In 2011, a group of current and former employees filed a class action lawsuit in the District Court of Minnesota claiming that Ameriprise Financial, Inc. and members of its 401(k) Plan fiduciary committee had breached their fiduciary duty to the Plan participants and engaged in self-dealing. The specific actions generating the lawsuit were the selection by the company’s fiduciary committee of a number of Ameriprise mutual funds, then known as “RiverSource Funds” as investment options for its participants as part of the 401(k) Plan fund array when several of these funds (a) had no track record or (b) had a track record, but carried either one or two stars (out of a maximum four stars) on the Morningstar performance rating system.
Reports note that in addition to the facts above, the company offered its participants target date mutual funds (often used as a default or a single asset allocation fund) which had internal management fees paid to a subsidiary of Ameriprise that were three times the management fee charged on a comparable Vanguard target fund group.
It was announced last week that the plaintiffs and the company had agreed to dispense with the trial which was scheduled to begin on April 13, 2015 in exchange for certain stipulations regarding the selection of the record keeper and fund managers for the Plan and members of the fiduciary committee. In addition, there is a monetary payment from the company in the amount of $27.5 million and Ameriprise agrees to refund administrative fees from related funds in excess of actual costs. A reported 24,000 current and former participants will share in the settlement.
As we have noted in other articles on ERISA fiduciary responsibility, members of plan committees, trustees and other plan fiduciaries must exercise their duties in the sole interest of the plan participants and beneficiaries to provide benefits or to defray reasonable expense of administering the plan. While there are statutory exemptions for qualified employer securities, other transactions between an ERISA plan and the plan sponsor and its affiliates will be subject to additional scrutiny under the fiduciary standards to determine if the transactions are prohibited and/or amount to self-dealing and a breach of the prudent person rule. Plan fiduciaries can protect themselves by engaging an independent investment advisor to evaluate fund managers, make recommendations and benchmark fees.
The motion for settlement was filed on March 26, in the office of federal district court Judge Susan Richard Nelson and must be approved by Judge Nelson before it becomes final.