With a trial date looming, Franklin Templeton has settled a proprietary fund suit brought by participants in the firm’s own 401(k) plan.
Both parties had just had their respective attempts to obtain summary judgment without going to court largely rebuffed by Judge Claudia Wilken of the U.S. District Court for the Northern District of California, who find that triable issues of fact remained. The one item in which she had ruled – that plaintiffs had failed to show that a $70 per-participant fee wasn’t reasonable and not comparable to similar plans. The case was set to go to trial in January.
The suit was actually two separate suits brought by participants in Franklin Templeton’s 401(k) plan that were combined earlier this year. Lead plaintiffs Nelly Fernandez and Marlon H. Cryer had alleged similar fiduciary breach claims (and claims similar to those common to the recent wave of proprietary fund suits), including claims that the plan invested in funds offered and managed by Franklin Templeton, when “better-performing and lower-cost funds were available,” motivated to do so by the benefits to Franklin Templeton’s investment management business.
The suits had also alleged that the plan fiduciaries decided to replace allocation funds of the plan with target date funds shortly before or during 2014, at which time they chose the “untested, expensive Proprietary Target Date Funds” and criticized the plan for offering a proprietary money market fund rather than a stable value fund.
For all its similarities with other proprietary fund suits, this one presented a unique argument by the defendants: that since one of the plaintiffs had signed a class action waiver in favor of arbitration after leaving employment (rather than as a condition of that employment), he was barred from bringing a class action. However, in October 2017, Judge Wilken ruled that the plaintiffs here were bringing the class action not as employees, but in their position as participants in the 401(k) plan, and thus the class action was not barred by that waiver.
Franklin Templeton is the latest financial company to agree to settle such claims, joining BB&T ($24 million), Deutsche Bank ($21.9 million), American Airlines Group Inc. ($22 million), Allianz SE ($12 million) and TIAA ($5 million).
As for the terms of the Franklin Templeton settlement, those are not yet known. The filing indicates the parties anticipate needing 60 days to file a motion for preliminary approval.