Russell Investment Management to Blame for Millions in Royal Caribbean Retirement Plan Losses, Lawsuit Alleges

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A proposed class action lawsuit alleges Russell Investment Management failed to prudently invest the assets of the Royal Caribbean Cruises Ltd. retirement savings plan and caused participants and beneficiaries to lose millions of dollars as a result.

The 19-page lawsuit says that when Russell, a Seattle-based investment advisory firm, became the plan’s fiduciary outsourcing partner in late 2015, it immediately replaced a group of industry-leading target date funds managed by Vanguard with its own underperforming proprietary target date funds. According to the suit, this “self-serving swap” proved to be “disastrous” and caused the plan to lose millions over the next four years. The case says Russell was removed as the plan’s investment manager in the middle of 2019.

The lawsuit claims that Russell’s replacement of the plan’s assets with an “all-Russell menu” was neither prudent nor in the best interests of plan participants and beneficiaries. Per the case, Russell’s “conflicted judgment” was a breach of its fiduciary duties under the federal Employee Retirement Income Security Act (ERISA).

The suit relays that the Royal Caribbean Cruises retirement plan, which holds the retirement savings of over 7,000 non-union employees of the cruise line, contained 20 different investments managed by various asset managers at the time Russell assumed control of the plan’s investment menu in 2015. 

Per the complaint, Russell at this time immediately transferred over 99 percent of the plan’s assets into its own “struggling proprietary funds” in an attempt to maintain the funds’ assets after investors had begun to switch to other options. Indeed, the lawsuit says that Russell’s largest investor, who had more than $500 million in the funds, had switched to Vanguard’s target date funds in 2014, and other large investors also left in subsequent years, per the complaint.

The lawsuit says that Russell’s decision to invest the Royal Caribbean plan’s assets in its own target date funds gave the funds a “significant boost during a critical time of large investor outflows.”

According to the suit, while Russell “reaped the rewards” of this switch, Royal Caribbean plan participants suffered major losses. The lawsuit argues that Russell’s replacement of industry-leading Vanguard target date funds with a lineup consisting exclusively of its own proprietary target date funds was “especially inappropriate” given the firm’s supposedly poor reputation and results.

The case says that although the Vanguard funds in which the plan’s assets were previously invested took on less risk than the Russell funds, they have outperformed the Russell funds since the funds’ inception “for every vintage offered, by at least 79 basis points.”

“There was no reason for a prudent and loyal fiduciary to remove the Vanguard target date funds at all, let alone replace them with the Russell target date funds,” the complaint argues.

According to the suit, the Russell funds often underperformed the Vanguard funds and the American funds in which the plan invested after removing Russell as its investment manager by at least two to three percent per year, and the S&P target date indexes by roughly one percent every year, while taking on comparable or higher risk levels.

The lawsuit claims that although the Royal Caribbean plan removed Russell as its investment fiduciary less than four years after the company took on the role, the damage had already been done to participants’ retirement savings.

The case looks to represent all participants and beneficiaries of the Royal Caribbean Cruises, Ltd. retirement savings plan at any time from October 1, 2015 to the date Russell was removed as the plan’s investment manager.

Initially filed in Washington’s Western District Court in June 2021, the lawsuit was transferred to Florida’s Southern District Court on June 7, 2022.

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