A new Employee Retirement Income Security Act lawsuit has been filed in the U.S. District Court for the Central District of California, naming NFP Retirement Inc. as the defendant.
The new lawsuit against NFP is closely related to a complaint filed in March, and it includes the same named plaintiffs, who are engaging in litigation individually and as representatives of a proposed class of participants and beneficiaries in a retirement plan offered to the employees of Molina Healthcare.
The original lawsuit targeting Molina Healthcare directly says the defendants caused plan participants to invest in flexPATH’s “untested target-date funds,” which allegedly replaced “established and well-performing target-date funds” previously offered to participants. The defendants are also accused of failing to use the Molina Healthcare plan’s size and bargaining power to obtain reasonable investment management fees.
The new lawsuit almost completely mirrors the original compliant, though it is distinct in that it argues that NFP is also a fiduciary to the retirement plan in question, based on the nature of the advice it allegedly provided to the plan sponsor, and it should therefore face the court’s scrutiny alongside the Molina defendants.
NFP shared the following statement regarding the litigation: “We believe this case is without merit and will vigorously defend ourselves against the plaintiffs’ allegations.”
“Instead of acting in the exclusive best interest of participants, NFP caused the plan to invest in flexPATH’s untested target-date funds, which replaced established and well-performing target-date funds used by participants to meet their retirement needs,” the complaint states. “NFP also caused unreasonable investment management expenses to be charged to the plan.”
Both the new and original lawsuit allege that because flexPATH invested the underlying assets of the TDFs in BlackRock TDFs, additional fees were charged compared to the fees that would have been charged to investors had they invested directly in BlackRock’s funds. The BlackRock LifePath Index TDFs allegedly charge 8 basis points, while flexPATH charged plan participants 26 bps.
“Molina added the flexPATH Index target-date funds to the plan, and NFP presented them to Molina for use in the plan, even though flexPATH’s target-date fund management style had never been used in any target-date fund offered in a 401(k) plan,” the complaint states. “The novel and untested management style of the flexPATH Index target-date funds was magnified by the inexperience of the funds’ investment manager (flexPATH), which had no established track record as an investment manager, had only managed assets for investors since June 2015 and only recently completed the launch of the flexPATH Index target-date funds in January 2016. Despite these facts, Molina placed flexPATH’s target-date funds in the plan on or about May 16, 2016.”
The complaint alleges that the decision to add the flexPATH Index target-date funds to the plan benefitted NFP and flexPATH by providing an immediate and substantial transfer of over $200 million of the plan’s assets into these “brand-new, untested target-date funds.”
“When NFP recommended the flexPATH Index target-date funds to Molina for consideration, those funds did not yet exist,” the complaint alleges. “As a result, there was no actual performance history for NFP to consider when evaluating how the flexPATH Index target-date funds performed under actual market conditions or relative to alternative target-date fund strategies available to the plan.”
The full text of the new complaint is available here.