Waddell & Reed 401(k) Self-Dealing Lawsuit Is Settled

In addition to a large payment to participants, the firm agreed to have an independent investment adviser assist in making decisions about the plan and its investments for at least three years.
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Waddell & Reed Financial has settled a self-dealing lawsuit by agreeing to have its insurance carrier, RLI Insurance Company, pay $4.875 million into a common fund for the benefit of participants in its Thrift Plan. The funds will be allocated pro rata to participants in proportion to their account balances in the plan during the class period, after deduction of attorneys’ fees and costs, as well as administrative expenses.

Waddell & Reed has also agreed to have an independent investment adviser assist in making decisions about the plan and its investments for at least three years.

The U. S. District Court for the District of Kansas has preliminarily approved the settlement.

The lawsuit, filed in June 2017, alleged that Waddell & Reed, instead of acting for the exclusive benefit of its 401(k) plan and its participants and beneficiaries, acted for the benefit of itself and its affiliates starting June 23, 2011, forcing the plan nearly exclusively into investments managed by Waddell & Reed or an affiliated entity, which charged excessive fees that benefited Waddell & Reed or its affiliated entities and which performed worse than comparable available options. The lawsuit says the defendants could have chosen nonproprietary, less costly, better-performing investment options for the plan.

According to the complaint, “the only criteria (or virtually the only criteria) used by Defendants when determining what investment options to make available to the 401(k) Plan participants was whether the investment product was part of the then-available line-up of Waddell & Reed and Ivy Funds investment products established and managed by the 401(k) Plan’s own Administrator, Waddell & Reed, or its affiliates.”

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