(Another) Participant Files Suit Against (Another) Provider

Yet another 401(k) provider and investment manager has been sued by one of its own participants for breaching its fiduciary duties to the plan – and while the claims are familiar, the venue is different.

This time the target is Mutual of Omaha in a suit filed last week in the U.S. District Court for the District of Nebraska by Berger & Montague and Schneider Wallace Cottrell Konecky Wotkyns LLP on behalf of Tamera S. Lechner, a participant in the plan, which had approximately 6,000 participants and some $500 million in assets.

Lechner alleged that the plan’s fiduciaries selected United of Omaha-branded investment funds “when each of these Omaha-branded funds invested all of its assets in another publicly available investment fund managed by an unrelated third party – causing the Plan to pay a fee to United of Omaha in addition to the fee charged by the underlying fund’s manager when the Plan could simply have offered the underlying fund and avoided paying any additional fee to United of Omaha.”

‘Added’ Attractions

The suit also alleges that for several of the non-United of Omaha funds offered, the plan’s fiduciaries simply added on a fee in addition to the fee charged by the fund, that they included several United of Omaha-branded Mutual GlidePath target date funds (“which charged Plan participants more than non-Plan investors paid to invest in those funds”), and that they “constructed several asset-allocation funds (the ‘Mutual Directions’ funds), which automatically allocated participants’ savings to other funds” – and added additional fees “between 61 and 88 basis points for investing in these asset allocation funds, even though the weighted average of the expense ratios for the underlying investments is far less.”

Additionally, the suit claims that the plan’s fiduciaries elected to include in the plan a capital preservation option managed by United of Omaha “despite scores of other better capital preservation funds on the market simply because the Guaranteed Account paid significant fees to United of Omaha.” In sum, the suit alleges that the plan fiduciaries “used their position of trust to line the pockets of Mutual of Omaha and United of Omaha, its subsidiary, at the expense of the Plan and its participants, larding the Plan with excessive and unnecessary fees that diminished the assets in the participants’ retirement accounts in order to benefit Mutual of Omaha and its subsidiaries.”

Millions ‘Err’?

All told, the plaintiff here estimates that United of Omaha and Mutual of Omaha received “on average, in excess of $1 million per year from the Plan in mark ups alone from 2009 to the present,” that “United of Omaha received additional asset based revenue sharing fees from the managers of the funds (or the underlying funds),” and that “United of Omaha and Mutual of Omaha received, on average, a spread from the Guaranteed Account of $2 million to $3 million” each year.

More than just asset management fees are at issue, however. The suit claims that, “based on information currently available to Plaintiff regarding the Plan’s features, the nature of the administrative services provided by the Plan’s recordkeepers, the Plan’s participant level, and the recordkeeping market, benchmarking data indicates that a reasonable market rate for the Plan’s recordkeeping expenses would have been about $35/participant,” or roughly $200,000 to $300,000. Instead, the suit claims that, based on the revenue estimates cited above, plan participants were paying United of Omaha and Mutual of Omaha in excess of $500 per participant annually – “10 times or more than the reasonable market rate for retirement plan recordkeeping services.” Thus, as similar suits have charged, rather than “using the negotiating power conferred by the Plan’s size, the Fiduciary Defendants simply caused the Plan to buy into United of Omaha’s incredibly overpriced services – violating ERISA’s duty of loyalty and permitting Plan assets to inure to the benefit of United of Omaha and Mutual of Omaha.”

‘Hidden’ Figures?

And as if that weren’t enough, the plaintiffs allege that Mutual of Omaha not only concealed this “self-dealing” and failed to disclose that it was “greatly profiting from the inclusion of the funds at issue,” but that they also “provided official fee disclosures to the Plan’s participants falsely, representing that no fees or operating expenses were being charged against the Guaranteed Account when, in fact, United of Omaha was generating significant profits, fees and compensation for itself out of the spread.”

This, of course, is just the latest in a series of suits by former and current plan participants of financial services firms brought against their employer regarding the use of proprietary funds, including BlackRock, Franklin TempletonJackson NationalJ.P. MorganT. Rowe Price and Waddell & Reed. New York Life has settled claims on a similar suit, while Putnam Investments has prevailed against similar charges.

Add Your Comments


  1. JD Kinnick
    Posted January 30, 2018 at 10:18 am | Permalink

    Have to wonder when some of these record-keepers are going to go “on offense” and begin suing participants? Pushback is inevitable.

  2. Ed
    Posted February 3, 2018 at 2:26 pm | Permalink

    I’m not sure where this person is getting their information. All these fees are in any plan document and the company is probably paying the lion share of fees. They are a lot lower than if you went out and bought these funds on your own. So you think that these companies do this business out of the goodness of their heart. This person is an idiot or from a distant planet if she thinks that the money saved in taxes and the money she makes on her investments is just some companies obligation.

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