Capital Group, sponsor of American Funds, wins 401(k) lawsuit

Decision comes as financial services companies, especially those focused on active management, have been sued for self-dealing

Jan 26, 2018 @ 2:17 pm

By Greg Iacurci

Capital Group, which sponsors the American Funds brand of investment products, has won a lawsuit alleging the company profited at the expense of its employees by loading its 401(k) plan with costly in-house funds.

The decision was sure to be welcome news to other financial services companies, which have had to defend against an onslaught of similar excessive-fee lawsuits within the past few years but haven't seen much success.

Plaintiffs in the Capital Group case alleged that more than 90% of the plan's investment options were "unduly expensive" proprietary investments, and that the company could have used a less costly share class of funds, according to the ruling.

California district court judge Dale S. Fischer disagreed, saying the allegations "are not sufficiently plausible to survive a motion to dismiss."

"Unquestionably, fiduciaries need not choose the cheapest fees available to the exclusion of other considerations," the judge wrote in the ruling Tuesday.

Tom Joyce, a Capital Group spokesman, said the company is "pleased with the judge's order, and agrees with the ruling."

Attorneys at the law firm Keller Rohrback, which represented plaintiffs, didn't respond to a request for comment by press time.

The judge said plaintiffs may file an amended complaint for consideration by Feb. 20.

(More: Jerry Schlichter's fee lawsuits have left an indelible mark on the 401(k) industry)

The Capital Group case — D'Ann M. Patterson v. The Capital Group Companies Inc. et al — was filed in June 2017 and comes as litigation over excessive retirement plan fees has expanded even beyond financial services companies and large private-sector employers to universities, unions, small employers and advisers.

Prominent fund companies such as BlackRock Inc., Franklin Templeton Investments and American Century Investments have been among the targets. In all, there have been roughly 20 financial services firms sued, said Duane Thompson, senior policy analyst at fi360 Inc., a fiduciary consulting firm.

While some — including ones against Wells Fargo & Co. and Putnam Investments — have been dismissed, judges have allowed most cases to move forward, Mr. Thompson said.

"A lot of judges have declined motions to dismiss, including at least five other proposed class actions," he said. "I think this one is notable in that it's only one of a few that's been dismissed."

Others sued for self-dealing, including TIAA and New York Life, have settled their cases, for $5 million and $3 million, respectively.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Use arjuna-design' to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

All of the noise in the District of Columbia is distracting your clients. Ben Phillips of Event Shares explains what deserves your attention (and what doesn't) as we head into 2018.

Recommended Video

Channels

Latest news & opinion

SEC considers barring aggrieved investors from suing companies

Swept up by pro-business zeitgeist, regulator seeks to reverse two-decade slump in U.S. stock listings.

Wells Fargo, Morgan Stanley use contrary tactics to keep advisers

Wells is helping brokers transition to independence within the firm, while Morgan is taking them to court.

Fidelity pushes Vanguard to compete on brand in 401(k) plans

With Fidelity imposing an additional fee, Vanguard likely will look less attractive compared with comparably priced index-fund providers, advisers said.

Goldman's measure of risk appetite hits record

Global stocks and U.S. Treasuries are seeing their most "extreme" start to a year ever, bank says.

Wells Fargo erasing hurdles for advisers looking to move to its IBD

If advisers commit to staying at FiNet for a two-to-three year period, they will not have to pay Wells the fees it currently charges advisers switching channels.

X

Hi! Glad you're here and we hope you like all the great work we do here at arjuna-design. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting arjuna-design.com? It'll help us continue to serve you.

Yes, show me how to whitelist arjuna-design.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Last News

state taxes turbotax t rowe price funds best blackrock floating rate income trust matthews korea fund ira rollover limits best value dividend stocks hud mortgages is it better to take lump sum or pension vanguard gnma mutual central alarm socialsec loomis sayles high income morgan stanley smith barney benefit access cold calling scripts for financial advisors state street msci acwi ex usa index survivor benefits for children over 18 age to withdraw 401k without penalty into the breach rode the five hundred lump sum or annuity pension calculator minimum age to withdraw from ira surrendering life insurance policy tax consequences schwab international small cap equity etf t rowe price tax free high yield cfp board standards of professional conduct can i get a lump sum from my pension closed end vs open end mutual funds turbo tax 1040 ez can you refile a tax return american funds retirement plans income limits while collecting social security jpmorgan chase employee schedule t rowe blue chip growth nuveen short term bond fund boiler room wall street alliancebernstein discovery growth fund how to calculate minimum withdrawal from ira annuity versus lump sum value of a 1943 copper penny