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General Electric Co. faces a second lawsuit challenging the allegedly imprudent investments in proprietary mutual funds included in the company’s $28 billion 401(k) plan.
GE’s selection of in-house mutual funds for the plan allegedly provided its financial services subsidiary, GE Asset Management, a constant source of fees and helped inflate GEAM’s market value for a subsequent sale of the subsidiary, according to a lawsuit filed Oct. 30 in federal court in Massachusetts ( Sullivan v. General Electric Co. , D. Mass., No. 1:17-cv-12123, complaint filed 10/30/17 ). GE’s actions weren’t for the exclusive interest of the plan or its participants, as required by federal law, but for its own interest as it showed last year when it sold GEAM to State Street for $485 million, the lawsuit said. At the time of the sale, GEAM managed approximately $8 billion of the plan’s assets.
This is the second Employee Retirement Income Security Act lawsuit over similar allegations against GE in the past month. Both lawsuits assert that the GEAM funds carried excessive fees and costs and underperformed relevant benchmarks since 2008. The latest lawsuit names six GE executives as defendants, alleging that they caused the plans to invest billions of dollars in investment options managed by GEAM, favoring exclusively the in-house funds for certain asset classes.
GE doesn’t comment on pending litigation, but it intends to “fully defend the case,” a company spokesperson told Bloomberg Law Oct. 31.
GE isn’t the first major company with an in-house investment manager to be sued under ERISA over allegations that it acted for its own benefit instead of the benefit of a plan or its participants. Big-name companies that also had financial investment subsidiaries have agreed to pay millions of dollars to settle similar claims, including Caterpillar Inc. ($16M), Lockheed Martin ($62M), Cigna Corp. ($35M), and American Airlines ($22M).
GEAM was the investment adviser to six of the plan’s investment options, which included actively managed funds in equity and fixed-income asset classes. As of December 2015, 68 percent of the plan’s assets consisted of GE-related investment options and approximately 56 percent of the pooled investment funds options available in the plan consisted of five of GE’s in-house funds, the lawsuit alleged.
The latest lawsuit was filed by a plan participant who seeks to represent more than 10,000 participants.
Hutchings Barsamian Mandelcorn LLP and Squitieri & Fearon LLP represent the proposed class.
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