[00:00:00] Speaker 02: Thank you, Kwame. [00:00:01] Speaker 02: The United States Court of Appeals for the Ninth Circuit is now in session. [00:00:07] Speaker 04: Good morning and welcome. [00:00:08] Speaker 04: Thank you very much for joining us today. [00:00:11] Speaker 04: Would Council like to reserve any time for rebuttal? [00:00:18] Speaker 00: Yes, Your Honor, if I may. [00:00:19] Speaker 00: This is Alec Barron on behalf of the Plaintiff Appellate. [00:00:21] Speaker 00: I'd like to reserve three minutes for rebuttal if that's permitted. [00:00:24] Speaker 04: That's fine. [00:00:25] Speaker 04: Go ahead, please. [00:00:28] Speaker 00: Thank you, Your Honor, and may it please the Court. [00:00:30] Speaker 00: Your Honors, three months ago, this Court issued its opinion in Anderson v. Intel, affirming dismissal of a very different complaint than Mr. Wainer's. [00:00:40] Speaker 00: Nonetheless, Genentech strenuously attempts to convince the Court that this case is on all fours with Anderson to solicit the same result. [00:00:49] Speaker 00: For several dispositive reasons, this complaint is vastly different than the complaint in Anderson and meets the pleading standard articulated by the Court. [00:00:58] Speaker 00: Accordingly, reversal of the district court's dismissal order is warranted. [00:01:03] Speaker 00: First, the investment comparisons supporting plaintiffs under performance allegations are prescribed by the plan's own investment policy statement, or IPS, and that was established by defendant Genentech. [00:01:16] Speaker 00: Specifically, the IPS required that each fund and portfolio would be monitored and evaluated against its specific benchmark, as well as a universe of funds with similar characteristics. [00:01:31] Speaker 00: We plead this at ER 102, among other places, and the language appears in the IPS at SER 160 and 163. [00:01:40] Speaker 00: In addition, the IPS provides that each active investment, including the challenge RocheTDFs, [00:01:46] Speaker 00: should outperform market universe investments for rolling three to five year periods. [00:01:52] Speaker 00: These are the exact comparisons presented in the complaint, and they support an inference that Genentech failed to appropriately monitor the plan's investments. [00:02:02] Speaker 00: In the California ironworkers case, this court found, quote, fiduciaries who are responsible for plan investments governed by ERISA must comply with the plan's written statements of investment policy. [00:02:14] Speaker 00: For this reason, other courts, including in circuits where the meaningful benchmark standard has been adopted, have found that comparisons supported by a plan's IPS are sufficient to give rise to an inference of imprudence. [00:02:29] Speaker 00: In fact, in the Dish Network case, the court called these allegations part and parcel of direct allegations that defendants ignored their own selected criteria for monitoring the prudence of plan investments. [00:02:42] Speaker 00: In the Anderson case, there were no allegations whatsoever that the plan's investment required the kind of review presented in the complaint. [00:02:51] Speaker 00: To the contrary, the IPS in Anderson only required a specific benchmark comparison that the at-issue investments surpassed. [00:02:59] Speaker 00: Plaintiff's allegations in this regard are of an entirely different kind, and it's noteworthy that in Genentech's over 75 pages of briefing, it never once addresses this part of the IPS. [00:03:12] Speaker 01: With respect to the, I guess, internal benchmark or the custom benchmark, do you concede that that was met or why doesn't the complaint draw comparison to the one named benchmark that the IPS calls out? [00:03:30] Speaker 00: Your Honor, we do concede that it met that benchmark, but the IPS in this case specified two criteria for monitoring, both that the custom benchmark was met, but also that peer investments in a universe of similar investments be surpassed. [00:03:47] Speaker 00: in order to satisfy the monitoring criteria. [00:03:49] Speaker 00: So we do acknowledge that the custom benchmark, and we explain in our briefing and complaint why we think that's less than probative of the performance of the investment. [00:03:58] Speaker 00: We can see that's met, but the other critical criteria here was not met. [00:04:03] Speaker 00: And we think that that stands amount to a direct process allegation that the fiduciaries weren't applying the IPS appropriately and monitoring the investments for that criterion. [00:04:12] Speaker 04: Can we ask? [00:04:14] Speaker 04: Oh, go ahead, please. [00:04:15] Speaker 01: Well, I guess just with respect to the peers that you draw on the off the shelves, you only have, only the JP Morgan fund is both a two managed comparator as well as an active comparator. [00:04:34] Speaker 01: Why should we pay attention to any of the other through managed or passively managed TDS funds? [00:04:42] Speaker 00: Sure, Your Honor. [00:04:44] Speaker 00: In this case, we would call special attention, I think, to the JPMorgan comparator because it shares those two characteristics. [00:04:50] Speaker 00: But as we also discussed in the complaint, the two-through distinction is a little bit a form over substance in the sense that it describes the landing point. [00:05:00] Speaker 00: But we also talk about the glide paths of the other comparators as being much more similar than the two-through distinction recognizes because [00:05:10] Speaker 00: That only speaks to when the terminal allocation becomes static. [00:05:15] Speaker 00: But in reality, when you line up the glide paths of all of the comparators that we proffer, actually in some of Genentech's exhibits, they do this. [00:05:25] Speaker 00: The glide path of the Roche TDFs is actually quite in line with all of the comparators that we proffer. [00:05:30] Speaker 00: And we think each of them do have probative value. [00:05:34] Speaker 00: And I think the Stanley Black and Decker Court, which we discuss in our briefing, describes why having multiple comparators, even if certain of them aren't the perfect benchmark, may help confirm that some benchmarks are not simply cherry picked. [00:05:50] Speaker 00: And directionally, we think all of them have relevance. [00:05:53] Speaker 00: And that's why we also have the S&P indices, which is the leading market index. [00:05:59] Speaker 00: And I would note in [00:06:05] Speaker 00: kind of the popular large cap index. [00:06:07] Speaker 00: It wasn't a target date fund index. [00:06:09] Speaker 00: And so each of those additional comparators confirms the point here, which is that the underperformance was visible relative to everything that the IPS suggested defendants should have been looking at, save for the custom benchmark that was essentially fail proof. [00:06:28] Speaker 02: I want to understand, go ahead Judge Koh, I'm sorry. [00:06:32] Speaker 04: For your peer comparators, under Anderson, we have to find that they did not have a different aim, risk, or potential reward. [00:06:43] Speaker 04: And you do provide the aims for the off-the-shelf TDFs, but not the SMP target date indices. [00:06:51] Speaker 04: And then you don't provide the risks and potential rewards for any of those. [00:06:55] Speaker 04: If I'm wrong about that, can you [00:06:57] Speaker 04: point me to an allegation in the complaint that would provide that additional information that Anderson says we need to assess whether it's a true comparator? [00:07:08] Speaker 00: Sure, sure. [00:07:09] Speaker 00: And a couple different points I think I would mention. [00:07:12] Speaker 00: So first, I think the risks and aims analysis is different here than in Anderson, because in Anderson, the court found and the plaintiffs conceded [00:07:23] Speaker 00: that the target date funds customized for the Intel plan had a very specific deviant. [00:07:28] Speaker 00: set of risk and aims. [00:07:30] Speaker 00: And that was after the 2008 financial crisis, the fiduciaries redesigned the target date funds to specifically minimize risk and recognize that that would come at the expense of performance. [00:07:41] Speaker 00: And that was actually disclosed to participants. [00:07:44] Speaker 00: And so