It came down to process, not performance - and that reassures plan sponsors
A federal appeals court cleared Quest Diagnostics in a 401(k) lawsuit, ruling that what counts is a careful process, not perfect returns.
On June 22, 2026, the US Court of Appeals for the Third Circuit sided with Quest Diagnostics, rejecting a class-action lawsuit brought by employees who said the company mishandled their retirement plan. For anyone who sits on a benefits committee, the ruling is worth a close read.
The employees, led by Lawanda Lasha House Johnson, were part of Quest's 401(k) plan. They argued that two options on the plan's investment menu were so bad that keeping them broke Quest's duty under the Employee Retirement Income Security Act, or ERISA - the federal law that governs workplace retirement plans. The two were the Fidelity Freedom Funds, a group of actively managed target-date funds, and the Invesco Global Real Estate Fund. When those funds fell short of their benchmarks, the employees said, Quest's managers should have cut them.
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.
The practical lesson for HR and benefits leaders is simple. Hiring an advisor does not, by itself, shield a plan. Protection comes from a genuine, documented routine: read the data, question the advice, meet the fund managers, and use watch lists. As the court put it, "ERISA mandates prudence, not perfection."
