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A class action accusing Putnam Investments LLC of loading its 401(k) plan with high-fee proprietary mutual funds is heading toward trial ( Brotherston v. Putnam Investments, LLC , D. Mass., No. 1:15-cv-13825-WGY, 3/3/17 ).
A federal judge March 3 declined to resolve the dispute at the summary judgment stage, citing lingering factual questions as to whether Putnam acted imprudently or disloyally in putting its own investment products in the 401(k) plan covering its employees. The judge’s two-page order indicated that he was still weighing how to resolve claims that Putnam engaged in transactions prohibited by the Employee Retirement Income Security Act.
At least 19 financial companies, including Morgan Stanley, Wells Fargo and Charles Schwab Corp., have been sued in the past three years over the in-house investment products in their 401(k) plans. The Putnam case is the first to have been certified as a class action and reach the summary judgment stage. Seven other cases have survived motions to dismiss.
In the Putnam case, the judge also allowed the company’s workers to move forward with claims that the company should be forced to turn over the profits earned from the in-house funds in its 401(k) plan. Allowing such a claim—referred to as “disgorgement"—can increase the amount of money at stake in a given case.
Judges have disagreed over whether disgorgement is available in cases over in-house 401(k) investments. The employees suing American Century have been authorized to seek disgorgement, while the workers suing Allianz and Deutsche Bank had their disgorgement bids blocked, despite receiving otherwise favorable rulings.
Putnam’s 401(k) plan has about 3,400 participants and $615 million in assets, according to government filings.
Judge William G. Young of the U.S. District Court for the District of Massachusetts wrote the decision.
Skadden Arps Slate Meagher & Flom LLP represents Putnam. Nichols Kaster PLLP and Block & Leviton LLP represent the Putnam workers.
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