General Electric 401(k) participants sue over poor-performing GE Asset Management funds

Plaintiffs allege GE breached fiduciary duties by selecting proprietary funds

Sep 28, 2017 @ 11:52 am

By Rob Kozlowski

Three participants in General Electric Co.'s 401(k) plan filed a lawsuit against the company, alleging it violated the Employee Retirement Income Security Act of 1974 by breaching its fiduciary duties.

The lawsuit, filed in U.S. District Court in San Diego Tuesday, alleges that the Boston-based company engaged in "prohibited transactions and unlawful self-dealing detrimental to the three named plaintiffs individually and as representatives of a class," according to a news release from Sanford Heisler Sharp, attorney for plaintiffs Kristi Haskins, Donald J. Janak and Laura Scully.

The lawsuit alleges that five funds managed by GE Asset Management, during the class period of Jan. 1, 2011, through June 30, 2016, caused harm to plan participants due to underperformance, the court filing said. The funds were the GE Institutional International Equity Fund, GE Institutional Strategic Investment Fund, GE RSP U.S. Equity Fund, GE RSP U.S. Income Fund and GE Institutional Small Cap Equity Fund.

One day after the end of the class period, on July 1, 2016, State Street Global Advisors completed its acquisition of GE Asset Management.

The lawsuit alleges that GE prioritized the money management unit's profits through fee collection from its "poor-performing" proprietary mutual funds over the well-being of its participants, the court filing said, citing statistics that plaintiffs say represented significant underperformance to the funds' benchmarks between 2008 and 2016. The court filing also noted that between 70% and 90% of the assets in the five funds were held by the 401(k) plan.

"GE and the plan's trustees were obligated by law to act for the exclusive benefit of plan participants and beneficiaries," Charles Field, a partner at Sanford Heisler Sharp, said in the news release. "ERISA required them to select prudent investments, monitor the investments' performance, and modify the plan's investment options to maximize the benefits to the participants and beneficiaries. Instead, they selected poor- to mediocre-performing investments, and managed and administered them in ways that harmed the participants and beneficiaries."

As of Dec. 31, the GE Retirement Savings Plan had $29.6 billion in assets, according to the company's most recent 11-K filing with the Securities and Exchange Commission. As of that same date, within in the plan, the GE RSP U.S. Equity Fund had $3.5 billion in assets; the GE RSP U.S. Income Fund, $1.9 billion; the State Street Institutional Small-Cap Equity Fund (formerly GE Institutional Small Cap Equity Fund), $1.3 billion; the State Street Institutional International Equity Fund (formerly the GE Institutional International Equity Fund), $1 billion; and State Street Institutional Strategic Investment Fund (formerly the GE Institutional Strategic Investment Fund), $585 million.

"We have no comment on ongoing litigation but we intend to fully defend the case," a GE spokeswoman said. Brendan Paul, a SSGA spokesman, declined to comment.

(More: 401(k) lawsuit attacks excessive advisory fees paid to UBS)

Rob Kozlowski is a reporter at InvestmentNews' sister publication Pensions & Investments.

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