Milliman Accused of Failing to Prune Bad Investments From 401(k)

A lawsuit alleges that the poor performance of a suite of target-risk funds resulted in a nearly $250 million loss to participant accounts.

A participant in Milliman Inc.’s 401(k) plan has filed an Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit against the company, its board of directors and members of its 401(k) investment and administrative committees.

The proposed class action lawsuit accuses the defendants of failing to prudently monitor the plan’s investments and failing to remove three of the plan’s “poorly performing investment options.” According to the complaint, when the investment committee decided to add a suite of target-risk funds to the plan’s investment menu in 2013, the funds had only been launched two months prior, had no track record and were untested.

The complaint notes that Milliman’s investment adviser affiliate, Milliman Financial Risk Management LLC, is the subadviser to the Unified Trust Wealth Preservation Strategy Target Growth Fund, Unified Trust Wealth Preservation Strategy Target Moderate Fund and Unified Trust Wealth Preservation Strategy Target Conservative Fund. It says that by the end of 2013, Milliman’s plan was the sole investor in the conservative and moderate funds and represented about 97% of assets in the aggressive fund.

“During the nine years since their introduction to the plan in 2013, the Unified Funds have significantly underperformed meaningful benchmarks, which include both benchmark indexes (including the index preferred by the Unified Funds’ investment manager itself) and comparable target-risk funds,” the complaint states. “But mere underperformance is not the whole story—the depth and breadth of the underperformance is as jarring as it is incomprehensible. Since January 1, 2013, the aggressive fund’s investment return underperformed a key investment benchmark by a cumulative total of over 62%; and it ranks in the bottom 90th percentile among the funds in its peer universe, according to the highly regarded financial services and research firm, Morningstar Inc.”

According to the lawsuit, despite the underperformance, “and a marketplace teeming with hundreds of better performing investment options,” the defendants did not remove any of the Unified Funds from the plan.

The lawsuit claims that the defendants’ failure to act has resulted in a nearly one-quarter-billion-dollar loss to participant accounts. The plaintiff is asking that the defendants be ordered to make good to the plan all losses resulting from the breaches of fiduciary duties alleged in the lawsuit.

Milliman told PLANSPONSOR it does not comment on ongoing litigation.