General Electric Faces Second 401(k) Plan Self-Dealing Lawsuit

Another participant in the General Electric Company (GE) 401(k) Savings Plan has filed a lawsuit alleging self-dealing by the company in offering investments managed by GE’s investment management arm, General Electric Asset Management (GEAM). 

The complaint says 401(k) plan fiduciaries violated the Employee Retirement Income Security Act’s (ERISA)’s fiduciary laws and ERISA’s prohibited transactions regulations by offering and failing to follow five investment fund options offered by the plan—GE Institutional International Equity Fund; GE Institutional Strategic Investment Fund; GE RSP US Equity Fund; GE RSP US Income Fund; and GE Institutional Small Cap Equity Fund. 

The plaintiff says these funds were among the 15 investment options (other than target-date funds) offered in the plan during the class period, and all were managed by GEAM. The complaint further says the GEAM funds are the only non-index funds offered to plan participants, so if a participant wants to invest in actively managed funds, he/she is forced by GE and the plan trustees to invest in GEAM funds.

As actively managed funds, there were investment advisers and/or portfolio managers to be paid by plan participants from their plan savings, the complaint notes. “The mere act of limiting actively managed equity funds to GEAM Funds indicates that Defendants put GEAM interests before the interests of the Plan or Plan Participants,” it says. “GE has profited handsomely from these arrangements, earning tens of millions of dollars in fees during the Class Period and enhancing GEAM’s sale value.”

The lawsuit alleges that the defendants caused the investment decisions made by plan and “parties-in-interest” to engage in prohibited transactions during the class period. “Each time the Plans invested Participant assets or allowed parties-in-interest to be paid fees and costs from Plan assets to GEAM in connection with the Plans’ investment in a GE-affiliated investment option, these Defendants caused the Plans to engage in a prohibited transaction under ERISA. Each time the Plans paid fees to a GE-affiliated investment manager, the Plan engaged in transactions prohibited by ERISA Section 406(b), which prohibits Defendants from causing the Plans to engage in a transaction benefiting a party-in- interest person,” the complaint says.

The plaintiff also alleges that the defendants GE and GEAM failed to monitor the trustees and other fiduciaries of the plan to ensure that all fiduciaries were acting in accordance with ERISA fiduciary duties of prudence and loyalty and avoiding engaging in prohibited transactions. In addition, he alleges a co-fiduciary liability under ERISA 405(a) against all defendants who had knowledge of other fiduciaries’ breach of duties and/or role in prohibited transactions.

The lawsuit seeks disgorgement of unlawful fees, expenses, and profits taken by the defendants, and to obtain such further equitable or remedial relief as may be appropriate to redress and to enforce the provisions of Title 1 of ERISA.

This lawsuit includes similar allegations to one filed against GE in September.