Lawsuit: Invesco Used 401(k) Plan as ‘Testing Ground’ for Investment Products to Participants’ Detriment

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Invesco Holding Company (US), Inc. is facing a proposed class action that argues the investment management firm’s 401(k) plan doesn’t provide the most value to participants. Also named in the lawsuit are the following defendants, among which are Invesco subsidiaries, committees responsible for the investment plan, and individual executives:

• Invesco Ltd.;
• Invesco National Trust Company;
• Invesco Advisers, Inc.;
• Invesco PowerShares Capital Management LLC;
• Invesco Benefits Plan Committee;
• Invesco Board of Directors;
• Invesco Board of Directors Compensation Committee.

The lawsuit begins by accusing the defendants – the 401(k) plan’s fiduciaries – of failing to uphold their duty to select and maintain investment options that would provide the highest benefit to plan participants. According to the lawsuit, the plan offered 155 to 205 investment options—more than 10 times the average number offer in typical defined-contribution plans. Almost all of those options were affiliated with Invesco, according to the lawsuit, with many calling for higher fees and performing poorer than similar investment avenues.

The case argues that the defendants confused plan participants by offering an unreasonably high number of investment choices, using the 401(k) plan as a “testing ground” for the company’s investment products and a means by which to generate fees and boost assets for Invesco’s benefit. From the complaint:

Controlling one of the largest “defined-contribution plans” in the country, the defendants could have used their position to negotiate lower costs for plan participants, the suit points out, but they supposedly refused to do so.

Even worse, the suit claims the defendants failed to disclose that some of its plan options were invested in the Invesco Short Term Investment Fund (ISTF), which was reportedly fined $10 million by the U.S. Department of Labor “for inappropriately using fund assets to artificially inflate the net asset value of that fund,” resulting in losses for investors.