Allianz, Pimco targeted in class-action 401(k) suit

Allianz Global Investors, Pacific Investment Management Co., and their parent company Allianz Asset Management are the newest targets in yet another class-action suit alleging breach of fiduciary duty due to excessive 401(k) fees. Plaintiffs in the suit, who are participants in the Allianz Asset Management of America 401(k) Savings and Retirement Plan, claim plan fiduciaries violated their duty of loyalty and prudence under the Employee Retirement Income Security Act of 1974 by populating the 401(k) plan's core investment menu with high-priced proprietary funds. The complaint was filed Oct. 7 in the U.S. District Court of the Central District of California in Los Angeles. Allianz Asset Management of America LP, Allianz Asset Management of America, the committee of the Allianz Asset Management of America 401(k) plan, Allianz Global Investors Fund Management, and Pimco are among the defendants listed in the suit. Lead plaintiffs in the suit are Aleksandr Urakhchin and Nathan Marfice. 77 BASIS POINTS The suit pegs all-in plan costs at 77 basis points, which plaintiffs claim is 75% higher than the average retirement plan with between $500 million and $1 billion in assets and cost participants over $2.5 million in excess fees in 2013. The complaint says fees are “outrageously high” when compared to the average 44 bps for an equal sized plan, as assessed by a joint BrightScope-Investment Company Institute study of 401(k) plans in December 2014. “The vast majority of that [77 bps] is driven by investment management expenses,” said Carl Engstrom, associate attorney at Nichols Kaster PLLP, one of the firms representing plaintiffs in the case. Although the Allianz 401(k) plan has a self-directed brokerage window — which, according to BrightScope, has the most plan assets of any other fund — the rest of the funds are either Pimco or Allianz funds, Mr. Engstrom said. Allianz spokeswoman Megan Frank said the suit is “without merit” and the firm is “confident it will be resolved accordingly.” “Allianz Asset Management, Pimco and Allianz Global Investors offer employees a wide range of investment options to save for retirement and provide plan participants the flexibility to elect to invest in affiliated and non-affiliated investment products,” Ms. Frank said in an e-mailed statement. OTHER SUITS SETTLED The suit against Allianz and Pimco follows recent litigation that has resulted in other asset managers — such as Fidelity Investments and Ameriprise Financial — settling in similar suits alleging excessive 401(k) fees. Fidelity settled a pair of suits for $12 million last year, and Ameriprise agreed to pay out $27.5 million. There are pending suits against Massachusetts Mutual Life Insurance Co., Aegon (the parent company of Transamerica Corp.) and Principal Financial Group. Nichols Kaster filed suit against BB&T Corp. last month on behalf of that company's 401(k) participants. “[The Allianz suit] is a lawsuit with a familiar cause of action,” said Thomas Clark Jr., an ERISA attorney at The Wagner Law Group. The Allianz plan had approximately $772 million in assets as of end-2013, according to BrightScope Inc. NO CHARGE ON RECORDKEEPING The complaint doesn't specifically attack high recordkeeping fees or revenue sharing paid by the funds to the plan's record keeper or trustee, according to Mr. Engstrom. Although the plan primarily uses a revenue-sharing model to pay record-keeping fees, Allianz's federal filing is vague with respect to specific amounts paid to vendors via revenue-sharing arrangements, Mr. Engstrom said. High revenue sharing fees have been a sticking point in several other high-profile excessive 401(k) fee cases in the past several years. “What's very interesting about this plan is it's not quite $1 billion,” Mr. Clark added. Industry-watchers have said that these types of 401(k) suits will begin to move down market to smaller plans, and the Allianz suit is an indicator of that, he said. “In a case like this with lower plan assets, the excessive fees have to be magnitudes higher than for a [larger] plan to justify the risk from a plaintiff firm's perspective,” Mr. Clark said. That's because a few basis points on a multibillion-dollar plan yield damages much higher than the same excessive fees on a smaller plan, he said.