The following was originally published by Robert Schmansky at Forbes:
According to Investment News, a lawsuit filed earlier this month alleges that MassMutual used many high cost proprietary funds in its annuity 401(k) product, profiting more due to the fact they offered their employees their own funds.
The suit is the latest brought about by financial firm employees who are dissatisfied with the product their own company offers. Ameriprise is another firm that has been sued on the basis they may have violated their fiduciary duty to their employees by profiting from proprietary funds and recordkeeping kickbacks on their company 401(k) plan.
It will be interesting to see what the impact of these lawsuits is on the broad market. When a company’s employees sue claiming the product they offer isn’t good enough, who can believe it is good enough for the rest of the public? If it is successfully shown that a financial firm violated its duty to retirement plan participants, and received improper revenue in bundled recordkeeping services and high cost investment choices, many other 401(k) lawsuits could result.
Employers would be wise to get a second opinion from a fee-only fiduciary on the strengths and weaknesses of their current plan. Too many employers chose their 401(k) provider based on an already established relationship with an insurance or payroll company, or an executive’s current financial advisor. As fiduciaries to their employees the law holds plan sponsors personally liable for their choice of 401(k) investments.
The above lawsuits should make any business with a 401(k) consider if they have done enough research to make sure they have covered themselves from employee lawsuits.