Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
General Electric Co. is accused of filling its $28.5 billion 401(k) plan with high-cost, poorly performing in-house mutual funds, causing its employees to lose hundreds of millions of dollars in their retirement savings ( Haskins v. General Electric Co. , S.D. Cal., No. 3:17-cv-01960, complaint filed 9/26/17 ).
GE allegedly selected and retained its proprietary mutual funds in the plan, earning hundreds of millions of dollars from a subsidiary that managed the plan to the participants’ detriment, according to a lawsuit filed Sept. 26 in federal court in California. GE’s selection of its proprietary funds for the plan provided its subsidiary—GE Asset Management Inc.—a constant source of fees and helped inflate the market value of GEAM, which GE sold to State Street for $485 million in 2016.
The lawsuit follows more than two dozen similar actions pending against large employers that include their own or affiliated investment funds in their 401(k) plans. In June, American Airlines Inc. agreed to pay $22 million to settle a lawsuit raising similar allegations. In the past year, Principal Life and New York Life settled similar claims for $3 million each, and TIAA agreed to a $5 million deal. In the past, other major companies have settled similar claims, including Caterpillar Inc. ($16M) and Lockheed Martin ($62M).
The lawsuit against GE was filed by three participants who seek class treatment for approximately 250,000 current and former GE employees. According to the lawsuit, these employees “deserved better from a leading global investment firm that touts its investment acumen.”
As of December 2015, approximately 68 percent of the plan’s assets comprised GE-related investment options and nearly 56 percent of the pooled investment funds’ options available consisted of five of GE’s in-house mutual funds, according to the lawsuit. GE selected these funds not based on their merits as investment options or on the participants’ best interest, but because these products provided significant revenues and profits to the multinational company, the lawsuit said.
The participants pointed to four of GE’s proprietary funds—the International Fund, the Strategic Fund, the RSP Equity Fund, and the RSP Income Fund—alleging that their returns fell short of certain benchmarks for almost every year since at least 2011. For three of these funds, the returns were regularly below those of their T. Rowe Price, Fidelity, American Funds, and Wellington counterparts, the lawsuit said.
As to a fifth proprietary fund—the Small Cap Fund—the participants said that its fees were unreasonably expensive because GEAM hired and negotiated a fee with multiple sub-advisers to manage the fund. GE retained for itself nearly 30 percent of the annual 0.88 percent investment management fee collected on average of assets of about about $1 billion, the lawsuit alleged.
The lawsuit said that GE violated its fiduciary duties under the Employee Retirement Income Security Act and seeks to hold it liable for $700 million in losses to the plan.
“We have no comment on ongoing litigation but we intend to fully defend the case,” a GE spokesperson told Bloomberg BNA.
Sanford Heisler Sharp represents the participants.
To contact the reporter on this story: Carmen Castro-Pagan in Washington at email@example.com
To contact the editor responsible for this story: Jo-el J. Meyer at firstname.lastname@example.org
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)