the risk and aim analysis in Anderson, I think is relative to a manifestly different set of risk and aims for those TDFs, which is not. [00:07:54] Speaker 02: But still Anderson said, [00:07:56] Speaker 02: you had to make allegations about the risks and aims of the so-called peer funds. [00:08:05] Speaker 02: And I understand that an Anderson that made those allegations about the target funds may have been made. [00:08:12] Speaker 02: But again, I'm interested in what Judge Koh asked. [00:08:16] Speaker 02: Did you make any allegations in the operative complaint about the risks and aims of the so-called peer funds? [00:08:24] Speaker 02: Or is it your position that you don't have to because they were in the IPF? [00:08:29] Speaker 00: Well, sir, I think our position is sort of twofold. [00:08:32] Speaker 00: I think on the one hand, the IPS analysis sort of stands aside this question from Anderson because it explains what the fiduciary is established as their argument. [00:08:44] Speaker 02: So let's assume for a moment that I don't buy that argument. [00:08:48] Speaker 02: And I think you still have to make allegations about [00:08:52] Speaker 02: the so-called peer funds so that they can be compared to the funds that are offered. [00:08:58] Speaker 02: Judge Koh asked you where those allegations were in the operative complaint. [00:09:03] Speaker 02: You may have answered that, but I'm not sure I got the answer. [00:09:06] Speaker 02: Would you tell me where they are? [00:09:08] Speaker 00: To be fair, I don't think I completely got there. [00:09:10] Speaker 00: I think that's in our discussion about the glide paths, about the construction of target date funds. [00:09:18] Speaker 00: And I think here, [00:09:20] Speaker 02: Tell me what paragraphs of the operative complaint make the allegations that you think suffice. [00:09:29] Speaker 00: I do want to address, I think, what was part of your question. [00:09:38] Speaker 00: I think the risk today is here, we are able [00:09:42] Speaker 00: to speak about in a more generalized way because there wasn't a particular state of set of risks and aims with regard to the Roche TDFs in the same way that there was in the Anderson case. [00:09:54] Speaker 00: And then I think our discussion about the peer off-the-shelf TDFs begins at paragraph 146 of our complaint, and that's ER99. [00:10:05] Speaker 00: And we talked about [00:10:09] Speaker 00: the concentration of the target date fund market, the design of target date funds. [00:10:14] Speaker 00: That's where our to and through discussion is. [00:10:18] Speaker 00: And I think what we proffer here in terms of the relative risks and aims relates to the fundamental goal of mainstream target date funds that [00:10:30] Speaker 00: like in Anderson. [00:10:31] Speaker 00: So I think that would be contained in our discussion from paragraphs 146 to 155. [00:10:37] Speaker 04: Can I ask you, the defendants provided a chart of the risk allegations, the allocation of percentage of equity over time. [00:10:50] Speaker 04: And you didn't provide any similar chart that talks about risk allocation. [00:11:00] Speaker 04: Could have right because the defendants are saying that's publicly available information and that's what they use to create their chart Do you have anything similar to that that talks about risk allocation? [00:11:13] Speaker 00: I apologize for speaking every if I did your honor we we don't similarly have a chart like this because the specific determinations with respect [00:11:25] Speaker 00: public information prior to us filing the complaint. [00:11:28] Speaker 00: And if the chart you're referring to is the one that appears at SER4, I do want to make special note that this is not actually the chart that appeared in the fact sheets in the Roche TDS. [00:11:42] Speaker 04: But that has Genentech on the chart. [00:11:44] Speaker 04: You're saying that Genentech is not Roche TDF. [00:11:48] Speaker 00: It is the Roche TDF, but the little asterisk, the footnote here indicates that for presenting this chart, defense counsel took out commodities, which are defined in the Roche TDF fact sheets as a growth asset. [00:12:02] Speaker 00: And so they actually are equity-like. [00:12:05] Speaker 00: when implemented in the context of the Roche TDF. [00:12:08] Speaker 00: So when that is corrected and that appears in the glide paths presented in the fund fact sheets, which I think are exhibit four in the SER, the glide path actually increases on the equity score and comes fairly into line with all the rest to the extent it ever really deviates. [00:12:30] Speaker 01: Are these kind of factual quibbles the reason we said in Kojo that we're quite skeptical of looking outside the complaint? [00:12:41] Speaker 01: In at least in securities cases, I mean, do you so I guess with respect to the plan document and the charts that are in the plan documents. [00:12:52] Speaker 01: maybe we could consider those as incorporated by reference, but was this chart before the district court and on what grounds were we able to consider it outside the bounds of the complaint? [00:13:04] Speaker 00: Defendants did seek to have the court consider it as judicially noticed. [00:13:11] Speaker 00: We did not oppose that, and it was discussed in the record below, and I think it's fairly in the record here, but I do think Your Honor's point about... It sounds like there's a dispute about it, which would not make it subject to... I mean, maybe the facts are the facts. [00:13:26] Speaker 01: You're just suggesting it's irrelevant because there's a chart that better reflects the glide paths. [00:13:31] Speaker 00: So that one particular exhibit, SER-4, I don't believe was judicially noticed. [00:13:36] Speaker 00: I think that came in in a brief by defendants. [00:13:39] Speaker 00: I think the fun fact sheets were judicially noticed. [00:13:41] Speaker 00: So what I was referencing that included the actual client path provided to participants. [00:13:47] Speaker 01: And that one is, just to be clear, that one is where? [00:13:52] Speaker 01: The one that was properly noticed below? [00:13:56] Speaker 00: I believe those appeared at SER-4. [00:14:02] Speaker 00: In one instance, SCR 23 includes the glide path as well as SCR 17. [00:14:08] Speaker 00: There are a couple of different fun fact sheets here. [00:14:12] Speaker 04: Can I ask you, you conceded that JP Morgan would be the right comparator to Judge Johnstone because it's actively managed. [00:14:20] Speaker 04: It's a two account. [00:14:22] Speaker 04: But, you know, the Roche TDF beat the JP Morgan in two years. [00:14:29] Speaker 04: 2016 and 2018. [00:14:32] Speaker 04: So how are we to find that it's imprudent when it actually was superior? [00:14:41] Speaker 00: So in those individual years, it did have superior performance to the JP Morgan's. [00:14:47] Speaker 00: returns that was not on a three or five year basis as prescribed by the IPS. [00:14:52] Speaker 00: And we do think that the IPS is own stated guidelines here. [00:14:57] Speaker 04: Why is that not a three year basis 2016 and 2018? [00:14:59] Speaker 04: Let's say you looked at the three year 2016, 2017, 2018. [00:15:04] Speaker 04: You think that's not on a rolling three year basis showing superior performance? [00:15:10] Speaker 00: I think the performance your honor might be referring to is annual performance, which was just a one year basis. [00:15:17] Speaker 00: in those years, and then the trailing three-year metric actually showed that the Genentech funds did not outperform the JP Morgan funds. [00:15:27] Speaker 00: The same goes for five-year, which was highlighted in the IPS. [00:15:31] Speaker 02: I'm interested in the last point you just made, and you don't have to watch the clock. [00:15:36] Speaker 02: My guess is that Judge Coe will be kind enough to give you a little time for rebuttal. [00:15:40] Speaker 02: Are you contending that in any year in which [00:15:46] Speaker 02: the offered fund doesn't outperform a peer fund, that the fiduciary must switch funds even if in previous years it outperformed it? [00:15:59] Speaker 00: No, Your Honor. [00:16:01] Speaker 00: Our argument is not for knee-jerk replacement. [00:16:05] Speaker 02: That's, I