Aon Beats Appeal Over Lowe’s 401(k) Plan Lineup, Affiliated Fund

Aon Hewitt Investment Consulting Inc. defeated a 250,000-person class action challenging its management of the Lowe’s 401(k) plan, when the Fourth Circuit on Monday upheld the company’s win over claims involving a suggested plan redesign and an underperforming proprietary fund.

“While Aon was recommending that Lowe’s restructure its retirement plan, it was also pitching Aon’s delegated-fiduciary services,” but selling services isn’t investment advice through which it could violate its duty of loyalty, the US Court of Appeals for the Fourth Circuit said. “And the actual investment advice—streamlining the plan menu—was not informed by Aon’s desire to sell its services.”

Aon also met its duty of prudence by engaging in “a reasoned decision-making process by reviewing comparable funds,” and by continuing to monitor the fund, the court said. “It makes no difference here that the review occurred when it established the fund (which was before Aon became Lowe’s delegated fiduciary).”

The lawsuit accused Lowe’s Cos. Inc. and Aon of moving more than $1 billion in Lowe’s 401(k) plan assets to an Aon fund that performed poorly and had little track record to recommend it. Plan participants say the Aon fund was untested—with no large retirement plan investors and only $350 million in assets before the Lowe’s plan’s investment—and performed worse than the funds previously in the company’s 401(k) plan.

Lowe’s settled the claims against it for $12.5 million in 2021.

The plan participants’ claims against Aon went to a five-day trial, after which a North Carolina federal judge ruled for Aon on all live claims. He said Aon acted appropriately in recommending changes to the plan’s investment lineup that were consistent with industry standards, and that Aon’s decision to add its proprietary Aon Growth Fund to the Lowe’s plan was reasonable based on the company’s “investment expertise and legitimate strategic choices.”

The Fourth Circuit opinion was written by Judge Julius N. Richardson and joined by Judge Barbara Milano Keenan.

Judge Robert B. King dissented in part, saying “it is readily apparent that the fiduciary investment advice Aon provided to the Lowe’s 401(k) retirement plan” was made at least in part to enhance its own position. “Pursuant to our Court’s longstanding precedent, that alone constitutes a breach of ERISA’s exacting duty of loyalty,” King said.

Gupta Wessler LLP, Nichols Kaster PLLP, and Tharrington Smith LLP represent the plan participants. O’Melveny & Myers LLP and Parker Poe Adams & Bernstein LLP represent Aon.

The case is Reetz v. Aon Hewitt Investment Consulting, Inc., 4th Cir., No. 21-02267, 7/17/23.