State Street sued over 401(k); Columbia settles for $13 million

State Street sued over 401(k); Columbia settles for $13 million
The State Street plan did not include the lowest-cost share classes of the Target Retirement Securities Lending series, and there were some options from third parties with stronger performance records, according to the complaint.
MAY 28, 2021

State Street this week became the latest investment manager to be sued over the inclusion of its own products in its 401(k) plan.

A group of several plan participants allege in a class-action lawsuit filed Tuesday that the firm breached its fiduciary duty and engaged in prohibited transactions in connection with the funds on the plan menu, including the company’s target-date series.

The plan did not include the lowest-cost share classes of the State Street Target Retirement Securities Lending series, and there were some options from third parties with stronger performance records, according to the complaint.

Returns over one-, five- and 10-year periods lagged the S&P 500 and options available from competitors, in some cases, the plaintiffs noted.

“These funds were not selected and retained as the result of an impartial or prudent process, but were instead selected and retained because defendants benefited financially from their inclusion in the plan to the detriment of the participants,” the complaint read. “By choosing and then retaining these proprietary investment funds, to the exclusion of alternative investments available in the 401(k)-plan marketplace, defendants enriched themselves at the expense of their own employees.”

The $4.5 billion plan included more than 23,000 participants as of the end of 2019. The proposed class includes those who participated in the plan between May 25, 2015 and the present.

State Street declined to comment on the allegations.

The case is in U.S. District Court in the District of Massachusetts. Law firms Scott & Scott and Peiffer Wolf Carr Kane & Conway represent the plaintiffs.

COLUMBIA DETAILS EMERGE

Columbia University will pay $13 million to end a 2016 lawsuit over the school’s defined-contribution plan.

The school reached a settlement in April, but details of the agreement were just recently published. The deal helped avoid a trial that would have commenced days later.

The case centered on allegedly excessive investment-management and administrative fees and was similar to numerous other lawsuits brought against elite colleges and universities over their 403(b) plans. Columbia’s plan, like others, included annuity options from TIAA and Cref that the plaintiffs characterized as restrictive and expensive.

In settling the claims, Columbia denied wrongdoing but agreed to make several changes to its plan, in addition to the $13 million monetary component.

The plan will provide annual training for at least three years for its fiduciaries, continue to negotiate fees on a per-participant basis, rebate excess revenue-sharing fees paid to investments back to participants and seek the lowest-cost share classes of mutual funds and annuities on its menu. It will also seek competitive administrative fees and prevent a plan record keeper from using participant data to cross-sell products and services, according to the agreement.

Plaintiffs in the class-action suit are represented by law firm Schlichter Bogard & Denton, which brought many of the similar cases against colleges and universities. As much as $5 million of the monetary settlement will go toward attorneys’ fees.

Latest News

Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler
Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler

Former advisor Isaiah Williams allegedly used the stolen funds from ex-Dolphins defensive safety Reshad Jones for numerous personal expenses, according to police and court records.

RIA moves: Modern Wealth tops $8.5B AUM as Aspen expands in Connecticut
RIA moves: Modern Wealth tops $8.5B AUM as Aspen expands in Connecticut

Modern Wealth's latest deal for a California-based fee-only RIA marks its fourth acquisition of 2025.

Empower defends private market access in 401(k)s in response to Warren scrutiny
Empower defends private market access in 401(k)s in response to Warren scrutiny

Sen. Warren has warned of private market investment risks due to opacity, illiquidity, and past regulatory issues.

AI is gaining traction with buy-side equity traders and may be an unstoppable force
AI is gaining traction with buy-side equity traders and may be an unstoppable force

Use of the technology is growing and asset managers see transformative benefits.

One fifth of Americans are expecting an inheritance but are too many relying on it?
One fifth of Americans are expecting an inheritance but are too many relying on it?

Research reveals expectation could be replaced by disappointment.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.