A class action lawsuit alleges The Goldman Sachs Group and its employee retirement plan committee loaded the plan with underperforming, company-managed mutual funds instead of acting in participants’ best interests.
A proposed class action lawsuit out of New York alleges The Goldman Sachs Group and its employee retirement plan committee loaded the plan with underperforming, company-managed mutual funds instead of acting in participants’ best interests.
Alleging violations of the Employee Retirement Income Security Act (ERISA), the lawsuit claims Goldman Sachs’ high-cost mutual funds “did not earn their high fees by outperforming stated benchmark indexes,” and instead continued to underperform year after year. Despite the investments’ significant expenses and underwhelming performance, the case says, the defendants failed to remove the funds from the menu of investment options in the company’s defined contribution employee retirement plan.
The lawsuit further alleges that Goldman Sachs intentionally chose proprietary mutual funds for the plan instead of separate accounts or collective trusts that would have charged lower fees. Essentially, the case says, Goldman Sachs, as an interested party in the retirement plan, retained investment products “that a disinterested fiduciary would avoid or remove under the same circumstances.”
“For example,” the complaint reads, “the Plan remained invested in the Goldman Sachs Mid Cap Value mutual fund, which charged the Plan between 0.73% and 0.76% of the Plan’s balance during the statutory period, even though Goldman Sachs offered its institutional clients a separately-managed account utilizing the same investment strategy that would have cost at most 0.55% per year.”
Adding insult to injury, Goldman Sachs, the lawsuit alleges, offered lower pricing to more than 15 unaffiliated investments and failed to offer rebates to the company’s retirement plan that were granted to other plans that invested in the same funds. Rather than acting in plan members’ best interests, the defendants made investment decisions on the plan’s behalf that would directly benefit Goldman Sachs, the suit asserts.
According to the case, Goldman Sachs dropped the high-cost mutual funds from the retirement plan’s investment options only after “other self-dealing firms” were brought to court over allegedly similar practices. The plaintiff stresses that plan participants are owed what’s rightfully theirs.
“This act of self-preservation, however, arrived too late,” the complaint states, “and Defendants have not reimbursed participants for the underperformance of the improperly retained proprietary funds.”