think, what your answer to Judge Coe's question suggested. [00:16:09] Speaker 02: There was a three-year period where [00:16:14] Speaker 02: the offered fund outperformed the JP Morgan fund. [00:16:18] Speaker 02: But you said, well, but not in the last year. [00:16:21] Speaker 02: And it seems to me if that's the test, then fiduciaries have to switch every year without knowing how the new fund is going to perform in the next year. [00:16:33] Speaker 02: That can't be the test, can it? [00:16:35] Speaker 00: I would agree that that's not a fair statement of the test and not what Anderson requires, Your Honor. [00:16:41] Speaker 00: But here, I think, [00:16:43] Speaker 00: If I'm understanding the question correctly, perhaps I confused it in my response. [00:16:50] Speaker 00: The trailing three-year metric is a financial metric, and trailing five-year financial metric highlighted by the IPS is what the fiduciary should have been looking at. [00:17:01] Speaker 00: That is different than each of the single-year returns because it incorporates a longer time period, and that's the determination [00:17:11] Speaker 00: And over those periods, the Roche TDFs underperformed, even if you move that window throughout the class period here, and that is the underperformance that we suggest should have been observed under the IPS itself, which again is different than Anderson or other cases where underperformance was untethered to an actual process allegation like this. [00:17:33] Speaker 02: Let me ask you one other question before you stop here. [00:17:38] Speaker 02: You have not asked [00:17:40] Speaker 02: either in the district court or here or leave to amend your complaint. [00:17:45] Speaker 02: Is that correct? [00:17:47] Speaker 00: There's no pending request to amend your honor. [00:17:49] Speaker 02: Okay. [00:17:50] Speaker 00: Thank you. [00:17:51] Speaker 04: Sure. [00:17:52] Speaker 04: I had one last question. [00:17:55] Speaker 04: What is the amount of underperformance that constitutes imprudence? [00:18:03] Speaker 04: I mean, here, I guess with JP Morgan, you're saying, well, Roche TDF underperformed JP Morgan by 100 million over five years. [00:18:15] Speaker 04: So what is that number? [00:18:17] Speaker 04: And is it relative to the percentage of the plan's total assets? [00:18:23] Speaker 04: Here, the plan is 9.4 billion. [00:18:27] Speaker 04: Just give us some sense of where's the line. [00:18:30] Speaker 00: Sure, Your Honor. [00:18:30] Speaker 00: And this is a tricky question because ERISA doesn't include a materiality element. [00:18:36] Speaker 00: And this is not a question that's largely been answered in the case law. [00:18:40] Speaker 00: I think the numbers that we're talking about here, based on a percentage of plant assets and from a magnitude perspective, FARC seed, whatever the line would have been, I think, [00:18:51] Speaker 00: A question about materiality may be a fact-bound question that could be litigated later in the case, but under the strictures of the IPS that the plan adopted, there was no threshold. [00:19:03] Speaker 00: And if you look at the exhibits to our complaint, which I think are [00:19:07] Speaker 00: ER 115 to 132 and thereabouts. [00:19:11] Speaker 00: The amounts of underperformance that are reflected year over year against every comparative data point are in the hundreds of basis points frequently, or more than a couple of percent. [00:19:24] Speaker 00: And that is a significant enough amount that most courts observing that kind of underperformance have found that sufficient. [00:19:31] Speaker 00: And I think also, I just do want to clean one thing up if I may. [00:19:36] Speaker 00: The JP Morgan fund being inactive in a two fund I think puts it right in the heartland of a fair comparator I still do think and it's our position that the other comparators are relevant under the terms of this IPS and in our other Allegations, I just didn't want to leave that bit behind All right. [00:19:55] Speaker 04: Thank you. [00:19:55] Speaker 04: We'll give you two minutes for rebuttal. [00:19:57] Speaker 03: Thank you, your honor Go ahead, please [00:20:03] Speaker 03: Good morning and may it please the court, Sarah Hogarth for the defendant's appellees. [00:20:09] Speaker 03: Anderson confirms that the district court applied the correct pleading standard to this amended complaint. [00:20:15] Speaker 03: The amended complaint principally relies on performance comparison in an attempt to obtain an inference of imprudence. [00:20:22] Speaker 03: And the complaint provides no basis from which to plausibly infer imprudence based on underperformance, particularly in light of the court's holdings in Anderson. [00:20:33] Speaker 03: So I'd like to jump first to the composite benchmark. [00:20:37] Speaker 03: Council has conceded that we had a custom composite benchmark [00:20:42] Speaker 03: that tracked our custom TDFs and that we performed against. [00:20:47] Speaker 03: And I think Anderson disagreed with the proposition that you should ignore custom composite benchmarks like that. [00:20:55] Speaker 03: And the articles cited reference creating custom composite benchmarks like we did. [00:21:01] Speaker 03: The investment policy statement shows how we built it. [00:21:05] Speaker 03: Um, and the fund facts sheets in the record at SCR 14, for example, use that custom composite benchmark. [00:21:12] Speaker 04: What should we make of the fact that just consistently, uh, the Roche TDF performed underperform relative to the S and P target date indices and largely underperformed historically the JP Morgan, uh, TDF. [00:21:28] Speaker 04: I mean, it's one thing for me to say, well, I'm running my account and then let me just set up. [00:21:32] Speaker 04: What is my benchmark? [00:21:34] Speaker 04: It's a bit self-serving, isn't it? [00:21:36] Speaker 04: Saying, well, I'm just going to compare myself against what I want to compare myself to. [00:21:40] Speaker 04: That's a little bit less credible than actually comparing yourself to actual people in the market who are doing the same thing. [00:21:50] Speaker 03: Well, I think it reflects trying to track the strategy that you've decided to implement. [00:21:54] Speaker 03: So if you look at, for example, SCR 163, and this is the investment policy statement where plaintiffs say we supposedly said that we would measure ourselves against the S&P indices, which is just a mischaracterization of the document, which I'm happy to get to. [00:22:13] Speaker 03: But what you see here is each [00:22:16] Speaker 03: of the vintages of the Roche Fund. [00:22:18] Speaker 03: So Roche 2020 Fund has the 2020 Composite Index. [00:22:23] Speaker 03: Underlying that are the funds that Roche has custom created to go into its Tier 2. [00:22:29] Speaker 03: This is, for example, the Roche Large Cap Fund or US Small Mid Cap Equity. [00:22:35] Speaker 03: Each of these is tracked and it lists the [00:22:38] Speaker 03: market index that each of those funds is tracked against. [00:22:42] Speaker 03: So you're using a true Russell 1000 index measuring the performance of the Roche large cap fund. [00:22:50] Speaker 03: When you get to the composite, you are taking these industry benchmarks against each of the different types of asset classes. [00:23:00] Speaker 03: and just making sure that they match the strategy for the asset allocation of that particular custom target date fund. [00:23:07] Speaker 03: So I don't think it's fair to characterize that as just measuring yourself against yourself. [00:23:13] Speaker 03: You're making sure that each of the asset categories is performing fairly against an industry benchmark and then making sure that the TDF is also performing against that. [00:23:24] Speaker 02: I want to get back to Judge Coe's question because [00:23:27] Speaker 02: What your friend is saying is, gee, there are peer funds, whether or not looking at the composite is a good idea or a bad idea, that outperform your funds during the relevant period. [00:23:46] Speaker 02: Now, whether or not he sufficiently alleged that they're similar, I want to get to in a second. [00:23:51] Speaker 02: But would it be enough to say, well, we came up with this composite [00:23:55] Speaker 02: saying