Compliance September 19, 2022

Judge Rules in Favor of Goldman Sachs in ERISA Suit

A federal judge rules that Goldman Sachs did not privilege its own mutual funds at the expense of retirement plan participants.

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A federal judge has ruled in Goldman Sachs’ favor in a summary judgement that holds that the firm was not in breach of the fiduciary duty under ERISA to its employees invested in a defined contribution retirement plan maintained by the firm.

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Leonid Falberg, an employee of Goldman Sachs from 1999 to 2008, filed a class action lawsuit in October 2019 alleging that Goldman Sachs had breached its duties of prudence and loyalty by maintaining five specific proprietary mutual funds in a larger menu of funds for enrollees to choose from.

Falberg alleged that these funds underperformed and charged higher fees than reasonable alternatives, and that Goldman Sachs only maintained them on its menu because it would benefit Goldman Sachs to have its employees choose to invest in funds that Goldman Sachs owned and operated.

He further alleged that maintaining these five funds constituted a conflict of interest. These funds began to underperform in 2016, and Falberg maintained that Goldman Sachs took an unreasonable amount of time to remove them as a retirement plan option, and only did so after then-recent ERISA litigation signaled to the firm that these funds might be a litigation risk.

The conflict of interest and mismanagement, alleged Falberg, were disloyal and imprudent, and therefore constituted a fiduciary breach under ERISA.

In July 2020, District Judge Edgardo Ramos of the U.S. District Court for the Southern District of New York denied a motion to dismiss filed by Goldman Sachs. 

Goldman Sachs moved for summary judgement in February. Ramos approved this motion and ruled in Goldman Sachs’ favor on September 14.

According to the ruling, the five challenged funds began to underperform in 2016, and Goldman Sachs asked its investment adviser, Rocaton, to explore alternatives to these funds at a quarterly meeting in September of that year. Goldman Sachs removed four of them in December 2016, and the last in June 2017. Additionally, two other proprietary funds that were not challenged by the suit were removed.

The ruling notes that Goldman Sachs maintained nonproprietary funds on its menu that underperformed its own, meaning that its own funds were not the worst-performing ones available.

Rocaton would rate various funds for Goldman Sachs as either “buy,” “hold,” “not broadly recommended” or “sell.” Falberg contended that Goldman Sachs should have removed the funds listed as “not broadly recommended” since funds rated as “buy” were available, but the ruling notes that Goldman Sachs was not advised to sell any of the challenged funds and kept nonproprietary funds it was advised to sell, suggesting the firm was not privileging its own.

Additionally, Rocaton had other clients who kept “not broadly recommended” funds available to defined contribution plan participants despite funds rated as “buy” being available as substitutes, so Goldman Sachs was not unique in this respect.

Both parties acknowledged that the Goldman Sachs committee members were qualified for the responsibility they held and had deep market expertise in their own right.

The judge noted that a conflict of interest is not a “per se breach,” and since there is no evidence that Goldman Sachs actually privileged its funds over others, this conflict does not represent a breach to its duty of loyalty.

Falberg also alleged that Goldman Sachs did not maintain an Investment Policy Statement. An IPS is a document that describes the process and investment goals that inform an organization’s investment decisions. In addition, he charged that the firm kept sparse minutes of meetings related to the plan, suggesting that it did not closely monitor or take interest in the options available.

Goldman Sachs countered that ERISA does not require fiduciaries to maintain an IPS, and that it is only a best practice. The absence of an IPS does not necessarily mean that it was not monitoring investment options. Secondly, minutes are not a transcript of meetings, and therefore not an indication that Goldman Sachs paid little interest to the funds. Detailed meeting minutes are likewise not required by ERISA, and thus a lack of them does not constitute a breach.

The judge sided with Goldman Sachs on both arguments, and noted that an expert witness called by Falberg conceded that an IPS is not required by ERISA.

The judge found that Goldman Sachs did not breach any fiduciary duty and closed the case.

Deals & People September 16, 2022

Retirement Industry People Moves

MetLife appoints director of institutional client group; eMoney announces leadership team additions; TIAA names head of research and thought leadership arm; and more.

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MetLife Appoints Director of Institutional Client Group

MetLife Investment Management, the institutional asset management business of MetLife Inc., has announced that it has named René Zeidan a director in its institutional client group, where he will be responsible for institutional client strategy and the delivery of investment solutions to clients in Europe. Based in Frankfurt, René will primarily focus on the German and Austrian markets.

