Appeals court clears Quest Diagnostics in 401(k) retirement plan lawsuit

The court disagreed. Writing for the panel, Judge Bibas set the tone in the opening line: “Sometimes, even a good process produces disappointing results.” ERISA, the court wrote, “is mostly concerned with process, not outcomes.”

That framing decided the case. Instead of grading the funds, the court examined how Quest managed the plan – and found a committee that, as the court put it, “did its own homework.” Quest’s investment committee met quarterly, brought in outside advisors Mercer and Aon, and worked from written policy statements saying no single factor would decide whether a fund stayed or went.

The committee also did not simply defer to its advisors. It had Mercer compare the Freedom Funds against alternatives, met directly with Fidelity, and in 2019 asked Mercer to take another look at its target-date lineup. With the Invesco fund, it added the fund to a watch list in 2017, met with Invesco’s representatives, considered other real-estate funds, and kept tracking it.

All that work is what won the case for Quest. The court emphasized that “a fund’s poor performance alone does not mandate drastic or sudden action,” and that “short-term underperformance does not prove long-term imprudence.” Making fiduciaries drop every below-average fund, the panel wrote, “would create chaos.”

The judges also turned down the argument that the plan’s policy statements required the committee to drop the funds. Those statements used permissive language – the committee “may” put a fund on a watch list or remove it – so the committee kept its discretion, and the court found no abuse of it.