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Steel Dynamics Inc. has successfully dodged a 401(k) lawsuit after an Indiana federal judge dismissed claims that the steel producer mismanaged its $2 billion retirement plan by selecting underperforming funds. The ruling, issued by U.S. District Judge Cristal C. Brisco on Thursday, found that the plaintiffs did not provide sufficient evidence to prove the funds performed significantly worse than others available on the market.

Lack of Proof on Underperformance Leads to Dismissal

The lawsuit, brought under the Employee Retirement Income Security Act (ERISA), alleged that Steel Dynamics' investment committee breached its fiduciary duties by choosing poorly performing funds for the company's retirement plan. The plaintiffs argued that the funds they challenged underperformed compared to others over periods of six to ten years. However, Judge Brisco ruled that these allegations lacked the necessary proof of "persistent" and "material" underperformance, which is required to sustain a fiduciary breach claim.

"Without a showing of material underperformance, all plaintiffs show is that certain investments, in hindsight, performed better than the challenged funds, which does not speak to fiduciary process," the judge stated in her order.

Steel Dynamics' Defense and Judicial Findings

Steel Dynamics defended its investment choices by pointing to data that showed the challenged funds sometimes had rates of return within 5% of those the plaintiffs claimed were better options. The judge agreed with this defense, ruling that the plaintiffs had not demonstrated that the inclusion of these funds in the retirement plan was unsound.

"Without more, plaintiffs have not adequately pleaded persistent and material underperformance necessary for a breach of fiduciary duty claim," Judge Brisco wrote.

Because the failure-to-monitor claim was derivative of the breach of fiduciary duty claim, the judge also dismissed those allegations.

Steel Co Escapes 401(k) Lawsuit Dodge : Opportunity to Amend Complaint

Despite the dismissal, the judge allowed the plaintiffs an opportunity to file an amended complaint by September 20. This leaves the door open for the workers to potentially refine their claims and bring the case back to court.

Steel Co Escapes 401(k) Lawsuit Dodge : Other Legal Arguments Addressed

Steel Dynamics also argued that the workers lacked standing to lead the lawsuit, but Judge Brisco rejected this claim. The judge noted that at least one plaintiff had invested in the challenged funds, thus giving them standing to sue.

Additionally, the company attempted to have the suit dismissed on the grounds that the plaintiffs had not exhausted their administrative remedies before filing the lawsuit. However, the judge sided with the plaintiffs, stating that the retirement plan's administrative process did not specifically cover fiduciary breach claims, so this argument was insufficient to dismiss the case.

Legal Representation

The plaintiffs in the case were represented by Mark K. Gyandoh and Donald R. Reavey of Capozzi Adler PC. Steel Dynamics was represented by Alison V. Douglass and James Fleckner PHV of Goodwin Procter LLP, and William A. Ramsey of Barrett McNagny LLP.

As the case stands, Steel Dynamics has successfully avoided the 401(k) lawsuit for now, but the potential for an amended complaint looms, which could bring the case back to the courtroom.