that it was a good idea, and we could ignore the fact that there were peer funds that outperformed the Roche funds during the target period. [00:24:05] Speaker 02: If he'd sufficiently alleged similarity between the peer funds and the Roche funds, why wouldn't that be enough to get past the motion to dismiss? [00:24:15] Speaker 03: Well, the first thing is that I think to get to the inference of imprudence, it is important that there is this process to actually measure how the strategy that you have chosen is performing. [00:24:27] Speaker 02: So I think that is the first thing why... Let me leave it up for a second. [00:24:31] Speaker 02: Let's assume you chose a reasonable strategy back when you put it together, but that over the last five years, it became apparent that some fund with equal risk [00:24:43] Speaker 02: equal risks and the same objectives was grossly outperforming your funds. [00:24:50] Speaker 02: Wouldn't there be some inference of imprudence by not switching into that fund? [00:24:55] Speaker 03: And I think that's exactly the analysis that Anderson says to undertake. [00:24:59] Speaker 03: The plaintiff needs to allege that that exists. [00:25:02] Speaker 02: So tell me why they haven't sufficiently alleged that. [00:25:06] Speaker 03: Sure, and I'll separate. [00:25:07] Speaker 03: So the S&P indices, I'll set that aside, but go to the funds that we're talking about. [00:25:12] Speaker 03: These are off-the-shelf funds. [00:25:14] Speaker 03: That's the allegation. [00:25:15] Speaker 03: There are no factual allegations as to why they are similar other than, so far as I can tell, paragraph 133 in the complaint, which is a statement that is common to all TDFs. [00:25:33] Speaker 04: Well, what about JP Morgan? [00:25:35] Speaker 04: That's an actively managed to retirement fund. [00:25:37] Speaker 04: Why isn't that a comparator? [00:25:39] Speaker 03: So the plaintiffs don't plead, excuse me, that way, but I think there are multiple reasons. [00:25:45] Speaker 03: So even just starting with like the fund fact sheet, we can take a look at that. [00:25:50] Speaker 03: So our fund fact sheet for the 2025 fund, that is at SCR 14. [00:25:56] Speaker 03: And this will illustrate the importance of a plaintiff having to allege similarities and account for differences. [00:26:03] Speaker 03: Our objective says seeks to provide [00:26:07] Speaker 03: capital growth and income consistent with its current asset allocation. [00:26:12] Speaker 03: There's the picture of the asset allocation. [00:26:14] Speaker 03: Then it says that the strategy aims to achieve the subjective by investing in a broadly diversified fund of funds. [00:26:24] Speaker 03: That's what we're trying to do. [00:26:25] Speaker 03: You take that and compare that to what JP Morgan says they're trying to do at SCR 68. [00:26:31] Speaker 03: And it says the fund seeks high total return. [00:26:36] Speaker 03: Those are two different objectives. [00:26:38] Speaker 03: And each of them is illustrated by the different asset allocations that they have chosen. [00:26:43] Speaker 04: But your investment policy statement says that you expect each investment to outperform its benchmark and median returns for similar alternatives over rolling three to five year periods. [00:26:57] Speaker 03: Sorry, what? [00:26:58] Speaker 03: I just want to make sure I'm looking at the same document. [00:27:00] Speaker 03: Would you mind telling me where you see our 204? [00:27:02] Speaker 04: It's it's section D. Okay, it's section D SCR 204. [00:27:08] Speaker 04: And so if you have JP Morgan TDS outperforming Roche TDS on a rolling five year basis, why does that not show that you're not meeting your objectives in your investment policy statement? [00:27:22] Speaker 03: Yes, so this is saying that each will be measured against the specific benchmark, which is what we've talked about in appendix B, the composite benchmark, which we were undisputedly meeting and then compared to a universe of funds with similar characteristics. [00:27:38] Speaker 03: I think this boils down into exactly the meaningful comparator analysis. [00:27:43] Speaker 03: That the Anderson court is calling for the funds have to be similar in order to be prepared. [00:27:50] Speaker 01: Let me push you on that then a little bit. [00:27:52] Speaker 01: I mean, so we've got 2025 target funds. [00:27:57] Speaker 01: At least 1 of them is a 2 fund and actively managed. [00:28:04] Speaker 01: I guess my concern here is, lest we eliminate the possibility of pleading a circumstantial imprudence claim based on performance, a defendant can always come in and say, well, there's going to be one more thing that's different. [00:28:22] Speaker 01: I think, for example, here, right, you're suggesting that the JP Morgan or some of the other comparator funds have different characteristics. [00:28:34] Speaker 01: But, of course, the comparator doesn't have to be identical. [00:28:39] Speaker 01: It has to be meaningfully same. [00:28:40] Speaker 01: So what else would the plaintiff have to show other than verbatim the exact same strategy in your statements to establish a comparator? [00:28:52] Speaker 03: Well, I think the issue is that the plaintiff here hasn't pled those facts because they haven't pled what makes these similar beyond just general. [00:29:01] Speaker 01: Why isn't a target date fund is actively managed to the target date, a meaningful benchmark? [00:29:09] Speaker 03: I think Anderson rejected that sort of logic that you can abstract to that high level of generality to say that they are [00:29:18] Speaker 03: the same, which is why the instruction is for courts to compare the similarities and the differences. [00:29:24] Speaker 03: And when you start to look at the differences, those become quite clear, especially in the way that the asset allocation decisions were made and done, reflected in the glide pass that each fund disclosed. [00:29:37] Speaker 01: Reflected in the- Just to walk me through, how does that work on emotion to dismiss with the pleadings? [00:29:42] Speaker 01: So it looks like you've brought in a lot. [00:29:45] Speaker 01: I'm not sure how much is before the district court. [00:29:47] Speaker 01: But in your briefs, you've brought in a lot of stuff that I don't think would be under the incorporation by reference doctrine outside of the plan documents to say, well, it turns out they're pointed to these funds, but here's some more information about these funds. [00:30:04] Speaker 01: Just walk me through how that's supposed to work under our plenium standards when we're, as I told your friend, we're [00:30:11] Speaker 01: kind of wary in these cases of defendants bringing a lot of extra stuff in outside the pleadings when they've alleged a comparator. [00:30:22] Speaker 01: For example, like the strategy for JP Morgan, is that in or outside of the pleadings or incorporated by reference? [00:30:29] Speaker 03: That was before the district court. [00:30:31] Speaker 03: The district court took judicial notice of it under the incorporation by reference doctrine. [00:30:36] Speaker 03: because the plaintiff was relying on the JP Morgan fund as a comparator. [00:30:40] Speaker 02: I have the same concern that Judge Johnstone has. [00:30:46] Speaker 02: The district court may have taken judicial notice of it. [00:30:49] Speaker 02: The question is whether that notice was appropriate at the motion to dismiss stage. [00:30:58] Speaker 02: I'm concerned about the Anderson test to the extent it requires the plaintiff to [00:31:04] Speaker 02: allege things about the peer funds that may or may not be a public record. [00:31:12] Speaker 02: So, again, help me here. [00:31:14] Speaker 02: There's a lot of extraneous stuff in this record. [00:31:17] Speaker 02: Let's assume for a moment that we just had the complaint and your motion to dismiss. [00:31:24] Speaker 02: Would the judge have been correct in dismissing on that basis? [00:31:29] Speaker 03: Yes. [00:31:29] Speaker 03: And that is what Judge Orrick did. [00:31:31] Speaker 03: He said they did not allege sufficient similarities beyond this contention that a TDF, that all TDFs are created equal. [00:31:42] Speaker 03: That is what they allege. [00:31:44] Speaker 03: