American Airlines reaches $22 million settlement in 401(k) self-dealing lawsuit

The settlement, if approved, would be among the largest in cases alleging enrichment due to use of proprietary investments

Jul 11, 2017 @ 1:50 pm

By Greg Iacurci

American Airlines Inc. has agreed to settle a 401(k) self-dealing lawsuit for $22 million, one of the largest monetary settlements reached in similar class-action litigation.

Plaintiffs brought the suit, Main et al v. American Airlines Inc. et al, in April 2016. They alleged defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 by selecting and retaining high-cost mutual funds offered by American Beacon, an investment manager affiliated with American Airlines.

Plaintiffs claimed American Airlines profited at plan participants' expense.

Matt Miller, a spokesman for American Airlines, said the funds at issue in the lawsuit were removed in late 2015 when the company consolidated plans following a merger with US Airways.

"At the time of the merger, American and US Airways had separate 401(k) plans with 55 different investment options. Today, American has a robust 401(k) plan with a streamlined menu of attractive investment options," Mr. Miller said.

If it receives court approval, the $22 million settlement would be among the largest monetary payouts in cases involving self-dealing allegations for use of in-house investment funds.

In 2015, Ameriprise Financial Inc. agreed to pay $27.5 million to settle a four-year-old lawsuit claiming investments in the company's 401(k) included funds from subsidiary RiverSource Investments, now known as Columbia Management Investment Advisers.

Massachusetts Mutual Life Insurance Co. last year agreed to pay nearly $31 million in a lawsuit alleging, among other things, that the firm almost exclusively used proprietary funds.

Earlier this year, TIAA settled a self-dealing lawsuit involving in-house funds for $5 million, and New York Life paid $3 million to put to rest a similar legal battle.

As the prevalence of excessive-fee cases rises, asset managers have found themselves in the crosshairs. MFS Investment Management, Capital Group, Waddell & Reed, T. Rowe Price, JPMorgan and Franklin Templeton have been sued within the past year.

The American Airlines settlement, reached July 7, equals more than 62% of American Beacon's estimated revenues associated with the funds during the class period, according to a document filed in the U.S. District Court for the Northern District of Texas.

The issues involved in the case regarding plan management have been resolved, following elimination of "alleged defects" when the plan was overhauled in October 2015, the document said. That included removal of the American Beacon funds and addition of separate accounts and collective investment trust funds.

Plaintiffs are being represented by the firms Nichols Kaster and Kendall Law Group. Attorneys are entitled to up to 30% of the gross settlement.

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