When Royal Caribbean replaced the Vanguard target-date funds in its 401(k) with funds from Russell Investments, plan participant Ann Johnson sued. She argued that the committee acted imprudently in choosing and keeping the Russell funds and that the decision cost employees retirement savings. The district court ruled in Royal Caribbean’s favor, but the Eleventh Circuit reversed in August 2026. It held that a court can consider other evidence of imprudence even when there’s no closely comparable fund. It sent the case back for the district court to review the full record.
What caught my attention in the Royal Caribbean 401(k) case was that the committee had several reasons to hire Russell. The court record describes a strong research team, good references, and a proposal that would automate some work. Among four finalists, the Russell–Milliman proposal ranked second-lowest in cost for the pension and 401(k) plans combined. Yet the Russell target-date funds cost about 0.30 percentage points more than the Vanguard funds they replaced.
I work with smaller employers, and I can see how easily those decisions can get rolled into one vote. A committee may like the new provider and what it can do for the plan. If the proposal also changes where employees’ savings go by default, I’d ask for a separate decision on that change. What would employees gain from the new funds, and what would they pay for it?
There was a case to make for Russell’s funds. They reached their lowest stock allocation at retirement, held less in U.S. stocks, and invested in assets such as global real estate and infrastructure. A committee looking to reduce stock exposure by retirement and rely less on the U.S. market could see a reason to consider that design. The Russell funds were also ahead of their own benchmark when selected.
Plan participant Ann Johnson argued that the design itself was a poor fit. The appeals court recounted that the series had never had more than 12 clients (ah, but what size client?) and had lost its two largest to Vanguard before Royal Caribbean made the switch. Johnson also pointed to a Negative Morningstar rating for Russell’s retail LifePoints series, which she argued was similar to the series the plan selected. I’d want to know why those clients left and which of Morningstar’s concerns, if any, applied to the funds on the table.
As I read the Royal Caribbean decision, I found myself thinking about the Intel case. Hadn’t that case been dismissed for lack of a meaningful benchmark? Yes. The Ninth Circuit concluded that the investments the plaintiffs pointed to were too different from Intel’s funds to support their claim of underperformance.
The Supreme Court heard arguments in October on whether plaintiffs who base an imprudence claim on underperformance must identify a meaningful benchmark for the case to proceed. Royal Caribbean was already past that early stage. The Eleventh Circuit told the trial court to consider the full record, including evidence that the strategy itself may have been a poor fit for the plan.
At your next investment review, here are two possible questions for the minutes. Why did we choose this strategy for our employees? How will we know if it’s doing what we chose it to do? A well-chosen benchmark helps answer the second question. The committee should be able to answer the first in its own words.
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