Compliance December 22, 2021

Plaintiffs Refile ERISA Complaint Against Prudential

The original lawsuit was dismissed in September, but the plaintiffs were given time to file an amended complaint, which they have now done.

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The plaintiffs in an Employee Retirement Income Security Act (ERISA) lawsuit filed against Prudential—which was subsequently dismissed—have submitted a second amended complaint to the U.S. District Court for the District of New Jersey.

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The original lawsuit was dismissed in September, with the court’s dismissal order responding to an amended complaint filed by the plaintiffs. The September ruling was filed “without prejudice,” meaning the plaintiffs were given time to file yet another amended complaint.

In response to the second amended complaint, the Prudential defendants have already filed a motion to dismiss, arguing that the deficiencies in the previously rejected version of the complaint have not been corrected. They argue the court should once again find that the plaintiffs fail to allege sufficient facts or provide the substantial circumstantial evidence necessary for the court to reasonably infer that the Prudential defendants breached their duty of prudence. For context, the court’s prior dismissal states that fund fee and performance comparisons are insufficient to plausibly allege that the Prudential defendants’ selection and retention of certain challenged funds was imprudent.

The new amended complaint seeks to provide more detail about 14 different investment options allegedly offered in the plan and which the plaintiffs say should have been removed for excessive fees or poor performance. The plaintiffs point to meeting minutes supplied by Prudential in an attempt to demonstrate the offering of these funds was the result of an imprudent process.

“In addition to the fact that the funds provided a substantial additional revenue stream for Prudential, many of the Prudential-affiliated funds were unnecessarily expensive, consistently and considerably underperformed compared to their respective benchmarks, or both,” the complaint states. “By choosing the financial interests of Prudential over plan participants, the defendants caused participants to incur unnecessary costs and lose the opportunity to invest in more appropriate available funds.”

The plaintiffs argue prudent fiduciaries would have investigated alternative available investments in order to maximize the plan’s retirement assets in the interest of the participants. Instead, they claim the defendants “simply offered Prudential products because they were familiar options that provided additional benefits to Prudential and its affiliates.”

“This type of self-dealing and objective imprudence violates ERISA,” the complaint states.

Compliance December 22, 2021

Natixis ERISA Lawsuit Clears Early Dismissal

Like the many other ERISA lawsuits filed against large financial service providers, the complaint alleges that the defendants failed to administer the plan in the best interest of participants and failed to employ a prudent process.

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The U.S. District Court for the District of Massachusetts has denied a motion to dismiss a lawsuit filed against Natixis Investment Managers and its retirement committee.

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The lawsuit, which can now proceed to discovery, claims the defendants breached their fiduciary duties with respect to the company’s 401(k) Savings and Retirement Plan, in violation of the Employee Retirement Income Security Act (ERISA).

The lawsuit alleges that the defendants failed to administer the plan in the best interest of participants and failed to employ a prudent process for managing the plan. Instead, it says, the defendants have managed the plan in a manner that benefits Natixis, the majority owner of several boutique mutual fund companies such as Oakmark, Vaughan Nelson, Loomis Sayles and AEW, at the participants’ expense. The plaintiff claims Natixis used the plan as an opportunity to promote its mutual fund business and maximize profits.

The suit asserts multiple claims for breaches of the fiduciary duties of loyalty and prudence, as well as a claim for failure to monitor fiduciaries. In addition, the lawsuit claims that the proclivity for proprietary mutual funds has cost plan participants millions of dollars in excess fees.

“For plans with $250 million to $500 million in assets, like the plan, the average asset-weighted total plan cost is 0.43%,” the lawsuit states. “In contrast, the plan’s total costs were roughly 50% higher, ranging from 0.60% to 0.66% throughout the statutory period.”

The new order explains the court’s rationale for permitting the suit to continue, finding that the plaintiffs sufficiently stated a claim for breach of the duties of prudence and loyalty to survive the defendants’ motion to dismiss.

“The plaintiffs’ several factual allegations related to the plan’s lineup of proprietary funds, their underperformance, excessive fees, trends in the marketplace, outflows and negative alpha over a meaningful number of years, are sufficient to suggest plausibly that, had the defendants prudently monitored the investments within the plan, in a process that was not tainted by self-interest, many of the proprietary funds would not have been selected or would have been removed,” the order says.

The full text of the order is available here.

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