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Prior to joining MIM, Zeidan was a director at Allianz Global Investors, where he was responsible for business development and client service efforts for European insurance companies. He also was a vice president and product specialist at MainFirst Asset Management.

eMoney Announces Leadership Team Additions

eMoney Advisor, a technology solutions and services firm, has announced the appointment of Rachel Eccles, senior vice president of marketing, and Morgan Jones, senior vice president of sales, to the firm’s leadership team. Reporting to CEO Susan McKenna, Eccles and Jones join a team of seven other senior leaders responsible for driving eMoney’s business strategy and delivering innovative solutions.

Eccles joined eMoney in 2017 with experience in business-to-business marketing. The roles she has held have included work on demand generation, events, marketing operations, retention marketing, corporate communications, content creation, creative development, product marketing and market research.

Jones joined eMoney in 2018 with more than 20 years of experience in sales, sales management and sales training within the technology software industry. He first led the firm’s sales development function and has since held positions as vice president and senior vice president of sales, leading eMoney’s revenue-generating activities.

Formerly head of marketing and sales, McKenna was appointed CEO in August.

TIAA Names Head of Research and Thought Leadership Arm

TIAA has announced that Surya Kolluri will join the firm as the new head of the TIAA Institute on September 19. Kolluri will be reporting to Micky Onvural, TIAA chief marketing and communications officer, and will be based in Boston.

As leader of the TIAA Institute, Kolluri will work to amplify its insights to better reach its clients, consultants, regulators and lawmakers and will also offer consulting services for institutions. Dave Richardson, head of institute research, will report to Kolluri, as will Anne Ollen, head of institute programs and operations.

Kolluri joins from Bank of America, where he was most recently managing director, retirement research and insights, leading research and external partnership as part of the bank’s retirement and wealth solutions business. He oversaw research and programs in the areas of longevity and retirement and financial wellness, managing external relationships with the Harvard Kennedy School, Stanford Center on Longevity and MIT AgeLab, among many others.

Kolluri joined Bank of America to lead the corporate strategy team for the global wealth and investment management business. Prior to that he spent 14 years in corporate strategy consulting serving Fortune 500 companies globally, first at A.T. Kearney and finally at Bain & Co.

He is also active on the board of the Wharton Pension Research Council and is an adviser to the Wharton Social Impact Investing Initiative. Kolluri holds a bachelor’s in mechanical engineering from PSG College of Technology, India, a master’s in mechanical engineering from Drexel University and an MBA from the Wharton School at the University of Pennsylvania.

Robeco Appoints Global Head of Sales and Marketing

Robeco has announced that Alexander Preininger has been appointed as global head of sales and marketing and executive committee member, effective November 1. 

Preininger joins from Amundi, where he was global head of institutional client coverage. Prior to that, he held leadership roles at Robeco and DWS International GmbH, formerly Deutsche Asset Management.  

Before moving to the client side, Preininger headed overlay management globally for institutional clients in portfolio management. He began his career at Deutsche Bank in Munich, moving to asset management and multi-asset portfolio management while still a student at the University of Innsbruck. There, he received his master’s in international economics and business administration. Preininger is also a Certified EFFAS Financial Analyst.

Franklin Templeton Transitions 403(b) Business to PCS Retirement’s Aspire Platform

Franklin Templeton has announced that it is transitioning its 403(b) business to PCS Retirement’s Aspire 403(b) platform. This partnership brings together investment options made available through Franklin Templeton’s global asset management expertise and the services offered by Aspire, a division of PCS Retirement, an independent recordkeeper serving K-12 retirement plans.

403(b) plans are the retirement savings vehicles of choice for employees of public schools and certain tax-exempt organizations. To date, most 403(b) plans have included an annuity structure, whereas the Aspire platform leverages mutual funds. Access to mutual funds allows participants to benefit from institutional-level pricing and creates a solution that is mindful of overall costs and focuses on transparency. With Aspire, existing and new Franklin Templeton participants can now gain access to  features such as Roth 403(b) plans, enhanced financial literacy tools and access to a lineup of independent specialist investment managers, including ClearBridge Investments and Western Asset.

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