MetLife hit with an exclusive fund costume
(Another) group of participants in (another) multibillion-dollar 401 (k) plan sued the plan’s trustees over their decision to rely on their employer-managed fund options.
The plaintiffs in this case are Rita Kohari, John Radolec and Mohani Jaikaran, who “individually and as representatives of the group” on behalf of the MetLife 401 (k) plan allege that the defendants MetLife Group, Inc., Metropolitan Life Insurance Company , the Benefit Plan Investment Advisory Committee and “John and Jane Does 1-20” for breaching their “fiduciary duties to the Plan in violation of ERISA, to the detriment of the Plan and its participants and beneficiaries, by applying a reckless and unfair preference for MetLife index fund products within the Plan, despite their poor performance, high costs and lack of traction among trustees of plans of similar size. The lawsuit – the plaintiffs here are represented by Nichols Kaster PLLP – alleges that this “reckless and unfair conduct cost plan members millions of dollars over the statutory period.”
The suit (Kohari et al v MetLife Group, Inc., SDNY, # 1: 21-cv-06146, complaint 07/19/21) may be significant (the plan itself some $ 7.3 billion, with up to 42,000 participants involved), but the deposit is – well, “short” – only 25 pages. The claims are similar to other lawsuits against providers who include their exclusive offers in their retirement plans – essentially the decision to do so was based on a desire to “promote MetLife’s proprietary financial products and generate profits for them. MetLife ”, rather than what was in the best interests of the participants.
Specifically, the lawsuit claims that the defendants “selected and retained seven proprietary index funds for the plan’s investment menu: the Met Life Bond Index Fund, the Balanced Index Fund, the Large Cap Equity Index Fund, the Large Cap Value Index Fund, the Large Cap Growth Index. Fund, Mid Cap Equity Index Fund and Small Cap Equity Index Fund ”—that these are the only index funds available to Plan participants, and that while they“ do not question the decision to use passive investments for these asset classes or the index used to represent each asset class ”- their stake is the specific funds selected.
The lawsuit claims that instead of investing in one of these market competitive index fund offerings, the defendants choose to generate profits for MetLife by investing exclusively in MetLife index funds, which charged fees up to six times higher than market alternatives that track the exact same index.
“Not only were MetLife index funds more expensive, but they were also of lower quality than other options when it comes to their sole function – to track the underlying index,” the lawsuit alleges, claiming that most (five of the seven) of the included index funds performed worse than expected, and none performed better than expected.
“A prudent trustee managing the plan through a process that was not tainted with personal interest would have removed the MetLife index funds from the plan,” the lawsuit said.
NOTE: In litigation, there are always (at least) two sides to every story. As factual as it may turn out, the initial trial in any action is only one side, and usually designed towards a particular outcome. In our coverage, you will see descriptions of qualified events with utterances such as “trial says” or “plaintiffs allege” – and the qualifiers should serve as a reminder of that reality.