JPMorgan Must Defend Challenge 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 Carmen Castro-Pagan

JPMorgan Chase Bank N.A. and its executives couldn’t convince a federal judge in New York to toss a lawsuit by investors in the company’s 401(k) plan challenging the alleged expensive, affiliated mutual funds offered in the plan.

Judge Jesse M. Furman of the U.S. District Court for the Southern District of New York on March 29 denied, for the most part, JPMorgan’s motion to dismiss. Furman, however, dismissed the investors’ claim that JPMorgan failed to provide adequate disclosures to them regarding the holdings, fees, and expenses of certain plan investment options and their designated alternatives.

The order means that investors can proceed with their claims that JPMorgan breached its fiduciary duties under federal benefits law by retaining expensive investment options managed by the bank and its affiliates, despite having access to less expensive options that performed just as well.

The original lawsuit, filed early last year, alleged that more than 70 percent of the assets in JPMorgan’s 401(k) plan was being managed either by a JPMorgan affiliate or by companies like BlackRock Institutional Trust Co., which maintain “lucrative business arrangements” with the bank. A number of lawsuits followed, and the cases were later consolidated.

In a one-paragraph order, Furman didn’t provide much detail on his ruling, but said that the reasons would be “stated orally at a conference to be held April 24.”

The ruling against JPMorgan comes two days after a federal judge in Missouri refused to dismiss similar allegations against Edward D. Jones & Co. LP. In the past few years, more than 20 financial institutions have been hit with lawsuits by employees challenging their employers’ decision to add proprietary, high fee, underperfoming mutual funds in their retirement plans.

Courts for the most part have sided with the employees, with only Capital Group and Wells Fargo succeeding in getting such lawsuits dismissed. Judges have certified classes in cases against American Century Services LLC, Insperity Inc., BB&T, Deutsche Bank, and Franklin Templeton. So far, five companies have settled similar claims: American Airlines (settled for $22 million), Allianz ($12 million), TIAA ($5 million), New York Life Insurance Co. ($3 million), and Principal Life Insurance ($3 million).

Kessler Topaz Meltzer & Check LLP, Nichols Kaster PLLP, Robbins Geller Rudman & Dowd LLP, Johnson & Weaver LLP, and Keller Rohrback LLP represent the investors. Skadden Arps Slate Meagher & Flom LLP represents JPMorgan.

The case is Beach v. JPMorgan Chase Bank, N.A., S.D.N.Y., No. 1:17-cv-00563, order granting in part defendants’ motion to dismiss 3/29/18.

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