Participants in BB&T Corporation retirement plans accuse the company of breaching the Employee Retirement Income Security Act (ERISA) by favoring its own proprietary investments options and recordkeeping services at the expense of performance.
The case, filed in the United States District Court for the Middle District of North Carolina, is the latest in a string of self-dealing lawsuits filed by the law firm of Schlichter, Bogard and Denton, as well as a handful of other firms specializing in ERISA litigation. The text of the complaint alleges several breaches of fiduciary duties by BB&T Corporation and its board of directors in the management of its employees’ 401(k) plan.
Clearly echoing the claims in other recent lawsuits, plaintiffs here argue that “in the competitive marketplace for retirement plan services, multi-billion 401(k) plans such as the BB&T plan wield tremendous bargaining leverage, and can obtain high-quality investment management and administrative services at low cost.” But instead of using their large plan’s bargaining power to benefit employees, plaintiffs suggest the company “acted to benefit themselves by using high-cost proprietary investment funds managed by BB&T and its subsidiary and hiring BB&T itself or another BB&T subsidiary to be the plan’s trustee and recordkeeper, and selecting other high-cost investment options.”
According to the text of the complaint, this allowed BB&T and its subsidiaries to collect millions of dollars in revenues, “in an amount that greatly exceeded the value of the services to the plan, thereby enriching BB&T at the expense of plan participants.”
“By acting for their own benefit rather than solely in the interest of plan participants, and failing to adequately consider the use of non-proprietary products and services and other low-cost options available to the plan, defendants breached their fiduciary duties of loyalty and prudence, and engaged in transactions expressly prohibited by ERISA covered up their long campaign of self-interested and imprudent conduct through a series of false and misleading communications to plan participants,” the complaint alleges.
Plaintiffs are asking for the court to remedy these alleged breaches under 29 U.S.C. §§1132(a)(2) and (3) to “enforce defendants’ personal liability under 29 U.S.C. §1109(a) to make good to the plan all losses resulting from each breach of fiduciary duty and to restore to the plan any profits made through defendants’ use of the plan’s assets.”
NEXT: Role of proprietary funds questioned
As noted, the tenants of this case line up quite closely with a number of suits previously filed in the federal district courts, especially the main charge of self-dealing leveled by plaintiffs: “Despite the many high-quality and low-cost investment options available in the market, the plan’s investment options have contained many of BB&T’s own proprietary mutual funds … Defendants chose the BB&T funds not based on their merits as investments, or because doing so was in the interest of plan participants, but because these products provided significant revenues and profits to BB&T Corporation and its subsidiaries.”
Case documents show that prior to October 1, 2010, the proprietary options in the plan were managed by BB&T Asset Management, Inc., a wholly-owned subsidiary of BB&T Corporation, and were branded as “BB&T” funds. On October 1, 2010, BB&T Asset Management merged into Sterling Capital Management LLC, another wholly-owned subsidiary of BB&T Corporation. Effective February 1, 2011, the BB&T funds were renamed “Sterling Capital” funds, but plaintiffs say they “remained BB&T proprietary funds” for all practical purposes.
“As of January 1, 2007, the date of the previous restatement of the plan and the proposed starting date for plaintiffs’ class, the plan’s designated investment options were exclusively proprietary options, including 16 BB&T mutual funds, the BB&T Common Stock Fund, and the BB&T One-Year Bank Investment Contract,” the complaint explains. “The plan did not include any non-proprietary funds among the designated options until 2009. At that time, the plan continued to include eight BB&T mutual funds, along with the proprietary BB&T Common Stock Fund and One-Year Bank Investment Contract.”
The total annual operating expense or “expense ratio” of the eight BB&T mutual funds ranged between 72 basis points to 153 basis points, which plaintiffs suggest is “far beyond fees readily-available to 401(k) plans even much smaller than the plan.” Currently, the plan’s designated investment options continue to include six proprietary Sterling Capital mutual funds, with expense ratios ranging from 85 to 103 basis points for equity funds and 59 basis points for the bond fund, again described as “far beyond the fees readily available to 401(k) plans even much smaller than the plan.”
In addition to questioning use of the proprietary mutual funds, plaintiffs also suggest BB&T fiduciaries, rather than using an arm’s length bidding process to hire a recordkeeper, have since at least 2000 used BB&T Corporation’s Trust Division or BB&T’s subsidiary Branch Banking and Trust Company as the plan’s trustee and recordkeeper—accepting fees that were higher than the effective market rate.
BB&T tells PLANSPONSOR it “intends to vigorously defend against the claims, but because it is pending litigation we cannot comment further.”
The full text of the complaint is here.