401(k) suit against Neuberger Berman's plan committee settled for $17M

The 401(k) committee at investment management firm Neuberger Berman has settled a self-dealing lawsuit for $17 million, court records show.

A participant in the firm’s plan filed the class-action lawsuit in 2016, alleging that the company and the plan committee breached the Employee Retirement Income Security Act by keeping a poorly performing in-house product on the plan menu.

That investment option, the Value Equity Fund, an active collective investment trust, was cut from the plan’s menu late last year, with assets moved into a target-date fund, unless participants transferred assets on their own, according to court records. At the time the lawsuit was filed, the investment option allegedly had cost the plan more than $130 million over the prior six years as a result of its weak performance, while Neuberger Berman received tens of millions of dollars in fees from the product.

“We are pleased to put the matter behind us so that the investment committee can focus on the plan and affording plan participants a robust array of investment options during this difficult time,” a company spokesperson said in a statement.

Although the company itself was initially a defendant in the case, it was later removed, with only the investment committee named, court records show.

Shortly after the lawsuit was filed in 2016, the firm said in a response to InvestmentNews that it was “proud of its 401(k) program and its 15% contribution rate to employees.”

The case is similar to numerous others brought by participants against investment management firms that have included their own products on plan menus.

Last month, J.P. Morgan Chase settled a class-action ERISA case for $9 million. That case represents three separate lawsuits that were recently combined, just ahead of the settlement agreement.

Plaintiffs alleged that the financial services giant breached its fiduciary duty by including unsuitable affiliated products with high fees on the plan’s menu. Since the cases were filed, those investment options have been replaced, according to court records.

Another firm to recently settle 401(k) litigation involving proprietary products was Putnam Investments. In April, the asset manager agreed to put a class-action case behind it for $12.5 million.

Other firms that have faced similar claims in recent years include American Century, BlackRock, Capital Group, Franklin Templeton, New York Life, TIAA and Wells Fargo.