Compliance

T. Rowe Price Accused of Self-Dealing in 401(k)

The lawsuit alleges the defendants failed to loyally and prudently monitor the fees and performance of 401(k) plan investment options, and simply retained in-house funds to enrich T. Rowe Price.

By Rebecca Moore editors@assetinternational.com | February 17, 2017
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David G. Feinberg, a participant in the T. Rowe Price U.S. Retirement Program, has filed a lawsuit on behalf of the 401(k) plan and all similarly situated plan participants and beneficiaries, as well as all predecessor plans, accusing the firm of self-dealing.

According to the complaint, the defendants favored the economic interests of T. Rowe Price Group, Inc. and its affiliates over the interests of their employees in saving for their retirement. “Defendants did so by offering, during the Class Period (February 14, 2011 through judgment in this case), only T. Rowe Price’s own in-house investment funds in its 401(k) Plan. This exclusive relationship provided a windfall to T. Rowe Price affiliates T. Rowe Price Associates, Inc. and T. Rowe Price Trust Company,” the lawsuit says. These affiliates serve as investment advisers for those funds and collect the fees charged to investors in those funds.

The lawsuit alleges the defendants failed to loyally and prudently monitor the fees and performance of 401(k) plan investment options, and simply retained the in-house funds to enrich T. Rowe Price.

In a statement to PLANADVISER, T. Rowe Price said: “We believe the suit is without merit and intend to defend vigorously.”

The lawsuit also accuses the defendants of frequently offering the higher cost retail class versions of their mutual funds in the 401(k) plan despite the fact that significantly cheaper versions of these funds were available, including institutional share classes, collective investment trusts, and separately managed accounts. In addition, the complaint says, “In those instances when cheaper alternatives to certain retail class mutual funds did not exist, Defendants could have used the fact that the 401(k) Plan was a large institutional investor as leverage in negotiations to create cheaper alternatives.”

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