Edward Jones Hit With Second ERISA Lawsuit Over 401(k) Fees

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By Carmen Castro-Pagan

Nov. 14 — Edward D. Jones & Co. breached its fiduciary duties to employees in its 401(k) plan by including mutual fund investments from business partners and affiliates that charged higher fees than competitors, a new lawsuit alleges ( Schultz v. Edward D. Jones & Co. L.P. , E.D. Mo., No. 4:16-cv-01762, complaint filed 11/11/16 ).

The wealth management company maintained revenue-sharing arrangements with mutual fund companies, including American Funds, Goldman Sachs, Invesco and Lord Abbett, so that it could receive a portion of the investment fees charged to its clients in return for recommending their partners products, the complaint said.

Edward Jones selected investments for its employees’ retirement plan with higher administrative fees than available alternatives and included a money-market fund that consistently had negative returns for every year it was in the plan, the complaint alleged. It also selected and maintained an unreasonable number of high-risk investment options to the detriment of participants, the complaint said.

The lawsuit, filed Nov. 11, is the second this year to accuse the wealth management company of engaging in self dealing in violation of the Employee Retirement Income Security Act. In addition to Edward Jones, other financial management companies, including Franklin Resources Inc., Neuberger Berman Group LLC, American Centuries Services LLC and Putnam Investments LLC, have been sued by plan participants challenging how fiduciaries manage their retirement.

In contrast to the August lawsuit, the new one includes as defendants the firm’s managing partner, James D. Weddle, and financial adviser Brett G. Bayston for their participation in the selection of people to manage the plan and the investments options it included.

The lawsuit’s allegations are false and the company will vigorously defend against them in court, John G. Boul, global media relations manager at Edward Jones, told Bloomberg BNA Nov. 14. The plan’s investment committee “takes very seriously its obligation to provide quality options for associates to choose from to achieve their individual retirement goals,” Boul said.

Fees, Investment Strategy

The plan assets ranged from $2.28 billion in 2010 to $4.17 billion at the end of 2015, according to the complaint.

In 2010, $1.3 billion in plan assets were invested in mutual fund companies that had a revenue-sharing agreement with Edward Jones, the complaint said. As a result, participants paid $7.4 million in fees for investing in 32 mutual funds managed by the partner companies. In the subsequent years, participants continued to pay millions in fees:

  •  $11 million in 2011
  •  $15 million in 2012
  •  $17 million in 2013
  •  $17 million in 2014

Participants were forced to pay for high-fee investment products because the business arrangements Edward Jones entered into with the mutual fund companies gave it the incentive not to seek similar-performing, lower-cost alternatives on the market, the complaint said.

The fiduciaries also violated federal law by including and maintaining a money-market fund that had zero returns between 2010 and 2016, which ultimately cost participants $15 million, the complaint said.

The lawsuit was filed in the U.S. District Court for the Eastern District of Missouri by two former Edward Jones employees who seek class treatment for thousands of individuals who have participated in the company’s plan since November 2010.

Kessler Topaz Meltzer & Check LLP and Armstrong Law Firm LLC represent the proposed class.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

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

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