Another investment manager sued by its own participants for running its plan as a “test vehicle for self-gain” has struck a deal with plaintiffs.
This time the money manager is Eaton Vance, who was sued by a participant in its $434 million plan for loading up its 401(k) plan with relatively expensive proprietary investment options that also performed poorly, costing participants money.
The suit, filed in October 2018 in the U.S. District Court for the District of Massachusetts, noted that of the 42 non-money market investments strategies in the plan, 35 were managed by Eaton Vance, and that approximately 80% of the plan’s assets were invested in Eaton Vance funds. This “monopolistic, ‘buy from the company store’ arrangement is indicative of a process that is tainted by a failure of effort, competence, or loyalty,” according to the plaintiff.
Case, Closed?
The case has now been temporarily closed in response to the parties’ notice of settlement, according to a court document (Price v. Eaton Vance Corp., D. Mass., No. 1:18-cv-12098-WGY, 3/21/19) from Judge William C. Young of the U.S. District Court for the District of Massachusetts. While the details of the settlement are not yet known, the case will remained closed until the parties seek preliminary approval of settlement.
Six Allegations
The suit had alleged that Eaton Vance:
(a) “stacks” the plan with Eaton Vance mutual funds that charge plan participants investment advisory fees that are “higher than what Eaton Vance charges outside clients with similar investment strategies and comparable asset sizes”;
(b) offered plan participants “more expensive share classes of proprietary mutual funds than are available to the general public”;
(c) failed to offer cheaper non-mutual fund alternatives such as separate accounts and collective investment trusts (CITs);
(d) “foists” its new proprietary mutual funds onto the plan (“despite having no track record, primarily to advance its own outside mutual fund distribution activities”);
(e) retains many of its proprietary mutual funds “despite their abysmal long term under performance relative to their investment benchmarks and readily available funds with comparable investment strategies”; and
(f) through “intricate sub-advisory arrangements with affiliates,” was able to “skim fees for performing unnecessary services.”
All in all, claiming that they “undermined the Plan as a whole, and deprived all participants the right to choose from superior investment options,” and in the process caused the plan and participants to “suffer staggering losses of millions of dollars in retirement savings.”
While the case is closed for the moment, the court order notes that it “…may be reopened upon motion by any party demonstrating that the above-entitled impediment to trial has been removed.”
Eaton Vance is the latest financial company to agree to settle such claims, joining Franklin Templeton ($4.3 million), BB&T ($24 million), Jackson National ($4.5 million), Deutsche Bank ($21.9 million), American Airlines Group Inc. ($22 million), Allianz SE ($12 million) and TIAA ($5 million).
