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.”
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.
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.