Yet another excessive fee suit has been filed regarding the use of proprietary funds in a provider’s 401(k) – one fund in particular that was allegedly “larded with high fees.”
This suit, Bekker v. Neuberger Berman Grp. LLC (S.D.N.Y., No. 7:16-cv-06123), was filed on Aug. 2 in the U.S. District Court for the Southern District of New York. It claims that fiduciaries of the Neuberger Berman Group 401(k) Plan forced the plan into “investments managed by Neuberger or an affiliated entity, which charged excessive fees that benefited Neuberger and the managers of the proprietary funds.”
The suit claims that one fund in particular, the Value Equity Fund, was “larded with high fees and has suffered from consistently abysmal performance.” The suit alleges that the decision to continue to offer this fund, and to open the fund to new investments (it had been closed to new money following the firm’s acquisition by Lehman Brothers, and then reopened following the re-separation of the firms), were fiduciary breaches which cost the plan more than $130 million.
The suit claims that Neuberger “profited handsomely from the arrangement, receiving for itself tens of millions of dollars in fees during the Class Period from the Plan’s investment in the Value Equity Fund, and more from the inclusion of other Neuberger-managed options.” It claims that those fees were 40 times more than comparable alternative funds like those identified by Marvin Schwartz, who was the manager of the Value Equity Fund and a shareholder in Neuberger. That’s 80 basis points for the actively managed Value Fund in comparison to the 2 basis points for index funds that track the S&P 500, which the suit says is the stated benchmark for the Value Equity Fund.
Commenting on the suit via email, Neuberger spokesman Alexander Samuelson said, “The complaint compares fees on our active fund with a passive index option that is also included in our plan. We offer participants many options – active and passive, in-house and competitor – each at an appropriate fee level. The implied argument in the complaint that active and passive fees should be identical is nonsensical.”
The suit cites the plan’s most recent Form 5500 filings (2014 plan year) as showing that the plan had $444,451,094 invested in the Value Equity Fund, out of total plan assets of $831,225,394. The plan invests in 29 different investment options, of which eight, including the Value Equity Fund, are managed by Neuberger. The plan has a target-date fund as the default option, and also has a self-directed brokerage window option. Unlike some of the other defendants targeted in recent lawsuits, Neuberger Berman pays the administrative fees of the plan and employs an independent investment advisor.
“Neuberger appreciates that anyone can bring suit for any reason,” said Samuelson. “The firm is proud of its 401(k) program and its 15% contribution rate to employees. We look forward to fighting the allegations on the merits.”
