Brokers Eat Their Own

For the 401(k) plan to succeed it must look more like a pension plan and less like a casino. Plan sponsors need to provide the proper fiduciary oversight to offer a retirement plan which will lead to successful retirements. This oversight should include service providers willing to serve as ERISA 3(38) Investment Managers in writing. If improvements are not made soon the 401(k) plan could become the next “Obamacare”.

Outdoor Security Barriers - Ameriprise Financi...
Outdoor Security Barriers – Ameriprise Financial Center (Photo credit: Zach K)

Ameriprise is a large holding company that provides a broad range of financial planning services. The lawsuit seeks class action status and was filed by three current and four former participants in the Ameriprise 401(k) plan. One of the primary allegations involves the selection of funds managed by a subsidiary of Ameriprise. The complaint states that the plan was the first investor in these funds, which had no performance history. Plan assets of approximately $500 million a year were invested in these funds, commencing in 1995. Plaintiffs allege the funds performed poorly, underperforming their benchmarks, and accused Ameriprise of generating excessive fees from these investments. Ameriprise moved to dismiss the complaint.The District Court denied the motion to dismiss the claim relating to these funds, stating: “Plaintiffs in this case plausibly allege that Defendants selected Ameriprise affiliated funds, such as RiverSource mutual funds and non-mutual funds managed by ATC, to benefit themselves at the expense of participants.” Counsel for the class representatives, Jerome Schlichter, of the St. Louis law firm of Schlichter, Bogard and Denton, stated: “Ameriprise certainly should know that their in house funds were poor choices for retirement assets.”

This decision gives plaintiffs the opportunity to proceed with their case. It is not a finding of wrongdoing by Ameriprise. Nevertheless, it is illustrative of the cavalier attitude of plan sponsors. They are supposed to act as fiduciaries to plan participants by selecting investment options that are in the best interest of the participants. In my opinion, any plan that does not offer globally diversified portfolios of low management fee index funds should be deemed to violate this duty. Until the Courts adopt that position, lawyers will go after the low hanging fruit, and attack only the most egregious violations. The Ameriprise case fits well into this category. It’s worse because it involves a large player in the advisory business placing its own interests above those of its employees.

The industry is so rife with greed that it eats its own.

This is another reason the 401(k) plans provided by brokerage firms and insurance companies do not benefit the plan participants and their beneficiaries. We need a more pension fund like plan with providers willing to serve as ERISA 3(38) Investments Managers in writing.

Please comment or call to discuss how this affects you and your retirement.

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