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Multi-Billion 401(k) Proprietary Fund Suit Seeks Class Certification


A suit that claimed a $7.3 billion plan “stocked the Plan’s investment menu with their own proprietary index funds”—while “participants got the short end of the stick” is now seeking class action status.

Image: Shutterstock.comThe plaintiffs in this case (Kohari et al. v. MetLife Group Inc. et al., case number 1:21-cv-06146, in the U.S. District Court for the Southern District of New York) are Rita Kohari, John Radolec and Mohani Jaikaran, who, “individually and as representatives[i] of the Class” on behalf of the $7.3 billion MetLife 401(k) Plan are alleging that the defendants MetLife Group, Inc., Metropolitan Life Insurance Company, the Benefit Plans Investment Advisory Committee, and “John and Jane Does 1-20” for breaching their “fiduciary duties with respect to the Plan in violation of ERISA, to the detriment of the Plan and its participants and beneficiaries, by applying an imprudent and disloyal preference for MetLife index fund products within the Plan, despite their poor performance, high costs, and lack of traction among fiduciaries of similarly sized plans.” The suit—the plaintiffs here are represented by Nichols Kaster PLLP—alleges that this “imprudent and disloyal conduct has cost Plan participants millions of dollars over the statutory period.”  They filed suit back in July 2021

Where We’ve Been

Not that the parties haven’t been busy since then. The MetLife defendants moved to dismiss the complaint in October 2021—only to have that motion denied by the court in August 2022. The plaintiffs here then filed an Amended Complaint that added the Employee Benefits Committee as a defendant, as well as adding some information regarding the Bond Index Fund. That Amended suit was responded to by the MetLife defendants on September 30, 2022…which brings us to the filing that now seeks the court’s approval for these named plaintiffs to represent the class of participants allegedly injured by these actions (or lack thereof) in the suit.

To refresh your memory, the MetLife plan’s investment menu consists of nine investments—eight of which are “proprietary” funds managed by MetLife—and a self-directed brokerage account. In filing for consideration as a class, the plaintiffs allege that “MetLife is not a leading manager of index funds, as many of its products are not competitive on the open market,” that the MetLife Index Funds “cost several times more than otherwise identical index funds that were offered by leading index fund managers such as BlackRock, Northern Trust, State Street, Vanguard, and Fidelity,” and that—in the plaintiffs’ words—“the MetLife Index Funds also tend to do an inferior job of tracking their underlying index.” All of this is borne out, the plaintiffs allege by the reality that “MetLife’s share of the market for index funds is a small fraction of the leading managers.”

The suit alleges that the defendants “could have negotiated competitive rates with these leading index fund managers in line with other similarly sized plans,” and that the failure to do so “has resulted in significant losses for participants, as each index fund underperformed comparable alternatives by roughly the difference in costs.”

‘Lacked Formal Processes’

The suit goes on to note that “despite their high fees, the Investment Advisory Committee never considered removing any of the MetLife Index Funds from the Plan or firing MetLife as the investment manager for the index funds.” Moreover, the suit claims that, “in general, Defendants lacked formal processes for managing the Plan. For example, Defendants failed to establish an Investment Policy Statement (‘IPS’) for the Plan until 2020”—“highly unusual for a large retirement plan,” they state.

The plaintiffs also call into question the plan’s “relationship with an internal MetLife entity called Retirement Income Solutions” which, they note, for approximately two decades, “provided the Plan with administrative and trustee services.” However, around the time of a plan audit (certain sections of the complaint were redacted) Retirement Income Solutions decided it would no longer provide administrative and trustee services to the Plan. As a result, the suit comments that eight of the nine investment options—including all of the MetLife Index Funds—were transferred from their former group annuity contract structure to a new collective investment trust structure”—and that, if the defendants had “prudently and loyally monitored the fees before this, they would have recognized the need to make this change much sooner.”

Will the court be persuaded? Stay tuned.

NOTE: In litigation there are always (at least) two sides to every story. However factual it may turn out to be, the initial lawsuit in any action is only one side, and one generally crafted toward a particular result. In our coverage you'll see descriptions of events qualified with statements such as “the suit says,” or “the plaintiffs allege”—and qualifiers should serve as a reminder of that reality.


[i] The proposed class is represented by Brock J. Specht, Grace Chanin, Benjamin Bauer and Paul Lukas of Nichols Kaster PLLP.