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Second Suit Says Settlement Terms Shrugged Off


Just four years after striking an excessive fee settlement, a fund company has been sued again—for allegedly not making the changes to its 401(k) lineup the settlement contemplated.

The defendants in the case are Allianz Asset Management of America, and the (new) participant-plaintiffs are Chad Rocke and Christopher Collins who, represented by Nichols Kaster PLLP and Kellner Law Group PC, have filed suit in the U.S. District Court for the Southern District of New York. The suit contends that “despite the settlement agreement’s terms and despite having faced an ERISA class action, Defendants continue to employ disloyal and imprudent practices in maintaining the Plan’s investment lineup that existed well before the prior litigation.”

Unsettled Settlement?

That previous suit—filed in October 2015 and settled in December 2017—resulted in payment of $12 million into a common fund for the benefit of class members (defined as all participants and beneficiaries of the plan at any time during the class period (10/7/2009 through 12/26/2017), and the appointment of an independent consultant to review the investment options in the plan. It also said that for a period of no less than three years from the settlement agreement’s effective date, Allianz will retain an “unaffiliated investment consultant” to provide an “annual evaluation of the Plan’s investment lineup and review the Plan’s investment policy statement.”

The original suit—as does the current one—contended that the Allianz defendants “maintained an all-proprietary lineup that included expensive, underperforming investments for Defendants’ own benefit and at the expense of Plan participants.” Specifically, that “for years, Defendants employed a 50/50 strategy such that for every Allianz Global Investors (‘Allianz GI’) investment in the Plan, a PIMCO5 investment was added as well, and vice versa.”

But—in the (new) plaintiffs’ eyes, “the opportunity for profits is even greater now, because the Plan currently holds nearly $2 billion[i] in assets, more than twice as much as it held when the original lawsuit was filed. Thus, Defendants earn even more money through their self-interested management of the Plan and have more than recouped the amount paid to settle the lawsuit.” They continued to note that “little else has changed since the settlement. Despite agreeing as part of the settlement to retain an independent consultant to evaluate the Plan’s lineup and investment policy statement for a period of up to three years, Defendants still maintain an all-proprietary lineup. Although a handful of proprietary funds have been removed[ii] since the settlement (most of which were removed in conjunction with the fund’s liquidation), Defendants still retain underperforming proprietary funds where an objective and prudent review of comparable investments in the marketplace would have revealed numerous superior nonproprietary investments.”

‘Proprietary’ Posits

Now, the plaintiffs here (Rocke v. Allianz Asset Mgmt. of Am., LP, C.D. Cal., No. 8:23-cv-00098, complaint 1/17/23) note—as do all in these proprietary fund-based suits—that “although using proprietary options is not a per se breach of the duty of prudence or loyalty, a fiduciary’s process for selecting and monitoring proprietary investments is subject to the same duties of loyalty and prudence that apply to the selection and monitoring of other investments.” Moreover, they assert that, “based on Defendants’ decision to maintain an all-proprietary lineup in lieu of any less expensive and otherwise superior nonproprietary alternatives, it is reasonable to infer that Defendants’ process for selecting and monitoring the Allianz Funds was imprudent and disloyal.” Furthering that argument, they contend that “Defendants’ changes to the Plan’s lineup did not eliminate many of the expensive and underperforming proprietary funds that continued to harm the Plan and its participants into the statutory period,” and that “many of the changes were made only after the Funds were liquidated as a matter of business necessity and not as a product of a prudent and loyal fiduciary process. Finally, the Plan is still saddled with Defendants’ philosophy of limiting the Plan’s options to only proprietary options, reflecting Defendants’ imprudent and disloyal decisions.”

‘Split’ Decisions?

The plaintiffs note that the 50/50 split of AllianzGI and PIMCO proprietary funds called out for criticism in the original suit remains in place—and is “extended beyond just the target date funds and to the Plan as a whole.” The plaintiffs claim that, as of the end of 2018, the Plan offered 20 AllianzGI investments and 25 PIMCO investments apart from target date funds. As of the end of 2019, the Plan offered 20 AllianzGI investments and 24 PIMCO investments apart from target date funds.” They conclude that “defendants’ clear intent to allocate roughly half of the Plan’s assets to AllianzGI funds and half to PIMCO funds was not the product of a prudent, loyal, and objective evaluation of the merits of each fund, but instead was intended to appease internal corporate concerns stemming from the conflict of interest created by the Plan’s use of proprietary funds.”

Their criticism extends to what the plaintiffs assert are relatively poor performance, relatively high fees, and a reliance on active management strategies. “Significantly, throughout the statutory period, the Plan did not offer lower cost investment offerings that are ubiquitous in similarly sized 401(k) plans, including index funds and capital preservation funds. This is not a coincidence—as of this complaint’s filing, neither AllianzGI nor PIMCO manage a proprietary index fund or a capital preservation fund,” the suit states. “The reasonable inference is that Defendants deliberately failed to consider inclusion of any index funds or capital preservation.”

And then, without reference or citation, the plaintiffs not only estimate that the total plan cost for 2019 to be 0.84% (or approximately $8.7 million in expenses of the $1.04 billion in Plan assets), but assert that “this total plan cost of 0.84% is extremely high for a defined-contribution plan with over $1 billion in assets. In 2019, the most recent year for which average total plan cost data is available, the average total plan cost for plans with more than $1 billion in assets was 0.26%.”

The suit concludes that, “instead of acting in Plan participants’ best interest, Defendants’ conduct was propelled by a desire to drive revenues and profits to themselves, and to promote their own business interests. Accordingly, Defendants failed to discharge their duties with respect to the Plan solely in the interest of Plan participants and beneficiaries, and for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the Plan, in violation of their fiduciary duty of loyalty under 29 U.S.C. § 1104(a)(1)(A).” Moreover, “because of Allianz’s breach of the duty to monitor, the Plan suffered millions of dollars of losses due to excessive fees and investment underperformance.”

We’ll see what the court has to say on the matter…

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 suit notes that from 2018 through the end of 2021 (the last year for which data is publicly available), the Plan had between 4,156 and 4,710 participants and approximately $1.1 billion to $1.9 billion in assets.

[ii] “For example,” the suit alleges that “Defendants have retained the vast majority of the Plan’s proprietary mutual funds. Specifically, in 2018 no changes to the Plan’s investment lineup were made. In 2019, Defendants removed only one AllianzGI collective investment trust. In 2020, AllianzGI liquidated seven AllianzGI mutual funds as well as its proprietary target date funds, while Defendants maintained these funds in the Plan up until liquidation. Finally, in 2021, the Plan removed one AllianzGI mutual fund and replaced it with another AllianzGI mutual fund. Significantly, at no point since the AllianzGI settlement have Defendants offered any non-proprietary investment options in the Plan. Moreover, Defendants continue to retain the vast majority of the proprietary funds that were included in the Plan prior to the settlement, with only two funds being removed for reasons other than their liquidation by the fund manager.”