Compliance

Self-Dealing Suit Questions Investment Lineup Prudence

A new self-dealing ERISA suit accuses Edward Jones of favoring its mutual fund partners in the construction of its 401(k) plan investment menu. 

By John Manganaro editors@plansponsor.com | August 22, 2016
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Similar to other self-dealing suits recently filed against well-known retirement plan providers, Edward Jones is accused of favoring its own investments and those of its “preferred partners” in its 401(k) plan, at the expense of performance.

Defendants, which include the Edward Jones company and individual fiduciaries serving the plan, are also accused of causing the plan to pay excessive recordkeeping and plan administration fees to the recordkeeper, Mercer HR Services, Inc. According to paperwork filed by defendants on behalf of the plan, the plan’s payments to Mercer HR Services “increased by 314% between 2010 and 2014 even though market rates for recordkeeping services declined over that period and even though the number of plan participants only increased by 22%.”

Plaintiffs are seeking class action certification for their suit, which calls out a number of investment options by name for being persistently poor performers that were allowed to remain on the investment menu due to their brand's connection with Edward Jones.

According to the complaint, the lead plaintiff’s individual account in the plan was “invested in various investment options offered under the plan’s investment menu in the class period, including: American Funds Europacific Growth Fund, American Funds Growth Fund of America, and Washington Mutual Investors Fund, with allocations set by defendants according to plaintiff’s investment election for a Balanced Toward Growth portfolio. The plaintiff, like substantially all plan participants and beneficiaries, was not provided any information regarding the substance of deliberations, if any, of defendants concerning the plan’s menu of investment options or selection of service providers during the class period.”

The text of the complaint shows the Edward Jones plan is a straightforward 401(k) and profit sharing arrangement  where participants “have the opportunity to direct the investment of the assets allocated to their individual accounts into the investment options approved by the committee and offered by the plan, and the return on those investments are credited to each participant’s account.” During the class period the plan "has invested in at least 53 different investment options, of which three were managed by defendants and at least 40 more were managed by partners or preferred partners of Edward Jones.”

NEXT: Specific allegations 

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