And so he said, no, you need to say more in order for me to actually assess that these are in fact similar. [00:31:51] Speaker 03: beyond just saying all TDFs have the same general concepts or operate in the same general manner. [00:31:58] Speaker 01: And what is that more other than having, again, their fun fact statement look identical to yours? [00:32:08] Speaker 01: What more do we need? [00:32:11] Speaker 01: You haven't told us yet, short of it being [00:32:16] Speaker 01: the identical profile, which isn't really a benchmark as we usually understand investment funds, right? [00:32:24] Speaker 01: Usually when you think of benchmarks, we think of similar compositions, but similar, not identical. [00:32:29] Speaker 01: So what more that wasn't in the complaint is required that is short of being identical? [00:32:37] Speaker 03: Well, they don't allege anything really about the objectives of each of the different funds. [00:32:42] Speaker 01: I want you to tell me something that they could have alleged. [00:32:45] Speaker 01: I mean, they've alleged the aims. [00:32:49] Speaker 01: We can talk about the risks and the rewards, but what more do they have to say other than 2025 to target date fund actively managed? [00:33:01] Speaker 03: They could have emphasized a similarity in diversification strategy that is [00:33:06] Speaker 03: a key difference, but they could have alleged these two have a similar allocation. [00:33:11] Speaker 01: That's the 50-50 point that you make about your funds and it's okay. [00:33:15] Speaker 03: Sure, something like that. [00:33:17] Speaker 01: And that would have been publicly available to them that they could have pleaded that. [00:33:22] Speaker 03: I think that they could have, yes, based on the fund fact sheets. [00:33:27] Speaker 02: That's what Judge Johnstone just asked. [00:33:29] Speaker 02: Was that information publicly available? [00:33:32] Speaker 03: Yes, we provided the fun fact sheets and have provided the prospectuses for each of these different funds and they haven't asked for an opportunity, even assuming that they had no way to get access to these, which I don't think is correct. [00:33:47] Speaker 03: They could have. [00:33:48] Speaker 03: once we submitted them, asked for leave to amend to actually allege this way and they didn't do that. [00:33:54] Speaker 03: I think that's revealing that the similarities don't exist. [00:33:57] Speaker 02: I'm still having difficulty with the point Judge Johnstone raised and maybe it's because we're both civil procedure freaks. [00:34:05] Speaker 02: You get a complaint and you file a motion to dismiss and you say you haven't alleged certain facts and therefore you haven't stated a cause of action. [00:34:16] Speaker 02: It's nice that you provided [00:34:19] Speaker 02: information from which the other side might have derived those facts, but that won't be the case in every complaint. [00:34:28] Speaker 02: So I'm still trying to figure out whether or not the facts that you think they needed to allege with respect to the so-called peer funds were publicly available to the plaintiffs at the time they filed their complaints. [00:34:42] Speaker 02: If they were not, then it seems to be unfair to punish them for not alleging. [00:34:50] Speaker 03: I don't specifically know whether they actually had them or not sitting here today, but these are not from us, the J.P. [00:34:57] Speaker 03: Morgan prospectuses. [00:34:58] Speaker 03: These are materials published by each of these different communities. [00:35:04] Speaker 02: You derive them from publicly available documents. [00:35:07] Speaker 03: Yes. [00:35:07] Speaker 02: Can you, at least for some of the time you have remaining, address what I think is your friend's alternative argument. [00:35:16] Speaker 02: His argument is that [00:35:18] Speaker 02: You've identified benchmarks in your investment option performance standards. [00:35:26] Speaker 02: And as to those, they become, in effect, peer funds without having to say more. [00:35:35] Speaker 02: Maybe I'm mischaracterizing his argument, and if I am, he can tell me when he has rebuttal. [00:35:41] Speaker 02: But if that is his argument, how do you respond to it? [00:35:45] Speaker 03: So in terms of the benchmarks, we've identified the composite benchmark in our investment policy statement. [00:35:52] Speaker 03: The allegation in paragraph 150 that we have said we will compare against some other benchmark is just a mischaracterization of the document. [00:36:01] Speaker 03: So I want to be very clear about what that document actually says that they are characterizing. [00:36:06] Speaker 03: Which is that says the investment manager universes will be composed of professionally managed funds. [00:36:13] Speaker 03: That means the investment managers are going to be professionally managed funds. [00:36:19] Speaker 03: Those are BlackRock, Barrow, Hansberger, the underlying, if you look at [00:36:27] Speaker 03: Appendix A, for example, on SCR 162. [00:36:30] Speaker 03: Those investment managers are professionally managed funds. [00:36:34] Speaker 03: That is not saying that we will compare against the S&P 500 index as our benchmark. [00:36:42] Speaker 03: We have a composite benchmark. [00:36:45] Speaker 03: In terms of, so I just want to be very clear, that is just not a correct characterization of that document, which undercuts this. [00:36:54] Speaker 02: Is there an allegation in this complaint [00:36:57] Speaker 02: that the Roche funds have underperformed the committee benchmarks? [00:37:03] Speaker 03: No. [00:37:04] Speaker 03: And I think we heard counsel say that they have not. [00:37:07] Speaker 03: And if you look at the fund fact sheets kind of across the board, we show here's the performance and then here is the composite benchmark and they're performing over those. [00:37:18] Speaker 02: And now last question about that. [00:37:21] Speaker 02: You're not contending that you can limit the universe of comparable [00:37:26] Speaker 02: peer funds simply by not listing them as benchmarks, are you? [00:37:30] Speaker 03: I'm not suggesting that, but what I am saying is that was how we were measuring ourselves. [00:37:36] Speaker 03: And to get to a plausibly imprudent process from an outcome, that's a highly material fact that plays when you are performing against the benchmark that actually matches the strategy that you're trying to achieve. [00:37:51] Speaker 04: I have some questions. [00:37:55] Speaker 04: In your answering brief and your supplemental brief, you try to follow Intel and Intel, they specifically told participants that in light of the 2008 market crash that they were going to be specifically seeking to avoid, you know, [00:38:11] Speaker 04: large losses and risk and decreased volatility. [00:38:14] Speaker 04: And in your briefs, you kind of allude to that a number of places and you rely heavily in your argument on the risk allocation, glide path chart, whatever. [00:38:23] Speaker 04: Where is that in any of your investment policy statements? [00:38:28] Speaker 04: I don't see any of those actual statements that your plan was intentionally conservative. [00:38:37] Speaker 03: Sure, so two places. [00:38:39] Speaker 03: So the investment policy statement, the purpose SCR 155 to enable participants to build more appropriately diversified retirement portfolios. [00:38:51] Speaker 04: Okay, so this is what it says that each investment option will be adequately diversified to reduce the impact of large losses from single investments. [00:39:00] Speaker 04: except if the participant selects a concentrated strategy within tier three brokerage window. [00:39:06] Speaker 04: You're saying that is the same as Intel's explicit statement that in light of the 2008 market crash, they're specifically going to try to decrease volatility. [00:39:21] Speaker 03: Oh, I just want to make sure I give you a couple more spots. [00:39:23] Speaker 03: So then in the policy statement, we describe what the TDFs are going to do. [00:39:31] Speaker 03: And it is that appendix. [00:39:32] Speaker 04: Why don't you give me a page number because I have both the 2012 and the 2019 investment policy statements here. [00:39:42] Speaker 04: So I'd love it if