Ameriprise Financial Settles 401(k) Fiduciary Breach Case for $27.5M

Ameriprise Financial Inc. (AMP) will pay $27.5 million to settle a fiduciary breach case filed by its retirement plan participants. The plaintiffs contend that the financial firm cost them millions of dollars in excessive fees. The agreement was reached just weeks before the 401k lawsuits were set to go to trial. Even though Ameriprise is settling, the firm is not denying or admitting to the alleged breaches.

The plan participants filed their case in 2011 against the firm and the committes tasked with supervising Ameriprise’s employee benefits administration and 401(k) investments. The plaintiffs said that the investments in the 401(k) plan included money from the firm’s RiverSource Investments subsidiary and that both companies were paid fee revenues from the plan dollars of employees.

Under the deal, Ameriprise will not have to modify its plan but it will perform a request-for-proposal bidding process for investment consulting services and recordkeeping services, as well as other modifications. Aside from direct expense reimbursements from the plan, the firm cannot get paid for the administrative services it provides to the plan. Ameriprise also must continue to pay a recordkeeper, offer participants the required plan fee disclosures, and consider using separately managed accounts and collective investment trusts.

Recently, experts at the National Association of Plan Advisors 401(k) Summit gathered to talk about the developing legal risks that are starting to impact advisers and retirement plans. Among the areas ripe for 401(k) cases are the failure to swiftly abide by fee disclosure regulations and deals involving plan providers having discretion over employee stock ownership plans and fund menus. The number of 401K lawsuits has been growing over the last few years.

Aside from the Ameriprise case, Lockheed Martin Corp. recently settled a 401(k) lawsuit for $62 million to resolve employee allegations that it mismanaged its retirement plan. Over 108,000 participants were represented in the case, which alleged excessive fees that were imposed and concealed, hurting investment returns.

Underperformance of its “stable value” fund option was blamed on portfolio managers who were too conservative with their investment choices. The defense contractor, however, maintains that it did nothing wrong.

In 2013, International Paper Co. paid $30 million to settle current and ex-employees claims alleging that its 401(k) plans violated the Employee Retirement Income Security Act. The plaintiffs alleged that International Paper kept up its own publicly traded stock as an investment choice, paid excessive investment management and recordkeeping fees, and fraudulently reported performance histories for the funds of the plans. It too denied the allegations.

And there are other cases, including Tibble v. Edison. That class action case has participants in the Edison International-sponsored plan contending that they also were charged excessive fees.

While the lower courts sided with the plaintiffs, finding that the company failed to act in participants’ best interests when selecting mutual fund retail-class shares (rather than the less expensive institutional class ones), a district court and an appeals court sided with the defendant.

Edison said that because of the statute of limitations under ERISA, participants are only allowed to sue based on funds that had been in the plan for six years or less. Because of this, argued the company, it isn’t possible to hold it liable for all of the funds under dispute. Now, it’s up the U.S. Supreme Court to issue a ruling.

Ameriprise to pay $27.5 million settlement in 401(k) fiduciary breach suit, Investment News, March 26, 2015

Lockheed Martin to pay $62 mln to settle 401(k) lawsuit, Reuters, February 20, 2015

International Paper Pays $30 Million Over 401(k) Claims
, The Wall Street Journal, October 1, 2013

Tibble V. Edison

More Blog Posts:
Ex-Ameriprise Adviser Pleads Guilty To Nearly $1M Fraud, Stockbroker Fraud Blog, October 16, 2014

Fidelity Investments Settles Class Action Lawsuits Over 401(K) Plan for $12 million
, Stockbroker Fraud Blog, September 5, 2014

Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s, Institutional Investor Securities Blog, May 6, 2013