Empower Hit With Managed Account Lawsuit

The suit claims Empower instituted "fraudulent sales tactics" to "lure" 457 plan participants into its managed accounts.

A former participant in a government 457 plans run by Empower Retirement and affiliates Great-West Funds and Putnam Investments and a managed account holder brought a lawsuit alleging breach of fiduciary duty against the firms and related companies.

The lawsuit, which is seeking class action status, was brought under the Investment Advisers Act, the federal law  that regulates investment advisers.

Additional named defendants to the lawsuit are Advised Assets Group, Great-West Lifeco, Great-West Life & Annuity Insurance Company, Empower Annuity Insurance Company of America and Empower Advisory Group.


The plaintiffs’ complaint centers on Empower’s government markets division, the filing shows. For many state and local government workers—in addition to pensions—they can save for retirement in supplemental 457 defined contribution plans.


The complaint has alleged Empower used deceitful sales practices, to boost use of managed accounts.


Plaintiffs claim fraudulent sales practices comprised a breach of fiduciary duty to participants. The complaint alleges Empower instructed government plan advisers to use fraudulent sales tactics that caused employees to be “lured into the Empower-owned,” higher fee managed account option, filled with Empower-affiliated Great-West and Putnam funds, while lower cost investments were available from competitors.   


“As profitability of its retirement plan administration business dwindled, Empower instituted a companywide policy requiring the use of fraudulent sales tactics to induce individuals to transfer assets from their low-fee employer sponsored retirement plans to Empower’s higher fee managed account product, which contains individual funds owned by Empower’s sister companies,” the complaint states.

Government 457 defined contribution plans are not subject to rules and requirements of the Employee Retirement Income Security Act, as are private-sector 401(k) plans.


Empower says its managed accounts are designed to allow plan sponsors a way to provide greater personalization for workers’ retirement savings and investments, that are tailored to a participants’ specific circumstances.


For example, their total assets needed for retirement, time to retirement, and risk tolerance. For the service and greater personalization, managed account fees are higher than plain-vanilla target-date funds with a traditional glide path that de-risks as the participant nears retirement. The managed account is overseen by a discretionary portfolio manager who makes investment decisions for individual participants.


“Empower used its knowledge as a retirement plan administrator to identify vulnerable unsophisticated investors and individuals with large account balances nearing retirement as targets for Empower’s sales representatives, who then used manipulative sales tactics and falsely portrayed Empower’s higher-fee Managed Account as the preferred solution without regard to whether the recommendation was in the participants best interest,” according to the complaint.


An Empower spokesperson said in an email the lawsuit is without merit.


“This is a lawyer-driven lawsuit filed by two individuals purportedly on behalf of a class of others.  The lawsuit was not filed by a plan sponsor or an adviser. Anyone can file a lawsuit and in so doing they can make claims that are not valid. We believe our products and services are compliant with the applicable rules and are beneficial to our clients, helping them meet their retirement goals,” the email stated.


The lawsuit was filed by Forest James IV, an attorney with Birmingham, Alabama-based law firm, Fob James Law Firm and James Z. Foster, with Atlanta-based Foster Law. 


The lawsuit seeks class action status. The complaint was  filed in U.S. District Court for the District of Colorado.