plan, did not independently monitor them once in the plan, and did not remove ESG funds from the plan," the lawsuit alleged.
The plaintiff also cited 90 other investment managers that provide investments "that are not branded as ESG funds, but are managed by investment companies who have voted for many of the most egregious examples of ESG policy mandates."
The lawsuit's examples included "divesting in oil and gas stocks, banning plastics, requiring 'net zero' emissions and imposing 'diversity' quotas in hiring. The lawsuit provided no data or statistics, adding that "none of the proposals were supported by management at the targeted companies."
The lawsuit didn't make clear how many of the 25 ESG funds and the 90 other investment managers' funds were part of the plans' investment lineups and how many were available to participants via a self-directed brokerage account.
The lawsuit acknowledged that "there is no fiduciary responsible for selecting or monitoring" the investments within a self-directed brokerage account. Offering such a service, however, "does not excuse plan fiduciaries from constructing and maintaining a prudent and appropriate menu of designated investment alternatives," the lawsuit said.
American Airlines Inc. 401(k) Plan for Pilots had $11.1 billion in assets and the American Airlines Inc. 401(k) Plan had $15.5 billion in assets as of Dec. 31, 2021. Both plans are based in Fort Worth, Texas, and the data for both are from the latest Form 5500.
