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Proprietary Funds Draw Another 401(k) Excessive Fee Suit


A new suit claims that the decision to retain proprietary funds in the 401(k) was “polluted by self-interest,” driven by a “blind preference” and that “defendants’ favoritism has led to the payment of excessive investment management fees.

This time the plaintiff is current participant Sandy Schissler[i] bringing suit against the fiduciaries (and those that appointed them) of the Janus 401(k) and Employee Stock Ownership Plan. The suit claims that “at the expense of the Plan and its participants and beneficiaries, Defendants breached their fiduciary duties with respect to the Plan in violation of ERISA. Defendants applied a disloyal and imprudent preference for Janus Henderson proprietary funds within the Plan, despite their poor performance and high costs.” 

The suit, filed in the U.S. District Court for the District of Colorado (Schissler v. Janus Henderson US (Holdings) Inc., D. Colo., No. 1:22-cv-02326, 9/9/22), claims that “given the excessive fees charged by the Janus Henderson Funds, and the availability of comparable or superior funds with significantly lower expenses, the compensation paid to Janus Henderson and its affiliates for their services was unreasonably high.”[ii]

‘Infer’ Motion?

The suit itself[iii] is relatively short (a mere 31-pages), though the allegations are comparable to that made generally in excessive fee suits, and specifically in those involving proprietary funds. The suit alleges that “even compared to other actively managed funds, the Janus Henderson Funds charged higher fees relative to nonproprietary alternatives selected by similarly sized plans. So, it is reasonable to infer that Defendants failed to properly investigate lower-cost, nonproprietary alternatives.”

Setting aside for a minute the notion of reasonability of that inference, the suit claims that “throughout the putative class period, annual investment fees paid by Plan participants were at least 0.45% to 0.50% of total Plan assets, consistently higher than the average 401(k) plan of similar size.” It then goes on to claim that “excluding the Plan’s nonproprietary options (all of which are passively managed investments) results in annual investment fees of at least 0.64% to 0.68% of total Plan assets. In contrast, the average 401(k) plan with $250 million to $500 million in assets had total plan costs of 0.44% in 2016, down to 0.42% in 2018, the most recent year for which total plan cost data is available.” 

The suit goes on to note that in 2018, “the most recent year for which average fee data is available, the Janus Henderson Funds’ fees exceeded the average expense ratio for funds within the same asset class category among plans with $250 million to $500 million in assets by an average of 62%”—and that, “when looking only at leading actively managed funds invested in similar styles to the Janus Henderson Funds, the excessive fees are approximately 25% and as high as 131% above average.”[iv]

Menu ‘Driven’

The plan itself isn’t particularly large—the suit states that from 2016 through the end of 2021 (the last year for which data is publicly available), the Plan had between 1,700 and 1,900 participants and approximately $246 million to $512 million in assets. That said, as of the end of 2016, the Plan’s investment menu included 53 investments, including 44 proprietary Janus Henderson funds, according to the suit.

While the plaintiff here disavows any specific knowledge of the processes undertaken by the plan committee, the suit claims that from 2016 until 2021, “certain Janus Henderson funds were eliminated from the Plan’s menu due to liquidations or mergers. But Defendants did not choose to remove a single proprietary Janus Henderson investment from the Plan’s menu during that time. In fact, they often added new proprietary Janus Henderson funds shortly after each fund’s creation.” All of which mean that by the end of 2021, the Plan’s menu consisted of 50 investments, including 40 proprietary Janus Henderson Funds.

“Based on Defendants’ retention of proprietary funds over less expensive, superior nonproprietary funds, it is reasonable to infer that Defendants’ process for selecting and monitoring the Janus Henderson Funds was disloyal and imprudent.”

‘Blind Preference’

The plaintiff claimed that the Janus Henderson fiduciary defendants “constructed and maintained a Plan investment menu that was unlike any other similarly sized plan. Claiming that the fiduciary actions were driven by a “blind preference,” she notes that as of 2021, “every mutual fund offered by Janus Henderson was included in the Plan. Indeed, all non-money market or noninflation-protection actively managed investments among the Plan’s designated investment alternatives are the Janus Henderson Funds,” and that “no other similarly sized defined contribution plan entrusts essentially all its actively managed investments to Janus Henderson.”

The suit notes that “when certain Janus Henderson funds dropped off the Plan’s menu, it was only because of the fund’s liquidation or merger—not the result of a loyal or prudent review process,” and that “during the putative class period, Defendants added eight additional Janus Henderson Funds to the Plan’s menu. But not a single nonproprietary actively managed fund has ever been added. And many of these Janus Henderson Funds were added to the Plan at the same time as their inception.” Beyond that, the suit claims that “Defendants’ reckless use of Plan assets to seed new proprietary funds has harmed Plan participants.”

Ultimately, the suit claims that “defendants’ favoritism has led to the payment of excessive investment management fees by participants to Janus Henderson, a failure to prudently monitor and remove the underperforming proprietary Janus Henderson Funds, and a failure to engage in a prudent and loyal process in the selection of new Plan investments.”

The suit concludes that “defendants’ disloyalty and imprudence has cost plan participants millions of dollars over the putative class period” and that “plaintiff brings this action to remedy this unlawful conduct, recover losses to the Plan, and obtain other appropriate relief as provided by ERISA.”

Will the court be persuaded? Stay tuned.


[i] A participant since 2012, the suit claims that during the period in question she has been invested in at least the Janus Henderson Contrarian fund, Janus Henderson Emerging Markets fund, Janus Henderson European Focus fund, Janus Henderson Flexible Bond fund, Janus Henderson Forty fund, Janus Henderson Global Equity Income fund, Janus Henderson Global Real Estate fund, Janus Henderson Global Select fund, Janus Henderson Global Technology fund, Janus Henderson Growth and Income fund, Janus Henderson High-Yield fund, Janus Henderson International Opportunities fund, Janus Henderson Overseas fund, Janus Henderson Enterprise fund, Janus Henderson Multi-Sector Income Fund, Janus Henderson Mid Cap Value fund, Janus Henderson Research fund, Janus Henderson Small-Mid Cap Value fund, Janus Henderson Small Cap Value fund, and Janus Henderson Venture fund.

[ii] This apparently drawn from total plan cost, as determined by the BrightScope/ICI Defined Contribution Plan annual profiles, which “includes asset-based investment management fees, asset-based administrative and advice fees, and other fees (including insurance charges) from the Form 5500 and audited financial statements of ERISA-covered DC plans. 

[iii] The plaintiff here is represented by Nichols Kaster PLLP,  which has appeared with striking regularity in this type of litigation, most recently involving Oklahoma’s BOKF NA, but also John HancockM&T BankMFSSEI and Goldman Sachs, as well as suits involving Deutsche Bank Americas Holding Corp.BB&T and American Airlines. Nichols Kaster was also one of three litigation firms specifically noted in a recent property and casualty renewal template that has reportedly showed up in a number of cases.

[iv] Here we’ll just note that comparisons to a generic “average” as a benchmark has its shortcomings.