A proposed class action lawsuit alleges Prudential failed to act in the best interests of investors in the company’s defined contribution 401(k) plan by loading the retirement plan with high-cost, underperforming funds.
A proposed class action lawsuit alleges The Prudential Insurance Company of America failed to act in the best interests of investors in the company’s defined contribution 401(k) plan by loading the retirement plan with high-cost, underperforming funds. The case claims the defendants, who include the plan’s administrative and oversight committees, pursued their own interests above those of plan participants by choosing investment options managed by or affiliated with Prudential.
The lawsuit argues that a prudent investor would consider factors such as fees and performance when choosing a retirement plan’s investment options. Prudential ignored such criteria and, among other apparent Employee Retirement Income Security Act (ERISA) violations, selected mostly company-affiliated funds that would provide substantial revenue, the case says.
“Among other things, Plaintiff alleges that the Defendants violated ERISA by overpopulating the Plan with proprietary mutual funds offered by Prudential and its affiliates, failing to monitor the performance of those funds, and failing to adequately disclose the amount of recordkeeping fees received by Prudential, resulting in the payment of grossly excessive fees to Prudential and significant losses to the Plan and its participants.”
At primary issue, according to the suit, is that many of the funds selected by Prudential’s plan fiduciaries were “egregiously expensive” for participants and came saddled with a history of underperformance in comparison to benchmarks selected by the plan’s oversight committee. In fact, the case says, alternative investment options with lower fees and better performance were available aside from the Prudential-affiliated funds that were chosen by the defendants.
“Simply put,” the complaint reads, “Defendants placed the revenue-generating interests of Prudential and its affiliates and subsidiaries ahead of the Plan’s interest in providing prudent investments at reasonable costs.”
All told, the lawsuit claims the defendants’ allegedly irresponsible actions, rife with “severe conflicts of interest,” generated millions of dollars of revenue for Prudential at the expense of plan members.