Much rides on suit for Ameriprise, ERISA funds

Jan 13, 2013 @ 12:01 am

By Darla Mercado

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The end is nowhere in sight in the legal battle between Ameriprise Financial Inc. and a slate of its own 401(k) participants.

But its impact on the company's reputation, and the lessons for retirement plan service providers and employers, are topics that are already being weighed by industry and legal experts.

Lawyers for the financial services giant and a group of Ameri-prise workers met in U.S. District Court for the District of Minnesota in St. Paul last Monday for a pretrial conference to discuss next steps in a case the employees filed in September 2011.

In the suit, the Ameriprise 401(k) participants allege that the company breached its fiduciary duty under the Employee Retirement Income Security Act of 1974 by offering proprietary-fund options that allegedly were imprudent and unreasonably expensive, and that paid fees to the firm and its subsidiaries.


In response, Ameriprise contends that the claims are without merit because the investment options were chosen and maintained in the workers' best interests and that the fees associated with the funds were reasonable. Further, the company claims that it didn't commit any prohibited transactions, arguing that the actions it took were exempt from the relevant ERISA regulations.

Although manufacturers and other providers aren't precluded from serving their employees their own home cooking, the Ameri-prise case illustrates why firms may want to leave the choice of including in-house funds or services to the retirement plan's committee or to an independent consultant, said Andrew L. Oringer, a partner at Dechert LLP.

“There is a significant internal education that this process needs to go through fairly and objectively,” he said.

One reason that education is key is that workers at financial services firms may wonder why their employer has outsourced its 401(k) plan services.


For instance, at TD Ameritrade Inc., the company's own 401(k) is run by Great-West Retirement Services, and assets are held by a Great-West affiliate.

“We do get questions from workers who say, "Wouldn't it make sense for us to hold those assets?'” said Skip Schweiss, president of TD Ameritrade Trust Co. “This keeps us away from potential conflict where we could be earning revenue on employee assets,” he said.

The plaintiffs in the action no longer work for the firm, said Ameriprise spokesman Paul Johnson.

“We feel confident in our ability to defend the case on the merits,” he said.

Should the case go to trial, it could dent Ameriprise's relationship with its retail customers.

“Trials are tough to handle in the public eye,” said Geoff Bobroff, president of Bobroff Consulting Inc. “Any firm that seeks the confidence of their customers puts themselves in a difficult position.”

For all plan sponsors, the suit makes the case for stronger documentation of the fund selection process when employers create their retirement plan menu. In addition, 401(k) service providers may rethink their approach to their own such plans.

“If you want to be more conservative on the point, you can just offer your funds as a part of a larger menu or just not offer them at all,” Mr. Oringer said.

At the heart of the Ameriprise case is the allegation of self-dealing — that some $500 million per year in plan assets went toward RiverSource Life Insurance Co. and Ameriprise Trust Co. from October 2005 to September 2011, generating “millions of dollars in fees” for the firm's affiliates, according to the complaint.

“The message of this case and of the law for plan sponsors is that you can't let yourself be tempted by the pool of dollars that is your employees' hard-earned assets; you can't use it to build up your own business,” said Jerry Schlichter, an attorney for the Ameriprise workers and a senior partner at Schlichter Bogard & Denton LLP.


He represented 401(k) participants who received $16.5 million in a settlement with Caterpillar Inc. in 2010, and workers and retirees who received $15.5 million in a settlement that same year with General Dynamics Corp. and Fiduciary Asset Management LLC.

Ameriprise cites a prohibited-transaction exemption from the Labor Department that grants relief to mutual fund companies that offer their products to their own workers via a retirement plan, but ERISA experts said that increased scrutiny is placed on how they determine that their own offerings are the best for the plan.

“The take-away is the procedural due diligence,” said Marcia S. Wagner, managing director at The Wagner Law Group. “Particularly when it's a manufacturer, you need to document your procedural and substantive due diligence, because the adage is that if you didn't document it, it didn't happen.”

That due diligence requires periodic fee benchmarking against other vendors and careful documentation of that data, according to Fred Barstein, founder of The Retirement Advisor University Inc.

Employers also should focus on the level of service they are getting from each provider and how that compares with other competitors. Twitter: @darla_mercado


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