you could just point me to something specific. [00:39:45] Speaker 04: So I was reading from number five of Section C, which in my mind is not as specific as [00:39:54] Speaker 04: what you have in your briefs, but what else do you think is very specific about this risk allocation, this glide path, other than your glide path chart that you attach to your motion to dismiss? [00:40:03] Speaker 04: What else? [00:40:05] Speaker 03: Yes, so then we describe the TDFs, and we say that Appendix A illustrates the glide path. [00:40:11] Speaker 03: Just give me a number, please. [00:40:12] Speaker 03: What's the SCR number? [00:40:13] Speaker 03: That's, for example, on SCR 159, but you'll see it in all the investment policy statements describing the TDFs. [00:40:21] Speaker 03: they incorporate the glide path. [00:40:23] Speaker 04: No, no, no. [00:40:23] Speaker 04: Just give me a specific. [00:40:24] Speaker 04: I have the document here and I just want to understand what the allegation is. [00:40:29] Speaker 04: So the general statements are not as helpful. [00:40:31] Speaker 04: I'm just trying to find it in the document. [00:40:33] Speaker 04: Give me one you quote a sentence. [00:40:36] Speaker 03: Sure. [00:40:37] Speaker 03: So under, do you see tier one target date forms? [00:40:40] Speaker 04: I do. [00:40:41] Speaker 03: So appendix A illustrates the glide path. [00:40:45] Speaker 04: I don't see that on SCR 159 or SCR 203. [00:40:52] Speaker 04: Just give me a sentence, please. [00:40:55] Speaker 03: Appendix A illustrates the glide path. [00:40:57] Speaker 03: That's in the second paragraph describing the Tier 1 target date funds on SCR 159. [00:41:06] Speaker 03: And it's actually incorporating Appendix A. [00:41:10] Speaker 03: It's the last sentence of the second period. [00:41:13] Speaker 03: Okay. [00:41:13] Speaker 03: I see that. [00:41:14] Speaker 03: Okay. [00:41:15] Speaker 03: So when you look at this investment policy statement actually incorporates, here's how we're going to allocate the assets. [00:41:24] Speaker 03: This reflects the diversification. [00:41:26] Speaker 03: What did we tell people? [00:41:28] Speaker 03: I want to go to the fund facts sheet. [00:41:34] Speaker 03: And this is, um, [00:41:37] Speaker 03: Starting at SCR 14, I'll just use the 2025 fund as an example. [00:41:45] Speaker 03: And I've mentioned this already, but again, it says we are going to provide capital growth and income consistent with the current asset allocation. [00:41:55] Speaker 03: Shows what that is. [00:41:57] Speaker 03: And then says it aims to achieve the subjective by investing in a broadly diversified fund of funds, again, reflecting what broad diversification does, which is reduce some of the volatility. [00:42:11] Speaker 03: And then on SCR 15, there is a description in particular. [00:42:19] Speaker 03: This is at the very bottom of SCR 15, but that the JP Morgan Core DCPF is designed to deliver the strategic diversification and volatility reduction benefits of private core real estate. [00:42:37] Speaker 03: Reading this all together, [00:42:39] Speaker 03: you can see exactly what this is doing, which is diversifying in this particular way and emphasizing that some of this is going to provide volatility reduction. [00:42:51] Speaker 04: Let me ask you another question. [00:42:52] Speaker 04: What should we make of the fact that Russell only had four clients and is down to two and they had to exit the retail target date market? [00:43:02] Speaker 04: Yes. [00:43:03] Speaker 04: And there was no change in management. [00:43:07] Speaker 04: What should we make of that? [00:43:09] Speaker 03: Sure. [00:43:10] Speaker 03: So a few points here without the appropriate underperformance allegations, the allegations. [00:43:16] Speaker 04: Well, let's say we think, or I think that the underperformance relatives, the S and P target date indices and JP Morgan satisfies that first requirement. [00:43:27] Speaker 03: Okay, I would like to, if I could come back to the S&P industry then, but. [00:43:31] Speaker 04: No, answer my question please, because you're over and we need to go to rebuttal. [00:43:35] Speaker 03: So for two points. [00:43:37] Speaker 03: So the life points retail TDF. [00:43:40] Speaker 03: The plaintiff does not allege any similarities between that life points off the shelf retail TDF and our fund. [00:43:48] Speaker 03: The reason they don't is you're not answering my question. [00:43:51] Speaker 04: My question was about Russell. [00:43:53] Speaker 04: They've had to exit the retail target date market. [00:43:57] Speaker 04: They've lost 50% of their clients. [00:44:02] Speaker 04: There's an allegation that there's dubious asset allocation decisions. [00:44:06] Speaker 04: It's not like Intel. [00:44:07] Speaker 04: There are just general arguments that an asset class like the hedge fund or an asset class like private equity fund was at fault. [00:44:19] Speaker 04: What should we make about Russell? [00:44:21] Speaker 04: The continued employment of Russell as the fund manager? [00:44:25] Speaker 03: Sure. [00:44:25] Speaker 03: I do not think that this pushes this inference that we need that there was somehow a flawed process by the fact that we maintain these custom TDFs. [00:44:33] Speaker 03: for a few different reasons. [00:44:35] Speaker 03: The off-the-shelf retail fund, they do not allege any similarities between that and ours or why it did poorly. [00:44:44] Speaker 03: And the reason is because that one looks like off-the-shelf TDFs and not like ours. [00:44:50] Speaker 03: So I don't think that actually moves the needle for the same reason that not alleging similar comparative facts doesn't move the needle. [00:44:58] Speaker 03: And then on the client numbers, they don't allege facts as to why somebody exited [00:45:03] Speaker 03: And the allegation is in fact that some did stay in this relatively emerging market of custom target date funds. [00:45:12] Speaker 03: And they even reference an RFP from San Francisco who they say included this fact. [00:45:20] Speaker 03: And San Francisco did an analysis and retained Russell to engage in these services. [00:45:25] Speaker 03: So when you put this whole factual picture together, I don't think it is pushing some inference that anyone was asleep at the wheel or not prudently monitoring these, but instead pursuing this diversified strategy that is reflected in the glide paths. [00:45:42] Speaker 01: Ms. [00:45:42] Speaker 01: Hogarth, I guess with Judge Koh's permission, I want to circle back to the one distinction that you drew in terms of the more that they should have shown is this diversification mix. [00:45:58] Speaker 01: And I take it that the appendix A glide path comparison that you proffered in your brief kind of summarizes all of this, but I'm trying to get [00:46:07] Speaker 01: So, so your argument in terms of the diversification mix, let's just say, just broken down into percentage of equities. [00:46:15] Speaker 01: I'm looking at this and saying you're saying that. [00:46:18] Speaker 01: The rose TDS, it was not comparable, even though. [00:46:25] Speaker 01: I mean, I'm looking over a 40 year time horizon. [00:46:27] Speaker 01: And in at least half those years, its allocation to equity was within one or two percentage points of all the other funds. [00:46:37] Speaker 01: And then in the 25 to five year glide path, it's maybe six to 8% off in equity. [00:46:44] Speaker 01: So I guess you'd say that that actually completely rules it out for purposes of emotion to dismiss. [00:46:50] Speaker 01: that a comparator fund, it can't be a meaningful benchmark because it has five to 10% more investing equity than Genentech. [00:47:01] Speaker 01: That's the threshold you're asking us to say rules it out as a meaningful benchmark. [00:47:07] Speaker 03: A few responses to that. [00:47:08] Speaker 03: So I think this is why the plaintiff needs to allege the things that are similar. [00:47:12] Speaker 03: And that is just one illustration. [00:47:15] Speaker 03: There are more diversified items that are different. [00:47:18] Speaker 03: And as we noted in our chart, our equities number includes real assets. [00:47:24] Speaker 03: And as I just mentioned, if the