Ameriprise workers’ 401(k) fight goes ahead

Ameriprise Financial
Ameriprise Financial (Photo credit: ehavir)

No one can be sure how this case will be resolved. What I do know is that plan sponsors have a fiduciary duty to provide a retirement plan for the sole benefit of their employees. The new disclosure rules will make it very difficult to provide a plan at no cost to the employer.

A federal judge has refused to dismiss a lawsuit in which employees of Ameriprise Financial Inc. accuse it of loading up the company 401(k) plan with its own expensive, underperforming mutual funds and charging employees excessive fees.U.S. District Judge Susan Richard Nelson in St. Paul noted that the plaintiffs “plausibly allege that the defendants selected Ameriprise-affiliated funds to benefit themselves at the expense of plan participants.” In her order filed Tuesday, the judge let stand seven counts, ranging from failure to monitor fiduciaries, to prohibited transactions and excessive record-keeping fees. One count of unjust enrichment was dismissed.

“Of any company, Ameriprise should know what is a good financial product,” said plaintiffs’ lawyer Jerome Schlicter. “This is a case of frank self-dealing.”

The plaintiffs — seven current and former Ameriprise employees in the Twin Cities — are seeking class-action status, and the outcome of the case could potentially affect more than 14,000 participants in the company’s $1 billion 401(k) plan. A judgment against Minneapolis-based Ameriprise would be a black eye for the country’s largest employer of certified financial planners.

Plan sponsors need to verify that their 401(k) plan is for the sole benefit of the plan participants and their beneficiaries.

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

Posted via email from Curated 401k Plan Content

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Spotlight on 401(k) fees may help many saving for retirement

Ameriprise Financial Center in Minneapolis, Mi...
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Plan sponsors have a duty to decide for the exclusive benefit of the participants and thier beneficiaries. This duty extends to knowing and understanding all fees in their qualifieds retirement plan.

The hope is that, as employees ask questions about the new fee statements, employers will be motivated to negotiate the best deal they possibly can. In about a dozen lawsuits, St. Louis attorney Jerome Schlichter alleges that major companies haven’t always done that.His latest suit, filed last month, is against Minneapolis-based investment firm Ameriprise Financial. The suit accuses Ameriprise of investing 401(k) money in its own RiverSource mutual funds despite high fees and sometimes lagging performance.

Ameriprise also “used the retirement assets of Ameriprise employees to seed new and untested mutual funds, which made those funds more marketable to outside investors,” the suit alleges. It says Ameriprise employees lost more than $20 million.

Schlichter says the allegations are similar to those that his firm made against General Dynamics and Caterpillar, both of which had subsidiaries that managed their 401(k) plans.

“They must operate for the exclusive benefit of employees and retirees, and they can not operate for their own benefit in any way,” he said. Schlichter reached out-of-court settlements with General Dynamics for $15.15 million and Caterpillar for $16.5 million. Several other 401(k) cases are still in the courts, including one against Kraft Foods that is scheduled for trial next month.

Schlichter portrays his suits as a way of cleaning up an overpriced and opaque industry, but some consultants doubt they’ll have much effect.

Patrick Shelton, managing member of Benefit Plans Plus in Creve Coeur, believes the class-action approach “doesn’t help plan participants at all.”

Dan Weeks, founder of 401(k) information firm BrightScope, thinks the threat of lawsuits may motivate large companies to keep a closer eye on 401(k) fees, but smaller employers probably don’t have to worry about class-action suits.

“I hope that the market becomes more transparent through disclosure rather than through litigation,” Weeks said.

Hidden costs in 401(k) plans can prevent many Americans from successfully retiring.

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

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