Compliance

Jackson National Target of DC Plan Self-Dealing Suit

The lawsuit says disclosures show the proprietary funds used in the DC plan lineup were far more expensive than comparable funds and underperformed their benchmarks.

By Rebecca Moore editors@strategic-i.com | April 03, 2017

A lawsuit has been filed accusing fiduciaries of the Jackson National Life Insurance Company Defined Contribution Retirement Plan of self-dealing and imprudent investment of retirement plan assets.

According to the complaint, “Jackson National put its financial interests ahead of the Plan’s interests by selecting high-cost proprietary investment products offered and managed by Jackson National and its affiliates on the Plan’s menu of investment options. This allowed Jackson National to maximize company profits at the expense of the Plan by collecting for itself millions of dollars in fees, an amount that greatly exceeds what the Plan would have paid for comparable low-cost non- proprietary investment products that are not offered by Jackson National to the Plan.”

The lawsuit says Jackson National breached its fiduciary duties of loyalty and prudence, and engaged in transactions prohibited by the Employee Retirement Income Security Act (ERISA) by acting for its own benefit rather than solely in the interest of the plan, and failing to adequately consider the use of non-proprietary products and other low-cost options available to the plan. According to the compliant, in 2014, Jackson National offered plan participants the ability to invest in 21 funds, and 18 of them were Jackson National proprietary funds.

The lawsuit also says disclosures show the proprietary funds were far more expensive than comparable funds and underperformed their benchmarks. “One of the primary reasons Defendant’s proprietary funds performed so poorly is because of the high cost of the funds and specifically the fees collected by Defendant from participants who invest in these funds. For example, the annual gross expense ratio for the JNL/S&P Managed Aggressive Growth Fund is 110 basis points. Unaffiliated entities like Vanguard, Fidelity, Blackrock, Schwab and State Street offer virtually identical benchmark S&P 500 funds with annual expense ratios of less than 10 basis points,” the complaint states.

The suit also calls out the plan’s default investment fund for employees who enroll in the plan and fail to make an investment election. They are automatically invested in the JNL/S&P Managed Growth Fund. “Defendant’s disclosures state the benchmark for the JNL/S&P Managed Growth Fund is the S&P 500. The disclosures show that over a one year period the JNL/S&P Managed Growth Fund had an average annual total return of -20%, while over the same period the S&P 500 had an average annual return of 1.38%,” the complaint says.

The plaintiff who filed the suit says failing to closely monitor and subsequently minimize administrative expenses wherever possible by surveying the competitive landscape and leveraging the plan’s size to reduce fees, and selecting higher cost investments because they benefit a party in interest are breaches of fiduciary duties.

The lawsuit asks the court to order Jackson National to personally make good to the plan all losses that it incurred as a result of the breaches of fiduciary duties and self-dealing and to restore the plan to the position it would have been in but for such breaches and self-dealing, among other things.