Compliance

Claims Against Prudential, CAPTRUST Dismissed in Fee Suit

U.S. District Judge Victor A. Bolden first determined that Prudential was not a fiduciary with respect to the lawsuit’s allegations.

By Rebecca Moore editors@assetinternational.com | January 05, 2017
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A federal judge has dismissed complaints against Prudential Retirement, an employer and its adviser in an excessive fee suit.

The participant who brought the proposed class action alleged that certain fees, including revenue-sharing payments, were kickbacks from mutual funds to Prudential. He also claimed that the 401(k) plan sponsored by Ferguson Enterprises included too many actively managed funds with higher fees than passively managed funds. Finally, he also accused a program offered by Prudential called GoalMaker, an optional program within the plan that assisted individual plan participants in making their investment selections, of directing participants to place their investments into higher-cost mutual funds that engaged in revenue-sharing with Prudential, resulting in additional compensation being paid to Prudential at the expense of the plan and plan participants.

U.S. District Judge Victor A. Bolden of the U.S. District Court for the District of Connecticut first determined that Prudential was not a fiduciary with respect to the lawsuit’s allegations. Prudential did not have the contractual authority to delete or substitute mutual funds from its menu without first notifying Ferguson and ensuring its consent. In addition, Bolden found that the trust agreement strips Prudential of its discretionary authority over its own compensation, limiting Prudential‘s compensation to the fee schedule provided to the employer and requiring advance notice to the employer of any changes to the agreed-upon schedule.

Concerning Ferguson and CapFinancial (doing business as CAPTRUST), Bolden ruled that the plaintiff has not made any allegations directly addressing the methods used by Ferguson and CapFinancial to select investment options for the plan. And, the plaintiff makes no allegations that the funds in the plan underperformed, instead stating broadly that the concentration of mutual funds imposes unwanted expenses on plan participants without including any factual allegations regarding the availability of lower-cost alternatives.

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