Another provider has been sued for including its own fund in the plan lineup – this time as the plan’s default investment option.
Two New York Life employees who are plan participants have filed a potential class action, accusing their employer of profiting from the “improvident retention of the MainStay S&P 500 Index Fund as a designated investment alternative” within the firm’s 401(k) plans.
“By retaining the MainStay S&P 500 Index Fund in order to further the financial interests of New York Life, and failing to investigate the availability of lower-cost alternatives in the marketplace, the Plans’ fiduciaries have breached their twin duties of loyalty and prudence,” according to the filing in the U.S. District Court for the Southern District of New York (Andrus v. N.Y. Life Ins. Co., S.D.N.Y., No. 1:16-cv-05698, complaint filed 7/18/16).
Once again, a Vanguard offering is used as a benchmark by the litigants, who note that the S&P 500 Index Fund has had annual costs of 35 bps, or 0.35% per year, “more than seventeen times higher than the Vanguard Institutional Index Fund,” while the S&P 500 index fund offered by Vanguard had annual expenses of only 2 bps, or 0.02% per year.
However, they also note that they could have invested in the SSgA S&P 500 Index, a collective trust offered by State Street that would have cost less than 4 bps. Instead, “by retaining the MainStay S&P 500 Index Fund in furtherance of the financial interests of New York Life, the Plans’ fiduciaries cost the Plans’ participants millions of dollars in excess fees,” according to the suit. How much? Based on the assets invested, the suit claims that the plans “overpaid for the MainStay S&P 500 Index Fund by $2.97 million between 2010 and 2014, compared to Vanguard Institutional Index Fund.”
The plaintiffs note that, “despite the substantially higher cost for the same product, the Fiduciary Defendants retained the MainStay S&P 500 Index Fund as a designated investment alternative for the Plans to the exclusion of the Vanguard Institutional Index Fund until June 15, 2016, when, in response to Plaintiffs’ investigation, it was announced that the Plans would belatedly be switched out of the MainStay S&P 500 Index Fund into the Vanguard Institutional Index Fund.”
The suit was filed by the Minneapolis-based law firm of Nichols Kaster, which has been very active in bringing lawsuits against large financial companies that include in-house investment funds in their employees’ 401(k) plans. The firm is currently representing employees suing Putnam Investments LLC, Deutsche Bank, American Airlines Inc., M&T Bank Corp. and American Century Services LLC, according to Bloomberg BNA. They were also involved in the recent lawsuit against the Fujitsu Group Defined Contribution and 401(k) Plan.
