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A new lawsuit claims CenturyLink Inc. offered its workers a poorly managed and underperforming stock fund in their 401(k) plan that caused them to lose out on retirement savings.
The proposed class action, filed Nov. 30 in a Colorado federal court, challenges a customized fund in CenturyLink’s 401(k) plan that invests in the stock of large U.S. companies. The fund’s design was seriously flawed because it used five different active fund managers with the same mandate, the lawsuit says. This caused the fund—which allegedly was the only large-cap stock investment in the plan—to consistently underperform its benchmark by 2 percentage points or more each year since 2012, according to the lawsuit.
Several large companies have been sued over the investment strategies of their 401(k) offerings, but this lawsuit is unusual in that it challenges a large-cap domestic stock fund. Fidelity, CVS Health, and a subsidiary of Principal Life have been accused of offering stable value funds—which are meant to be conservative, low-risk investment options—that were too conservative and didn’t provide sufficient returns. JPMorgan recently agreed to pay $75 million to resolve a class action claiming the company’s stable value funds were overexposed to risky mortgage-related assets. Several recent cases have involved 401(k) plans that allowed workers to invest in the Sequoia Fund, a mutual fund that was heavily exposed to the stock of controversial drugmaker Valeant Pharmaceuticals.
CenturyLink is one of the country’s largest telecommunications and internet service providers. Its 401(k) plan has more than 35,000 participants and about $3.7 billion in assets, making it one of the largest plans in the country. The company’s 2016 revenue was $17.5 billion, a 2 percent drop from the prior year, according to data on the Bloomberg Terminal.
A spokesman for CenturyLink declined to comment on the lawsuit, citing a policy against discussing pending litigation.
The lawsuit takes particular aim at CenturyLink’s use of six fund managers—one passive manager and five active ones—for the fund in question. The lawsuit calls this a “design flaw,” saying that the “odds of the five active managers outperforming the market in aggregate was highly remote due to the efficiency of the large cap domestic equity market and the difficulty of even one manager outperforming for more than a year.”
The lawsuit was filed in the U.S. District Court for the District of Colorado by Franklin D. Azar & Associates, a personal injury law firm that specializes in motor vehicle accidents, defective products, and slip-and-fall accidents, according to its website. This is at least the fifth time the Colorado-based firm has filed an Employee Retirement Income Security Act class action involving alleged mismanagement of retirement savings. On the same day this lawsuit was filed, the firm filed another ERISA lawsuit against a union retirement fund that allegedly carried excessive administrative and investment fees.
The case is Birse v. CenturyLink, Inc. , D. Colo., No. 1:17-cv-02872, complaint filed 11/30/17 .
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