ERISA

Voya Sued in 401(K) Lawsuit, is Accused of Partaking of Investment Advice Fee Charge

Published on: September 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Voya Financial Inc. (VOYA) is the defendant in a 401(k) lawsuit alleging excessive fees. According to a Nestle 401(k) Savings Plan participant, Voya and managed-account provider Financial Engines came up with an arrangement that allowed Voya to collect excessive fees for service related to investment advice, but without disclosing that this was part of their deal. In Patrico v. Voya Financial, Inc. et al., the plaintiff is claiming breach of fiduciary duty under ERISA.

The proposed class action lawsuit contends that Voya offered participants an advice program via the Voya Retirement Advisers but subcontracted to have Financial Engines give the advice. The plaintiff contends that even though Voya didn’t provide “material services” related to the advice that participants were given through the program, the company collected a fee to which it purportedly had no right. Voya allegedly keeps a “substantial” part of the fee, while giving some of the fee to Financial Engines.

Voya denies any wrongdoing.

401K Lawsuits: MassMutual Settles with Employees for $31M and TransAmerica Settles for $3.8M

Published on: June 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Mutual Life Insurance Co. has arrived at a nearly $31M settlement with plaintiffs of a class action securities case. They are accusing the retirement service provider of charging excessive fees in its retirement plans. The 401k lawsuit involved MassMutual’s $200M Agent Pension Plan and its $2.2B Thrift Plan. The settlement includes a $30.9M payment and non-monetary provisions that would benefit participants of the plan.

The case is Dennis Gordan et al v. Massachusetts Mutual Life Insurance Co. et al, and plaintiffs include ex-plan participants and current ones. They are accusing defendants of breaching their fiduciary duty under ERISA through the charging of excessive administrative fees and offering a costly and unnecessarily risky fixed-income choice, as well as investments that were expensive despite not performing well.

The non-monetary provisions of the settlement include the hiring an independent consultant to make sure that plan participants are not asked to pay excessive fees for record-keeping services or record-keeping fees based on asset percentages, a review of all investment options, and the consideration of a minimum of at least three finalists when making an investment selection.

The settlement has been submitted to a district court for preliminary approval. MassMutual has not admitted to liability or fault despite settling.

401(K) Plan Lawsuit Accuses Anthem of Charging Excessive Fund Feeds

Published on: January 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Participants in Anthem Inc.’s 401(K) plan are accusing the plan’s fiduciaries of breaching their fiduciary duties under the Employee Retirement Income Security Act of 1974. They claim that the fiduciaries churned excessive administrative and investment management fees in Vanguard mutual funds. Vanguard Group is the fund’s record-keeper.

According to plaintiffs, the plan fiduciaries chose mutual fund share classes that were “high-priced” instead of equivalent ones that didn’t cost as much and were also available to the plan. As of 12/14, Anthem’s 401(k) plan offered 11 Vanguard mutual funds, including Institutional and Admiral share classes: Vanguard target-date collective investment trust funds, a fund offered by Touchstone Investments, funds by Artisan Partners, and an Anthem common stock fund. The lawsuit claims that each fund in the plan charged fees excessive to what Anthem could have gotten elsewhere with funds that were comparable.

The Anthem 401(k) fund participants also contend that Vanguard was paid excessive fees for record-keeping related services from ’10-’13, which was when the plan paid about $80-$94/participant for record keeping through revenue-sharing and hard-dollar fees. It wasn’t until 9/13 that the cost was reduced to a flat yearly fee of $42/participant.

The plaintiffs argued that a reasonable fee’s “outside limit” for this particular plan should have been no higher than $30. The class-action securities case also claims that instead of including a stable value fund in the plan, there was a money market fund that generated returns that were “microscopic.”

JPMorgan Received Asset Management Conflicts Warning from OCC in 2012

Published on: July 9, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to a source with direct knowledge about the Office of Comptroller of the Currency’s findings, the agency had already warned JPMorgan Chase (JPM) last year that the investment bank had erred when it directed clients toward its in-house investment products.

OCC examiners found that in late 2011 JPMorgan had not complied with restrictions placed on in-house financial products sales, as well as fulfill its duties to retirement plan investors under ERISA (the Employee Retirement Income Security Act). Following these discoveries, the agencies ordered JPMorgan to pay back fees to customers.

While the issues highlighted by the OCC more than likely won’t pose much of a problem to JPMorgan—typically the US Department Of Labor resolves such violations by ordering restitution and in a confidential manner—the alleged infractions do point to what could become a problem of regulatory tension between federal regulators and JPMorgan, as the former group seeks to put to rest criticism that its poor oversight played a role in allowing the financial crisis of 2008 to happen. Now, since Thomas Curry took over as Comptroller of the Currency, OCC appears to have made it a priority to monitor the growing risks that can arise via routine bank functions, as well as from activities that could lead to “operational risks.”

JPMorgan Chase’s assets under management that are found in its proprietary mutual funds reached $223 billion at the start of 2013, which a significant rise from $96 billion in 2009. All assets under the bank’s purview, including retirement plans, alternate assets, and funds, have been growing for 16 quarters in a row.

Also during 2013’s first quarter, a $31 billion gain allowed JPMorgan’s client assets to hit $2.1 trillion. Unlike other asset managers, the bank conducts securities underwriting, commercial banking, and money management on such a big scale and in such an interlinked fashion that, per guidelines in the OCC’s exam handbook, such actions merit more regulatory examination.

Regulators & ERISA Assets
Because ERISA assets are some of the most legally protected, there is a greater chance that regulators will pay attention to them. That said, Section 406(b) of ERISA obligates retirement fund fiduciaries to always place clients’ interest first.

As OCC doesn’t directly supervise ERISA, its perspective is via supervising banks’ winder duties to make sure operations are performed in a way that decreases operational risks, as well as reputational and legal harm. Although monitoring ERISA compliance has long been part of OCC’s examination wheelhouse, some observers are finding that the agency’s current concentration on both the Act and how banks sell proprietary investment instruments is an add-on previous monitoring practices.

The Securities and Exchange Commission is also looking at JPMorgan and its proprietary products sales. While it is not known at this time whether the agency’s inquiries will result in formal action, a number of ex-JPMorgan Chase financial advisers already have sued or filed arbitration claims accusing the bank of pressuring them to place client assets in in-house products. The financial firm denies the securities’ cases allegations.

Meantime, according to Reuters last year, the Labor Department too has been examining JPMorgan. The DOL is looking at the firm’s purchases for 401(k) plan stable value funds under its management of $1.7 million in mortgage debt that it underwrote before the real estate crisis. Already, investors have filed securities cases alleging wrongdoing that, once again, the bank denies.

Office of Comptroller of the Currency

More Blog Posts:
California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013