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Compliance March 8, 2012
Court Dismisses Claims of Improper Investment Selection
A federal court dismissed a 401(k) plan
participant’s claims that plan fiduciaries inappropriately selected plan funds
and allowed excessive fees.
Reported by Rebecca Moore
The U.S. District Court for the Southern District of New York found that Bruce Laboy’s claim of inappropriate selection of the plan’s default fund was time barred, and that Laboy failed to specifically allege that other plan investments underperformed or to compare their performance to any comparable funds. U.S. District Judge Harold Baer Jr. said Laboy failed to state a claim that either the default fund or the alternative funds were imprudently selected or monitored.
According to the opinion, Laboy’s claim of excessive fees for the funds also fails. Even among Laboy’s handpicked group of funds, the fees charged by the default fund are not outliers: one fund has higher management fees, a second has identical management fees, with the remaining six funds charging fees that are lower by varying amounts, the court found. Laboy also failed to allege facts indicating that the default fund fees were excessive in light of the services rendered, and as to the other funds, Laboy failed to provide any evidence of their expenses at all.
Baer noted that decisions in which courts have allowed allegations of imprudence to go forward rested on allegations that the defendants selected certain funds out of self-interest or demonstrated clear incompetence. In the present case, there is no similar allegation that defendants chose funds with high fees based on affiliation with the defendants or the plan sponsors.
Though he dismissed the claims, Baer granted Laboy leave to amend the complaint within 30 days.
According to the opinion, Local 32BJ is a union with more than 120,000 members within the Service Employees International Union. After a qualifying period, members of 32BJ are eligible to participate in a defined contribution 401(k) plan. Putnam Investments provided investment services to plan participants from January 1, 2001, until June 2011. Participants had the option of self-directing investments among 14 alternative funds or allowing their funds to be invested in the default fund, Putnam Asset Allocation: Conservative Portfolio.
The opinion in Laboy v. Board of Trustees of Building Service 32BJ SRSP is here.
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