Capital Group Sued Over In-House Funds in 401(k) Plan

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

Investment manager Capital Group Cos. filled its 401(k) plan with expensive in-house mutual funds that earned high fees for the company, a new proposed class action alleges ( Patterson v. Capital Grp. Cos. , C.D. Cal., No. 2:17-cv-04399, complaint filed 6/13/17 ).

More than 99 percent of Capital Group’s $3 billion 401(k) plan was invested in funds affiliated with the company as of 2016, the June 13 complaint alleges. Many of these funds were “unduly expensive,” charging higher fees than competitor funds from Vanguard, according to the complaint. Those fees allegedly benefited Capital Group and its affiliates at the expense of workers’ retirement savings and in violation of the Employee Retirement Income Security Act.

Financial companies that put their own investment funds in their workers’ retirement plans have been hammered by ERISA class actions. In the past year, judges have refused to dismiss similar cases against BB&T Corp., Allianz, Putnam Investments,Deutsche Bank, Franklin Resources, American Century, and Edward Jones. Principal Life Insurance Co. and New York Life Insurance Co. settled cases for $3 million each, and TIAA reached a $5 million settlement earlier this month.

In May, Wells Fargo scored a rare win in this litigation series, when a federal judge in Minnesota dismissed a lawsuit against the company after finding that the workers who filed suit didn’t provide a meaningful benchmark against which to compare the Wells Fargo funds.

Capital Group is one of the largest investment management companies in the world, with about $1.39 trillion in assets under management and offices across the globe, according to the complaint. The lawsuit, filed June 13 in a federal court in California, takes aim at more than 30 specific investment options in the company’s 401(k) plan, all of which are alleged to carry higher fees than those of reasonably available competitor funds.

A spokesman for Capital Group said the lawsuit was without merit.

“The funds offered to our associates are recognized in the industry as having among the lowest fees in their peer categories and superior investment results,” the spokesman told Bloomberg BNA in an email. “Capital Group also makes an annual contribution equal to 15% of an employee’s annual compensation (up to IRS limits), a benefit that ranks among the most generous offered within and outside the financial services industry. “

The lawsuit was filed in the U.S. District Court for the Central District of California by Keller Rohrback LLP. In 2016, a judge in that district allowed the lawsuit making similar claims against Allianz to proceed over the company’s motion 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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