Review & Outlook

Our take on the investing, financial, & economic themes of the day

Yet Another 401(k) Fee/Fiduciary Lawsuit Moves Forward

14 October, 2014 by Matthew O'Brien, Ph.D. in Commentary

Writing in Pensions & InvestmentsRobert Steyer reports that New York Federal District Court Judge Sidney Stein has ruled against Citigroup and allowed plaintiffs to proceed with a lawsuit against Citi for alleged “self-dealing” in packing its own 401(k) plan with overpriced affiliated funds.

The case is now 7 years old. The original complaint made allegations of fiduciary breach relating to the merger in July 2001 of Travelers Group and Citicorp to form Citigroup, Mr. Stein’s opinion said. The corporate merger resulted in the merger of respective 401(k) plans into a single Citigroup plan.  The issue before Mr. Stein was based on the merged 401(k) plan offering some mutual funds affiliated with Citigroup as well as funds not affiliated with Citigroup. The two lead plaintiffs say they each invested in one of the affiliated funds, “which they allege all charged excessive fees,” thus causing a breach of fiduciary duty, Mr. Stein’s ruling said.

Citigroup benefited by offering its own employees expensive funds that kicked back revenue to the bank; given that equivalent, cheaper funds were available, the plaintiffs contend that Citigroup violated its fiduciary duty.  I wrote yesterday about the importance of having a genuine investment fiduciary provide a 401(k) plan.  Working with a fiduciary reduces the liability of the corporate plan sponsor and it typically improves the ultimate retirement outcome for employee plan participants.