American Century employees sue for excessive 401(k) fees

Plaintiffs allege self-dealing by the asset management firm, for populating the retirement plan with proprietary investments for its own gain

Jul 5, 2016 @ 1:21 pm

By Greg Iacurci

Employees of American Century Companies, Inc., parent of asset management firm American Century Investments, have sued over the firm's 401(k) plan, the latest in a string of lawsuits targeting financial services companies for their own retirement plans.

The class-action lawsuit, Wildman et al v. American Century Services, LLC et al, alleges breach of fiduciary duty under the Employee Retirement Income security Act of 1974 for excessive investment management and record-keeping fees, imprudent fund selection and for self-dealing by American Century, which plaintiffs contend filled the retirement plan with proprietary investment options for its own benefit. Steve Wildman and Jon Borcherding, former American Century employees, are the named plaintiffs representing the class of plan participants.

Since 2010, fiduciaries of the $600 million American Century Retirement Plan populated the plan's investment menu solely with American Century funds, using a selection process “tainted by self-interest” rather than a prudent one that would have led fiduciaries to use less-expensive funds with similar or better performance, the complaint said.

“Defendants have used the Plan as an opportunity to promote American Century's mutual fund business and maximize profits at the expense of the Plan and its participants,” the plaintiffs said in the complaint, claiming the firm earned millions of dollars in fees by retaining proprietary investments.

Plan fiduciaries also allowed “grossly excessive” revenue-sharing payments to be made to JPMorgan Retirement Plan Services and Schwab Retirement Plan Services Inc., the plan's two record keepers over the relevant time period, according to the complaint, filed Jun. 30 in the U.S. District Court for the Western District of Missouri, Western Division.

Chris Doyle, a spokesman for American Century Investments, said the suit “is without merit and we intend to mount a vigorous defense.”

American Century is the most recent example in a growing list of financial services companies whose employees are suing for fiduciary breach in their own 401(k) plan.

Allianz Global Investors, Pacific Investment Management Co. and their parent company Allianz Asset Management were sued by employees in October last year, as was Putnam Investments in November.

Plaintiffs have also won numerous multimillion-dollar settlements in such cases, amid a backdrop of excessive-fee suits gathering steam. In June, for example, Massachusetts Mutual Life Insurance Co. agreed to settle allegations concerning its 401(k) plan for $31 million. Transamerica Corp. followed with a $3.8 million settlement later that month.

Ameriprise Financial and Fidelity Investments paid out $27.5 million and $12 million settlements, respectively, over the last two years.

The increase in 401(k)-fee lawsuits against financial services companies can be attributed in part to the general success such cases have had, said Carl Engstrom, an associate attorney at law firm Nichols Kaster who's involved in the 401(k) litigation practice, citing a few of these recent settlements.

Nichols Kaster represents plaintiffs in the American Century suit, as well as in the Allianz and Putnam cases. The American Century suit is “very similar” to the latter two, because it “involves a mutual fund company's defined-contribution plan in which they've populated the plan exclusively with their own investments,” Mr. Engstrom said.

Further, the Supreme Court's ruling in the Tibble v. Edison lawsuit last year weakened a “statute of limitations” argument that could be used by defense, which contended that fiduciaries couldn't be sued over allegations concerning funds in a 401(k) plan for longer than six years, according to Mr. Engstrom.

0
Comments

What do you think?

View comments

Upcoming event

Sep 24

Conference

Diversity & Inclusion Awards

Attend an event celebrating diversity and inclusion as well as recognizing those who are leading the financial services profession in this important endeavor. Join InvestmentNews, as we strive to raise awareness, educate and inspire an... Learn more

Most watched

INTV

Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

INTV

Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.

Latest news & opinion

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

4 strategies for Roth conversions

There's never been a better time to do a Roth conversion, and here are several ways to go about it.

Cetera latest to be hit with data breach of personal information

Company is offering clients complimentary, two-year membership to an identity theft protection and credit monitoring service.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print