Capital Group, sponsor of American Funds, wins 401(k) lawsuit

Decision comes as financial services companies, especially those focused on active management, have been sued for self-dealing

Jan 26, 2018 @ 2:17 pm

By Greg Iacurci

Capital Group, which sponsors the American Funds brand of investment products, has won a lawsuit alleging the company profited at the expense of its employees by loading its 401(k) plan with costly in-house funds.

The decision was sure to be welcome news to other financial services companies, which have had to defend against an onslaught of similar excessive-fee lawsuits within the past few years but haven't seen much success.

Plaintiffs in the Capital Group case alleged that more than 90% of the plan's investment options were "unduly expensive" proprietary investments, and that the company could have used a less costly share class of funds, according to the ruling.

California district court judge Dale S. Fischer disagreed, saying the allegations "are not sufficiently plausible to survive a motion to dismiss."

"Unquestionably, fiduciaries need not choose the cheapest fees available to the exclusion of other considerations," the judge wrote in the ruling Tuesday.

Tom Joyce, a Capital Group spokesman, said the company is "pleased with the judge's order, and agrees with the ruling."

Attorneys at the law firm Keller Rohrback, which represented plaintiffs, didn't respond to a request for comment by press time.

The judge said plaintiffs may file an amended complaint for consideration by Feb. 20.

(More: Jerry Schlichter's fee lawsuits have left an indelible mark on the 401(k) industry)

The Capital Group case — D'Ann M. Patterson v. The Capital Group Companies Inc. et al — was filed in June 2017 and comes as litigation over excessive retirement plan fees has expanded even beyond financial services companies and large private-sector employers to universities, unions, small employers and advisers.

Prominent fund companies such as BlackRock Inc., Franklin Templeton Investments and American Century Investments have been among the targets. In all, there have been roughly 20 financial services firms sued, said Duane Thompson, senior policy analyst at fi360 Inc., a fiduciary consulting firm.

While some — including ones against Wells Fargo & Co. and Putnam Investments — have been dismissed, judges have allowed most cases to move forward, Mr. Thompson said.

"A lot of judges have declined motions to dismiss, including at least five other proposed class actions," he said. "I think this one is notable in that it's only one of a few that's been dismissed."

Others sued for self-dealing, including TIAA and New York Life, have settled their cases, for $5 million and $3 million, respectively.

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