American Century Can’t Escape 401(k) Fee Lawsuit

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

American Century Services LLC is the latest financial company facing a proposed class action accusing it of putting high-fee and poorly performing in-house funds in its workers’ 401(k) plan ( Wildman v. Am. Century Servs., LLC , W.D. Mo., No. 4:16-cv-00737-DGK, 2/27/17 ).

The workers sufficiently alleged that the company acted in its own self-interest when filling the plan with funds that earned fees for the company, a federal judge said Feb. 27, allowing the lawsuit to proceed over American Century’s motion to dismiss. The judge rejected each of the company’s defenses and allowed the workers to seek disgorgement of the profits American Century earned through the disputed practices—a move that could increase the amount of money at stake in the lawsuit.

This ruling marks the seventh time in less than a year that federal judges have refused to dismiss lawsuits targeting financial companies that put their own investment products in their workers’ 401(k) plans. In failing to win quick dismissal, American Century joins BB&T Corp., Allianz Asset Management of America, Putnam Investments LLC, Deutsche Bank, Franklin Resources Inc. and Edward D. Jones & Co. On Feb. 14, New York Life Insurance Co. said it would pay $3 million to settle similar claims over its 401(k) plan.

These types of lawsuits have proliferated in recent months, targeting companies including Morgan Stanley, Wells Fargo & Co., Charles Schwab, JPMorgan Chase and T. Rowe Price.

All Defenses Rejected

In denying American Century’s motion to dismiss, the judge rejected every defense offered by the company, including its claim that the lawsuit was untimely under the Employee Retirement Income Security Act’s three-year statute of limitations.

American Century argued that participants were free to avoid its in-house funds by investing in a wide array of options through the plan’s brokerage window. The judge found this “irrelevant,” saying that each investment alternative must be “judged individually.”

The company attempted to defend itself by pointing to the “generous contributions” that it makes to the plan each year—allegedly about $18 million—but the judge called this a “factual dispute” that couldn’t be resolved at this stage of litigation.

In a similar vein, the judge rejected American Century’s claim that its fees were reasonable and that comparisons to low-fee alternatives from Vanguard were inappropriate. This, too, was a factual question that couldn’t yet be resolved.

The participants also advanced claims that American Century failed to monitor the plan and engaged in transactions prohibited by ERISA. The judge allowed them to seek disgorgement of profits under ERISA’s equitable remedies provision—claims that were dismissed in the similar suits against Allianz and Deutsche Bank, despite the otherwise plaintiff-friendly rulings in those cases.

In a separate decision issued the same day, the judge largely rejected American Century’s argument that the lawsuit was barred by release agreements signed by the two plan participants who filed suit.

Chief Judge Greg Kays of the U.S. District Court for the Western District of Missouri wrote both decisions.

Goodwin Procter LLP and Bryan Cave LLP represent American Century. Nichols Kaster PLLP and Brady & Associates represent the plan participants.

Goodwin Procter and Nichols Kaster are frequent players in this area of litigation. The two firms are facing off in similar lawsuits against Allianz and Deutsche Bank, both of which survived motions to dismiss.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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