January 24, 2019
American Century Services LLC defeated a 2,500-person class action by employees who challenged the proprietary mutual funds in their 401(k) plan.
The investment firm didn’t act disloyally by offering nothing but affiliated funds in its 401(k) plan, because the company truly believed in the quality of these funds and thought employees would benefit from familiarity with the funds and the people managing them, Chief Judge Greg Kays of the U.S. District Court for the Western District of Missouri said in a Jan. 23 ruling.
The decision comes four months after an 11-day trial before Kays.
More than 30 companies have been sued over the affiliated mutual funds in their 401(k) plans since 2015, with workers challenging these funds as expensive and poorly performing.
While many cases survived motions to dismiss, the American Century lawsuit is only the second case filed since 2015 to go to trial. Putnam Investments LLC defeated similar claims at trial but saw the victory largely reversed on appeal. That case has been appealed to the U.S. Supreme Court.
Workers accused American Century of acting disloyally under the Employee Retirement Income Security Act by filling their 401(k) plan solely with affiliated funds that earned fees for the company.
Kays disagreed, saying the workers presented no “emails, documents, or testimony” suggesting the company put its own interests ahead of theirs. And the company had no particular incentive to “push” its own funds, because the 401(k) plan represented only 0.35 percent of all American Century’s assets under management—a “drop in the ocean,” Kays said.
The workers also failed to show American Century acted imprudently under ERISA. It’s not imprudent to fill a 401(k) plan only with affiliated funds if those funds are prudent and diversified, Kays said.
Nor was it imprudent for American Century to offer only actively managed funds instead of lower-cost passive funds, Kays said. The company validly “preferred active management coming out of the financial crisis” because of the “greater ability to manage risk,” Kays said.
Nichols Kaster PLLP and Brady and Associates represented the employees. Goodwin Procter LLP and Bryan Cave Leighton Paisner LLP represented the company.
The case is Wildman v. Am. Century Servs., LLC, 2019 BL 21670, W.D. Mo., No. 4:16-cv-00737-DGK, 1/23/19.