Compliance March 30, 2016

Merrill Lynch Wins Dismissal of Excessive Fee Case

Merrill Lynch was not acting as a fiduciary under ERISA, a court found.
Reported by

The U.S. District Court for the Southern District of New York has found that Merrill Lynch was not acting in a fiduciary capacity under the Employee Retirement Income Security Act (ERISA) by presenting a roster of funds from which 401(k) plan trustees could choose to offer in the plan. 

The court determined the trustees had final say on which investment options would be available to participants and the fact that they may have discussed or negotiated this decision with Merrill Lynch does not mean Merrill Lynch had discretionary control over the management or administration of the plan or its assets. In addition, U.S. District Judge Paul G. Gardephe ruled that offering a roster of funds from which to choose is not providing individualized investment advice to the plan. 

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Merrill Lynch was the investment adviser for the Clifford Chance US LLP 401(k) plan from 1991 to 2006 and the recordkeeper, administrator and investment menu provider from 1991 through 2015. In this role, it provided a roster or slate of mutual funds from which plan trustees or the investment adviser would select to be offered in the plan. 

Craig M. Walker, who worked at Clifford Chance until 2003, but still has assets in the firm’s 401(k) plan, alleges that Merrill Lynch failed to include a sufficient number of low-fee funds in the roster of funds it provided to the plan’s trustees; included its own high-fee funds and collective investment trusts in the roster; and orchestrated a “revenue sharing” arrangement by which it reaped kickbacks from fees plan participants paid into the funds. In addition, he says the revenue sharing was divided with Clifford Chance and was not disclosed to participants until the second quarter of 2012. Even then, he says, the notice provided was misleading because the revenue sharing was described as “indirect revenue” and the notice did not disclose the size of payments.

The district court granted Merrill Lynch’s motion to dismiss the case. The opinion in Walker v. Merrill Lynch & Co., Inc. is here.

Deals & People March 30, 2016

State Street Acquisitions Adds More Alternatives Capabilities

State Street will acquire GE Asset Management.
Reported by

State Street Corporation has agreed to acquire GE Asset Management (GEAM) from GE.

The transaction is expected to increase State Street Global Adviors’ (SSGA’s) assets under management by approximately $100 billion upon closing and add new alternatives capabilities, while strengthening existing fundamental equity and active fixed income teams. Pending regulatory approvals and other customary closing conditions, the transaction is expected to be finalized early in the third quarter of 2016.

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GEAM has more than $100 billion in assets under management for more than 100 institutional clients, including corporate and public retirement plan sponsors, foundations, endowments, sovereign wealth funds and insurance companies. GEAM and its predecessor organizations have been managing investments for GE’s U.S. pension and other benefit plans for more than 80 years.

“As defined benefit plans—both private and public—undergo change, GEAM’s skills coupled with SSGA’s existing capabilities will position us well to provide effective solutions and outcomes to these investors,” says Ron O’Hanley, president and chief executive officer of SSGA. “GEAM will bring new alternatives capabilities in direct private equity and real estate to SSGA while enhancing our existing active fundamental equity, active fixed income and hedge fund teams. In addition, GEAM’s OCIO and Insurance platforms significantly strengthen our capabilities in these fast growing areas.”

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