American Century wins 401(k) lawsuit over in-house funds

Following a trial hearing, the judge said it's 'not disloyal as a matter of law to offer only proprietary funds'

Jan 25, 2019 @ 4:32 pm

By Greg Iacurci

American Century Investments won a class-action lawsuit alleging the asset manager profited from its company 401(k) plan at the expense of employees by loading the retirement plan with in-house funds.

Judge Greg Kays of the U.S. District Court for the Western District of Missouri found in favor of American Century on all counts, saying plaintiffs failed to prove that American Century had breached its fiduciary duty to plan participants. The ruling, issued Jan. 23, followed an 11-day court trial in September.

American Century spokesman Chris Doyle called the ruling a "complete vindication" of the company and employees overseeing the company retirement plan.

"This is good for the industry, and ultimately plan participants, because it will help liberate investment committees to make investment selections based on participants' best interests instead of litigation concerns," Mr. Doyle said.

Paul Lukas, a partner at law firm Nichols Kaster, which represented plaintiffs, said the firm disagrees with the findings and will likely appeal.

The American Century case — Steve Wildman et al v. American Century Services LLC et al, filed in 2016 — is one of several brought in recent years claiming that an asset manager engaged in self-dealing by using proprietary investments in its 401(k) plan. Most defendants, like American Century, are active fund managers.

Judge Kays said the trial evidence didn't show American Century's decisions were motivated by the desire to place its interests over participants'.

"It is not disloyal as a matter of law to offer only proprietary funds," the judge wrote in his decision. "In fact, it is common for financial service companies to offer their own investment funds in their retirement plans. And there is no duty to offer more than one investment company's funds."

Most asset managers settled their respective lawsuits — Waddell & Reed Financial Inc. and Jackson National respectively paid $4.9 million and $4.5 million in November, and Citigroup Inc. and Deutsche Bank respectively paid $6.9 million and $21.9 million in August.

Only a few have gone to trial. Putnam Investments defeated its lawsuit — Brotherston et al v. Putnam Investments LLC et al — last year after a bench trial. That decision was overturned on appeal, however, and Putnam has petitioned the Supreme Court for a hearing.

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