Allianz Accused of Self-Dealing in ERISA Class Action

Two participants in an Allianz Asset Management 401(k) plan have filed a class action accusing various affiliates of the financial company of breaching their fiduciary duties and engaging in self-dealing to the detriment of plan participants (Urakhchin v. Allianz Asset Management of America, L.P. 401(k) Savings and Retirement Plan, C.D. Cal., No. 8:15-cv-01614, complaint filed 10/7/15).

The complaint, which was filed Oct. 7 in the U.S. District Court for the Central District of California, alleges that the Allianz Asset Management of America, LP 401(k) Savings and Retirement Plan is made up of high-cost, proprietary mutual funds that cost participants millions of dollars in excess fees each year.

The participants assert that Allianz didn't investigate whether the plan and its participants would receive a greater benefit from investments managed by unaffiliated companies.

Alleged Self-Dealing and Breach of Fiduciary Duties 

In the suit, plan participants Aleksandr Urakhchin and Nathan Marfice allege that the plan's fiduciaries breached their duties of loyalty and prudence by managing plan assets for their own benefit—not for the benefit of the plan and its participants as required under the Employee Retirement Income Security Act.

The participants also accuse certain Allianz affiliates of engaging in improper self-dealing by receiving plan assets as profits at the participants' expense. 

The complaint calls attention to what the participants deem to be “excess fees” resulting from the use of the proprietary mutual funds. As an example, the participants said the total plan costs in 2013 were almost $6 million, or 0.77 percent of the plan's $772 million in assets. They allege that this cost is “outrageously high” for a plan of its size.

“Among the 551 defined-contribution plans in the United States with between $500 million and $1 billion in assets as of the end of 2013, the Plan was one of only eight plans that had total plan costs” of 0.74 percent or higher, the complaint said.

If the total fees had been around the 0.44 percent average for plans of its size, participants would have been spared more than $2.5 million in fees that year, according to the complaint.

The participants also claim that fiduciaries added mutual funds to the plan too soon after they were launched without a “sufficient track record” to determine whether funds were prudent investments.

The proposed class includes all participants and beneficiaries at any time beginning on Oct. 7, 2009—excluding the defendants, their directors and employees with plan investment and administration responsibilities.

The claimants estimate that the plan had between 3,000 and 3,900 participants during the applicable period.

The participants are represented by Kabateck Brown Kellner LLP and Nichols Kaster PLLP.

Excerpted from a story that ran in Pension & Benefits Daily (10/10/2015).

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