A federal appeals court has vacated a lower court’s certification of a class action lawsuit against Genworth Financial Inc., dealing a setback to former employees seeking to recover losses from their company 401(k) plan. The U.S. Court of Appeals for the Fourth Circuit ruled that claims stemming from alleged breaches of fiduciary duty in managing the plan’s investments are inherently individualized, making a class-wide approach inappropriate under federal law.
The case, Trauernicht v. Genworth Financial Inc., was initiated by Peter Trauernicht and Zachary Wright, former Genworth employees who alleged the company violated its obligations under the Employee Retirement Income Security Act (ERISA) by offering the BlackRock LifePath Index Funds as investment options. The plaintiffs argued that these funds underperformed compared to alternatives offered by firms like Vanguard, Fidelity, T. Rowe Price, and American Funds, resulting in financial harm to plan participants.
The U.S. District Court for the Eastern District of Virginia had previously certified a class encompassing plan participants and beneficiaries who held investments in the BlackRock LifePath Index Funds between August 1, 2016, and the date of the court’s initial judgment. The district court reasoned that ERISA fiduciary breach claims are brought on behalf of the plan itself, justifying class certification under Federal Rule of Civil Procedure 23(b)(1), which applies to mandatory classes without opt-out rights.
Genworth appealed the certification, and the Fourth Circuit agreed to review the decision in 2024. In a March 10 opinion, Judge Paul Niemeyer, writing for the panel, determined that the nature of defined contribution plans necessitates individualized assessments of each participant’s claims. Unlike defined benefit plans, which pool assets and provide fixed benefits, defined contribution plans tie retirement outcomes directly to the performance of individual account investments.
“Because we conclude that the plaintiffs’ ERISA § 502(a)(2) claims brought in the context of a defined contribution plan are individualized monetary claims, we similarly conclude that they cannot be joined in a mandatory class certified under Rule 23(b)(1),” the court stated. The panel expressed concern that allowing such claims to proceed as mandatory classes could raise due process issues, as Rule 23(b)(1) does not require notice to class members or offer an opportunity to opt out of the litigation.
The Fourth Circuit also found that the plaintiffs failed to demonstrate the commonality required for class certification. Participants invested varying amounts, entered and exited the BlackRock funds at different times, and experienced different market conditions, leading to divergent financial impacts. The court emphasized that “the plaintiffs’ and purported class members’ individual circumstances differed dramatically, and all did not suffer the same injury,” undermining the argument for a class-wide resolution.
The Genworth Financial Inc. Retirement and Savings Plan, a defined contribution 401(k) plan, held approximately $960 million in assets and served 4,365 participants as of the end of 2024, according to a recent Form 5500 filing. Participants had the ability to allocate their retirement savings among a range of investment options, including the BlackRock LifePath Index target-date fund suite.
While the district court dismissed the plaintiffs’ request for injunctive relief – as they were former employees who had already withdrawn their assets from the plan – the underlying fiduciary breach claims remain unresolved. The Fourth Circuit’s ruling, although, significantly alters the course of the litigation by eliminating the certified class. Genworth is represented by Gibson, Dunn & Crutcher LLP and McGuireWoods LLP, while the plaintiffs are represented by Miller Shah LLP and Tycko & Zavareei LLP.
