Complaint Alleges Franklin Templeton Investments Cost Participants Millions

Three current and former investors filed a complaint against Franklin Templeton, alleging the company cost its participants millions by inappropriately investing assets from its retirement savings plan in proprietary funds.

In Ang, DeMedici and Gaver, et al. v. Franklin Resources Inc., the Franklin Templeton 401(k) Retirement Plan Committee, etc., filed in U.S. District Court for the Northern District of California, the plaintiffs allege that Franklin Templeton and its retirement plan committee used poor-performing, low-rated, unpopular funds in violation of their fiduciary duties under the Employee Retirement Income Security Act of 1974.

The complaint alleges Franklin Templeton violated ERISA by: 1) breaching its fiduciary duties of loyalty and prudence; and 2) failing to monitor the fiduciaries it appointed to manage the plan.

According to the complaint, of the 32 proprietary funds Franklin Templeton used during the class period—from July 22, 2019 to the present—14 (44%) are not used by any other defined contribution plans with at least $500 million in assets. Seventy-eight percent of the investments available in the plan were proprietary funds, accounting for 75% of the plan’s $1.6 billion assets under management. The fund ranks in the 1st percentile of 401(k) plans in the U.S. based on assets under management, according to the complaint.

The complaint adds that many of the funds used are expensive; continuously fail to beat their hand-picked benchmarks; and underperform other, more successful funds in the market, funds that have been used by fiduciaries of similar-sized plans without proprietary motives.

During the class period, the fund had between 5,200 and 6,000 participants and invested between $984 million and $1.25 billion of its assets in proprietary funds, according to the complaint.

The plaintiffs are represented by Nichols Kaster LLP, Stephan Zouras LLC and Don Bivens PLLP.

The complaint cites the recent Supreme Court decision in Cunningham v. Cornell University that lowered the bar to survive a motion to dismiss for plaintiffs alleging prohibited transactions.

Franklin Templeton declined to comment on the complaint.