real assets, those are actually providing some of the volatility reduction. [00:47:30] Speaker 03: If those were to come out, then you have an even lower percentage. [00:47:34] Speaker 03: So I think the point here is that the plaintiff needs to allege [00:47:38] Speaker 03: why a plan should have selected one or the other to get that imprudence inference. [00:47:45] Speaker 03: And you can't do that if you're not explaining what the similarities are and accounting for the reasons that they are different. [00:47:51] Speaker 03: And that's the analysis that Anderson versus Intel suggests the court should undertake. [00:47:58] Speaker 04: All right, any further questions from my colleagues? [00:48:02] Speaker 04: No? [00:48:02] Speaker 04: All right, thank you. [00:48:03] Speaker 04: Rebuttal, please. [00:48:05] Speaker 04: Obviously take your time to answer any questions from the panel. [00:48:08] Speaker 02: Go ahead, please. [00:48:17] Speaker 00: old habits die hard from the pandemic, but I'll try to be mindful of the panel's time. [00:48:22] Speaker 00: I think, let me just start, Judge Hurwitz, I think I misspoke earlier. [00:48:26] Speaker 00: We did have a request to amend in our briefing regarding the underlying motion to dismiss. [00:48:33] Speaker 00: So there was a request to amend before. [00:48:35] Speaker 02: But on appeal, on appeal, you're not contending that the district court erred by not granting you a motion to amend. [00:48:44] Speaker 00: That's right. [00:48:44] Speaker 00: I just wanted to make sure I was clear about that. [00:48:46] Speaker 02: Since you started with me, let me ask the question that I'm still a little bit confused about. [00:48:53] Speaker 02: It seems to me you're making two arguments. [00:48:56] Speaker 02: One is you're trying to compare the performance of the Roche funds to the various funds listed in your complaint on ER 102, Vanguard, T. Rowe Price, JP Morgan, et cetera, BlackRock. [00:49:14] Speaker 02: And then second, you seem to be making an argument. [00:49:18] Speaker 02: Well, first, let's focus on that one. [00:49:24] Speaker 02: How do I know that those funds share the objectives and risk characteristics of the Roche target date funds? [00:49:35] Speaker 02: Where is there an allegation in the complaint that they do? [00:49:38] Speaker 02: I understand your point is that because they mentioned them someplace else, they became comparator funds. [00:49:45] Speaker 02: Let's assume for a moment that argument is not successful. [00:49:49] Speaker 02: Does the complaint make sufficient allegations about why these are similar enough to the Roche funds to be comparators? [00:49:58] Speaker 00: Sure, Your Honor. [00:50:00] Speaker 00: I think exhibit one to our complaint, which goes through target day fund by target day fund, the two through status, as well as the active passive dynamic is one instance where we talk about the specific risk and strategy. [00:50:14] Speaker 01: Why don't you talk about one of the, I mean, I think your friend has made, it seems like a pretty strong point. [00:50:22] Speaker 01: The basic characterization of what makes a benchmark is its mix of investments. [00:50:29] Speaker 01: And whether or not the benchmarks, the difference between them is comparable or not, you don't allege it. [00:50:42] Speaker 01: Couldn't you have just pleaded that the mix was close enough on the glide path? [00:50:49] Speaker 01: And why didn't you? [00:50:50] Speaker 00: Well, so to your colloquy with my friend about the available information, I actually think that that bears some correction. [00:50:59] Speaker 00: The JP Morgan prospectus, the defendant site was public because it's a publicly traded fund. [00:51:05] Speaker 00: It's on the retail markets. [00:51:06] Speaker 00: Genentex was not. [00:51:09] Speaker 01: This diverse... Wait a second, but the fund fact sheet did contain the glide path mix of the diversification mix, did it not? [00:51:19] Speaker 00: just the glide path. [00:51:20] Speaker 00: It doesn't say what the components of the benchmark are. [00:51:24] Speaker 00: That appeared in the IPS, which is not a public document. [00:51:26] Speaker 01: But there's nothing wrong with the diversification mix in the complaint, correct? [00:51:30] Speaker 01: I mean, you didn't even go that far with the public, with the private, but the plan information you add. [00:51:36] Speaker 01: You didn't, right, couldn't you have drawn that to really square this up? [00:51:40] Speaker 01: That you had the plan information, you had the glide path, you could compare it to the glide paths of these other pieces, but you didn't. [00:51:47] Speaker 01: You just looked at performance, and that leaves out maybe that risk and potential reward piece that Anderson says we should be looking for. [00:51:56] Speaker 00: The only thing that was public, the IPS is not a public document, not even available to participants, that came in on the option. [00:52:05] Speaker 00: The fact sheets were and what those reflect are simply the glide path at a categorical level. [00:52:12] Speaker 00: It does not explain the components in great detail and what the benchmark that the Genentech fiduciaries were using was composed of. [00:52:21] Speaker 00: And I think that's a critical distinction. [00:52:25] Speaker 02: Let me ask you a question before you leave that. [00:52:28] Speaker 02: Your clients, I take it, were participants in the Roche TDF funds, yes? [00:52:35] Speaker 00: They were. [00:52:37] Speaker 02: So didn't they have access to the mix? [00:52:40] Speaker 00: Just the fund fact sheet, not the IPS until litigation. [00:52:45] Speaker 02: You mean so when they invested, they didn't know what the mix of investments was? [00:52:51] Speaker 00: Not beyond the fund fact sheet presentation. [00:52:56] Speaker 00: what the benchmark was composed of. [00:53:00] Speaker 02: But let's assume for a moment that the difficulty with your complaint isn't identifying the objectives and risks in the TDF funds, but rather the comparator funds. [00:53:14] Speaker 02: At least that's what I'm focusing on for a moment. [00:53:17] Speaker 02: I'm still not sure where I see as to these specific funds that use air comparators. [00:53:23] Speaker 02: The information that Judge Johnstone is asking about, I'm looking at the exhibits, but all they do is talk about returns. [00:53:31] Speaker 02: They don't talk about mix of investments. [00:53:34] Speaker 02: They don't talk about objectives. [00:53:35] Speaker 02: Now, maybe Anderson's unfair in requiring that, but do you agree that you really don't provide that information in the complaint? [00:53:45] Speaker 00: I don't think we've gone to the level of granularity. [00:53:49] Speaker 00: that's been suggested in some of the discussion today. [00:53:52] Speaker 00: But I think what's important to keep close about Anderson, Anderson was a case [00:53:58] Speaker 00: where comparators were proffered contrary to what the IPS of that plan said. [00:54:04] Speaker 00: And the miners case and the other cases where the meaningful benchmark standard comes from involved a single investment challenge where the plaintiffs came forward with another investment and explained that based on underperformance compared to that investment. [00:54:19] Speaker 00: there is a plausible inference of a fiduciary breach. [00:54:23] Speaker 00: Here we're really talking about something fundamentally different. [00:54:27] Speaker 02: That's why I'm pushing back on you a little because I don't think the Roche plan identifies these as comparators. [00:54:39] Speaker 02: I may be wrong about that and I'll take a closer look at that. [00:54:42] Speaker 02: It does identify a bunch of composite [00:54:47] Speaker 02: benchmarks, if you will, and you don't seem to allege that the plan underperformed those benchmarks. [00:54:54] Speaker 02: So if these are not alleged in the plan as comparators, and I know you say they are, how can I conclude that they're reasonable comparators? [00:55:06] Speaker 00: Sure. [00:55:07] Speaker 00: I just want to be really clear about where we get that from, because my friend on the other side did not read this page. [00:55:12] Speaker 00: I think Judge Coe did when asking the