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Apr 02

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Fiduciaries Continue to Face 401(k) Conflict of Interest Allegations

A group of workers at Ameriprise Financial Inc. settled their federal lawsuit against the company regarding management of their 401(k) contributions that were invested in Ameriprise funds and generated millions in allegedly excessive fees for the company.

The case was filed in 2011 by Roger Krueger and a group of Ameriprise plan participants.  The plaintiffs disputed the fee revenue charged to employees by the firm’s subsidiary RiverSource Investments (currently Columbia Management Investment Advisers) for management of the company’s 401(k) plan.  According to the complaint,

  • Between 2005 and March 2007, an average of $500 million in plan assets went annually into RiverSource and Ameriprise, the trustee and record keeper of the plan.
  • The funds were costly when compared to alternatives, generating more than $20 million in alleged excess fees and expenses.  For example,

o    Ameriprise’s diversified bond fund cost 78 basis points in 2010, which was 71 basis points more than a comparable offering from Vanguard.

o    Target date funds from RiverSource ranged from 84 to 92 basis points, costing 74 basis points more than a Vanguard alternative.

o    Ameriprise selected the R4 share class of RiverSource mutual funds, when it could have saved the workers 17 to 34 basis points by choosing the R5 share class.

  • The RiverSource funds lagged their benchmarks, received poor ratings from Morningstar Inc. and experienced outflows of $9.3 billion in 2005 and $6.9 billion in 2006.

The $27.5 million settlement does not require that Ameriprise change its plan, but does require Ameriprise to obtain competitive bids for recordkeeping services and investment consulting services and provide additional communications with plan participants.  Further, Ameriprise may not receive payment for administrative services beyond direct expense reimbursements, must continue paying fees to the record keeper on either a flat fee or per-head basis, must consider the use of collective investment trusts and separately managed accounts, and may not include any executive with Columbia Management Investment Advisers or its investment management affiliates on its fiduciary committee for investment selection.

This case is one of many 401(k) excessive fee and fiduciary breach suits in recent years discussed in this related article.

About the author

Renee Howdeshell

Renee Howdeshell is a founding member of Fulcrum Inquiry, an accounting, finance and economic consulting firm that performs damage analyses for commercial litigation, forensic accountings, royalty & distribution audits, financial investigations, and business valuations. Ms. Howdeshell holds a degree in Finance and Marketing from the University of Virginia's McIntire School of Commerce and is a Certified Public Accountant (CPA) and a Certified Fraud Examiner (CFE). She has testified as an expert witness in federal court, CA state court and arbitration regarding the results of her work. She can be reached at (213) 787-4112 and her resume is available at www.fulcrum.com.

Permanent link to this article: http://betweenthenumbers.net/2015/04/9358/

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