Putnam Investments is settling a longstanding 401(k) lawsuit for $12.5 million, recent court filings show.
The investment manager was sued in late 2015 by participants in its own 401(k) plan. The plaintiffs alleged the company breached its fiduciary duty by packing the plan menu with Putnam-affiliated investments, rather than competitive third-party funds. Similar claims have been lobbed at numerous investment companies, including American Century, BlackRock, Capital Group, Franklin Templeton, J.P. Morgan, New York Life, TIAA and Wells Fargo.
Putnam initially won at the district court level, with that decision coming in 2017. The plaintiffs then appealed, and the U.S. Court of Appeals for the 1st Circuit affirmed some of the dismissals granted by the lower court. However, it vacated some dismissals, and those claims were remanded to the district level, where the case has remained up to the settlement.
Under the agreement, Putnam will pay various amounts to roughly 6,000 eligible participants who were in the plan since November 2009, as well as beneficiaries. The total settlement amount will have attorneys’ fees deducted from it at a level to be decided by the court.
The settlement also mandates that Putnam open up its plan to passively managed third-party collective investment trusts. The company also agreed that its plan committee will review investment options at least twice a year.
The plaintiffs in the lawsuit are represented by law firms Nichols Kaster and Block & Leviton.
University settlement
In a separate case, Emory University has agreed to an unspecified settlement to a lawsuit over its defined-contribution plans, according to court filings made April 16. That case is one of many filed over the past several years against prestigious colleges and universities by law firm Schlichter, Bogard & Denton. Other schools that have faced Schlichter lawsuits include Columbia, Cornell, Duke, Johns Hopkins, MIT, Northwestern and Vanderbilt. The case against Columbia is headed to trial, the law firm announced this month.
In the Emory case, the plaintiffs alleged that the plans were flawed for using three different record keepers – Vanguard, Fidelity and TIAA – rather than just one. Having a single record keeper would have been less confusing for participants and could have saved costs, due to greater bargaining power, the complaint noted. The plans' investment options, including funds from those three record keepers, allegedly had excessive fees, as participants were invested in some cases in retail share classes, rather than institutional ones. The plans' fiduciaries also failed to consider lower cost investment options, according to the plaintiffs.
Further, the 111 different investment options available to participants was unreasonable and made investment decisions confusing, the plaintiffs alleged.
The lawsuit is also one of others that specifically called out the TIAA Traditional Annuity, which had “severe restrictions and penalties for withdrawal if participants wish to change their investments,” according to the complaint.
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