Jackson National Served With Proprietary Fund Suit

Yet another provider has found itself in litigation crosshairs over alleged “self-dealing and imprudent investment of retirement plan assets.”

The lawsuit (Pease v. Jackson Nat’l Life Ins. Co., W.D. Mich., No. 1:17-cv-00284, complaint filed 3/29/17) claims that Jackson National put its financial interests ahead of the plan’s interests by selecting high-cost proprietary investment products offered and managed by Jackson National and its affiliates on the plan’s menu of investment options. According to the suit, “this allowed Jackson National to maximize company profits at the expense of the Plan by collecting for itself millions of dollars in fees, an amount that greatly exceeds what the Plan would have paid for comparable low-cost non-proprietary investment products that are not offered by Jackson National to the Plan,” and in so doing “…breached its fiduciary duties of loyalty and prudence, and engaged in transactions expressly prohibited by ERISA.”

The plan has invested “billions of dollars in Jackson National proprietary funds, which investments have generated millions of dollars of investment advisory and other fees for Defendant, and that during the Class Period, the plan’s investment in Jackson National proprietary funds averaged more than $500 million a year,” the complaint alleges.

The suit claims that 18 of the 21 funds on the 5,000-participant plan menu were Jackson National proprietary funds, and that “…the overwhelming majority of the proprietary funds available to Plan participants were virtually identical to funds offered by unaffiliated financial institutions at a fraction of the cost.” It notes that in 2014 the plan had total investments of $608,784,892, and of this amount 89% “was invested in high cost and poorly performing Jackson National proprietary funds” and that “for virtually all of these Jackson National proprietary funds, Morningstar reports the fees are above average and the performance significantly lags behind appropriate benchmarks.” The suit claims that the defendants “…only offer these investment options to Plan participants because Defendant gets paid fees when participants invest in the funds.”

According to the suit, plaintiff Becky Matthews Pease was not aware that the Jackson National proprietary funds “charged high fees and delivered poor performance compared to unaffiliated funds until shortly before she filed this Complaint.” Moreover, it claims that she “…did not know that the Plan’s fiduciaries had put Jackson National’s business ahead of the Plan’s interest in prudent, reasonably-priced investment products,” and did not know that “…by causing the Plan to invest in proprietary funds, the Plan’s fiduciaries caused the Plan to give up ERISA rights and remedies against the fund managers.”

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