question. [00:55:14] Speaker 00: But for example, on SCR 160, the IPS specifically says each active investment option is expected to outperform its benchmark and median returns for similar investment alternatives over rolling three and five year periods. [00:55:29] Speaker 00: Then later, [00:55:30] Speaker 00: it repeats that same language, median returns for similar investment alternatives and makes reference to the universe. [00:55:37] Speaker 02: And so what we're really pleading is- So how do I know that these are similar investment alternatives from the allegations in your complaint? [00:55:46] Speaker 00: First, the S&P target data indices, we plead exactly why that's representative of the universe. [00:55:53] Speaker 00: In fact, its stated goal is to amalgamate [00:55:58] Speaker 00: the market investment universe for target date funds of a kind that would be available to the Roche plan for investment. [00:56:04] Speaker 00: We plead that that is a proxy for what the IPS is seeking here. [00:56:09] Speaker 00: With regard to the other market target date funds, it's the two through active passive that we plead. [00:56:16] Speaker 00: And again, we suggest that that whole collection of comparators and with very few exceptions, which I will concede there are a couple of exceptions, [00:56:26] Speaker 00: these were evidently underperforming those. [00:56:28] Speaker 00: And so we've come forward and pled that those are the way to interpret the IPS. [00:56:33] Speaker 00: What's happening here is my friend on the other side is saying, no, actually, the IPS should be interpreted this other way. [00:56:39] Speaker 00: This [00:56:40] Speaker 00: we strongly feel that we've pled something plausible under the IPS. [00:56:45] Speaker 00: And what we're talking about is the defendant suggesting that it should be interpreted some other way, that frankly, I can't reconcile with what it says. [00:56:53] Speaker 00: And so the reason that we think the S&P indices and comparators are relevant are the guidelines that the defendants chose for themselves. [00:57:02] Speaker 00: And the language of Anderson [00:57:05] Speaker 00: repeats the minors case and says that a risk the plaintiff can use the data about selected funds and some circumstantial allegations about methods to show that a prudent fiduciary and like circumstances would have would have acted differently. [00:57:17] Speaker 00: The methods that we're talking about are the IPS application and then the Russell allegations that [00:57:23] Speaker 00: I didn't talk about earlier, but as your honor's reference, really that there was capital flight from Russell's TDF program. [00:57:32] Speaker 00: There was bad press. [00:57:33] Speaker 00: Those are the exact kind of circumstantial allegations. [00:57:36] Speaker 00: If you look at the LinkedIn and prime healthcare cases within the circuit, the courts credit as indicia of imprudence. [00:57:43] Speaker 00: And so, you know, whereas Anderson had a general allegation. [00:57:46] Speaker 04: When do you think that the Roche TDF should have or Genentech should have [00:57:54] Speaker 04: fired Russell at what point? [00:57:57] Speaker 00: I mean, I think during the earliest parts of [00:58:01] Speaker 00: three and five year analysis would have shown under performance, but certainly no later than 2015, 16 and 17 when there was information in Morningstar reports and from other clients of Russell that they were leaving the funds and really what prudent fiduciaries would do. [00:58:17] Speaker 04: But can I ask you 2016 and 2018 is when the Roche TDF beat the JP Morgan off the Shelf Fund. [00:58:25] Speaker 04: So you're saying fire them at the moment that you actually outperform your competitor? [00:58:30] Speaker 00: There was one year of positive annual returns against that comparator there, but still they weren't satisfying the IPS criteria for rolling three and five-year returns at any point during the class period against these comparators. [00:58:46] Speaker 00: And so I think with the Russell allegations, that would cause any prudent fiduciary. [00:58:53] Speaker 00: They were managing over [00:58:54] Speaker 00: billion dollars in these target date funds if a prudent fiduciary had learned that they only had four clients left and yet another left the year after that and that they shuttered their own target date funds that were comparable and we don't know about those funds what if the two clients left are the two largest in the industry would that be a basis to fire them [00:59:17] Speaker 00: I think it has to be a basis to do a thorough investigation. [00:59:20] Speaker 00: And I do just want to say with respect to the Russell Life Points funds, which were Russell's retail target date funds, my friend on the other side suggested that we haven't planned why they're similar. [00:59:32] Speaker 00: Our allegation is quote, based upon the investment components and glide path of the Roche TDFs, it is apparent that the word custom is a misnomer. [00:59:41] Speaker 00: That is because the Roche TDFs function in the same manner as the off the shelf target date funds. [00:59:46] Speaker 00: and do not appear to account for any specialized demographics or preferences of plan participants relative to Russell's other funds. [00:59:52] Speaker 00: I think at the pleading stage, that's not conclusory. [00:59:55] Speaker 00: That specifically alleges that because of the components [01:00:00] Speaker 04: They're extensively a clone of Russell's other funds You you you in your complaint just say that the long-term Poor results was the result of Russell's dubious asset allocations Do you have any specifics and if not, why are they not included in the complaint? [01:00:20] Speaker 00: Is that non public information or So it I think the asset allocation decisions are discussed in the Morningstar report addressed in the complaint [01:00:30] Speaker 00: I think our other allegations are that Russell had a persistent history of underperformance with respect to its retail TDFs and then exited that sector and shuttered those funds. [01:00:42] Speaker 00: Those are the allegations that, from our perspective, would have put a fiduciary on notice that there were persistent problems with Russell's platform and looked into their own funds. [01:00:51] Speaker 00: And had they done that in a manner consistent with their IPS, they would have seen the performance track record that begged investigation. [01:00:58] Speaker 00: And the IPS also on that same page, SCR 160, when talking about investment managers like Russell, indicates that an organizational event would trigger immediate review. [01:01:10] Speaker 00: we're simply walking through in the complaint, the process that the fiduciaries chose for themselves. [01:01:15] Speaker 00: And at this juncture, I think the way to interpret the investment policy statement needs to be consistent with the allegations in the complaint and not some suggestion that another path was chosen, but not made known to anybody. [01:01:29] Speaker 00: And I think similarly, the discussion about the potential reaction to the 2008 financial crisis [01:01:38] Speaker 00: is kind of made of whole cloth in reaction to the Anderson decision. [01:01:41] Speaker 00: The part that was read of the IPS relates to the plan as a whole and nowhere mentions the Roche TDS. [01:01:48] Speaker 00: And so I think it's kind of stark that we're seeing for the first time on appeal a narrative concerning an alternative interpretation or explanation for the Roche TDS that's just inconsistent with the document certainly cited in the complaint and what else came in by way of judicial notice. [01:02:09] Speaker 04: Do my colleagues have any further questions for council? [01:02:13] Speaker 04: Go ahead, please. [01:02:16] Speaker 04: Oh, you said you do or do not. [01:02:19] Speaker 04: Sorry, I misheard you. [01:02:20] Speaker 04: Okay. [01:02:20] Speaker 04: Thank you very much to both council. [01:02:22] Speaker 04: This was a really helpful argument and this case is now submitted. [01:02:28] Speaker 04: Thank you both very much. [01:02:30] Speaker 00: Thank you, your honor. [01:02:31] Speaker 04: Thank you, your honor. [01:02:33] Speaker 00: This court for this session stands adjourned.