Neuberger Berman Accused of Self-Dealing in 401(k) Plan

The case calls out one fund in particular, which it says “was larded with high fees and has suffered from consistently abysmal performance.”

The retirement plan industry has seen a trend this year in lawsuits filed against investment managers for self-dealing in their own retirement plans, and Neuberger Berman is the target of the latest filing. 

Plaintiff Arthur Bekker, individually and on behalf of a class of similarly situated participants in the Neuberger Berman Group 401(k) Plan, and on behalf of the plan, has accused Neuberger Berman and the plan’s investment committee of violating fiduciary duties under the Employee Retirement Income Security Act (ERISA) by forcing the plan into investments managed by Neuberger or an affiliated entity, which charged excessive fees that benefited Neuberger and the managers of the proprietary funds. 

The case calls out one fund in particular, the Value Equity Fund, which it says “was larded with high fees and has suffered from consistently abysmal performance.” According to the complaint, in 2011 the defendants opened the fund to new investments and have maintained the fund in the plan despite its high fees and persistent and increasing underperformance compared to readily available alternatives. The lawsuit says the decision to continue to offer the fund, and to open the fund to new investments, were fiduciary breaches which cost the plan more than $130 million. 

The case alleges that Neuberger “profited handsomely from the arrangement, receiving for itself tens of millions of dollars in fees during the class period from the plan’s investment in the Value Equity Fund, and more from the inclusion of other Neuberger-managed options.” The lawsuit says the fees were 40 times more than comparable alternative funds. It also contends the manager of the fund, a shareholder in Neuberger, profited from assets he removed from the fund and the plan through fees collected directly for him and by the Straus Group at Neuberger, which the manager lead and co-founded, as well as by Neuberger Berman Trust N.A. 

The complaint says each time the plan paid fees to Neuberger Berman Trust Company N.A., or other Neuberger entities, in connection with the plan’s investment in the fund, the defendants caused the plan to engage in a prohibited transaction under ERISA. 

The complaint in Bekker v. Neuberger Berman Group LLC et. al. is here.