Plaintiffs level a host of complaints against two sets of defendants overseeing the Allianz Asset Management 401(k) plan, suggesting the “total plan cost of 0.77% is outrageously high for a defined contribution plan with over $500 million in assets.”
Named in the complaint are Allianz Asset Management of America (both AAM-LP and AAM-LLC), as well as “the Committee of the Allianz Asset Management of America, L.P. 401(k) Savings and Retirement Plan … [Chief Operating Officer and Managing Director of AAM] John Maney … and John Does 1 to 30 … who improperly managed Plan assets for the benefit of themselves and their affiliates instead of the Plan and its participants.”
Several participating employers are also named in the complaint. These include: “AAM-LP and AAM-LLC (collectively, ‘AAM’), Allianz Global Investors Fund Management LLC, Pacific Investment Management Company LLC (‘PIMCO’), Allianz Global Investors U.S. LLC, and NFJ Investment Group LLC … who improperly received plan assets as profits at the expense of the Plan and its participants.”
Lead plaintiffs Aleksandr Urakhchin and Nathan Marfice filed their claim in the U.S. District Court for the Central District of California, seeking an order for Allianz and company “to remedy breaches of fiduciary duties and unlawful self-dealing.” Plaintiffs seek to recover the financial losses suffered by the plan through improper fees and self-dealing, and to obtain injunctive and other equitable relief from the defendants, as provided by ERISA.
Case documents show Urakchin and Marfice accuse defendants of “[treating] the plan as an opportunity to promote the Allianz Family’s mutual fund business and maximize profits at the expense of the Plan and its participants.” The accusations go beyond lax oversight commonly alleged in ERISA cases and suggest proactive self-dealing by defendants.
“The Fiduciary Defendants have loaded the Plan exclusively with mutual funds from the Allianz Family, without investigating whether Plan participants would be better served by investments managed by unaffiliated companies,” the compliant suggests. “The selection of these proprietary mutual funds costs Plan participants millions of dollars in excess fees every year. For example, in 2013, the Plan’s total expenses were 75% higher than the average retirement plan with between $500 million and $1 billion in assets (the Plan had $772 million in assets as of the end of 2013), costing Plan participants over $2.5 million in excess fees in 2013 alone.”
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According to the plaintiffs, citing various pieces of industry research, among the 550-plus defined contribution plans in the United States with between $500 million and $1 billion in assets as of the end of 2013, the Allianz plan in question “was one of only eight plans that had total plan costs that were 0.74% (of total plan assets) or higher. The Plan’s high costs can be attributed entirely to the Fiduciary Defendants’ selection of high-cost proprietary mutual funds as investment options within the Plan.”
Finally, plaintiffs suggest the funds were not just expensive, but unproven, and, in some cases, inappropriately risky for a long-term 401(k) plan investor.
Other details in case documents show plaintiff Aleksandr Urakhchin has participated in the plan since 2011, “and is a current participant in the plan within the meaning of 29 U.S.C. §§ 1002(7) and 1132(a)(2)–(3).” Plaintiff Nathan Marfice has participated in the plan “since before 2009, and is a current participant in the plan.” Both are California residents, according to the compliant.
The plan in question was established on January 1, 2003, via the merger “of certain predecessor plans.” These include the PIMCO Savings Plan, the PIMCO Retirement Plan, the NACM 401(k) Plan and the NACM Pension Plan. Prior to 2011, the plan was known as the “Allianz Global Investors of America L.P. 401(k) Savings and Retirement Plan.” It is a defined contribution 401(k) plan within the meaning of 29 U.S.C. § 1002.
According to case documents, the Plan has been amended and restated multiple times since it was established, most recently on October 29, 2012, under oversight of AAM-LLC.
Defendant John Maney, COO and managing director for Allianz Asset Management, is called out by name because “he is the sole member of the management boards of both AAM-LP and AAM-LLC.” Maney is also the CEO of defendant Allianz Global Investors Fund Management LLC and the managing director of Defendant Allianz Global Investors U.S. LLC.
According to the complaint, Maney “signed the Plan Document in his capacity as Managing Director and Chief Operating Officer of AAM. By virtue of his management and Board positions at AAM-LP and AAM-LLC, Maney has authority to appoint a recordkeeper and trustee, amend the Plan Document, and appoint and remove members of the Committee. This gives Maney discretionary authority and control over the administration and management of the Plan as well as discretionary control and authority regarding the management and disposition of Plan assets … Accordingly, Maney is a Plan fiduciary under 29 U.S.C. § 1002(21)(A).”
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The complaint further alleges each of the fiduciary defendants “are also subject to co-fiduciary liability under 29 U.S.C. § 1105(a)(1)–(3), because they enabled other fiduciaries to commit breaches of fiduciary duties through their appointment powers, failed to comply with 29 U.S.C. § 1104(a)(1) in the administration of their duties, and failed to remedy other fiduciaries’ breaches of their duties, despite having knowledge of the breaches.”
PIMCO is cited as “a Plan employer within the meaning of 29 U.S.C. § 1002(5),” because it acts as the investment adviser for 23 of the investment options offered within the plan. According to the complaint, throughout the statutory period, the only core investment options offered within the plan have been investments managed by either PIMCO or Allianz Global Investors, both of which are subsidiaries of AAM.
By 2013, plan participants were offered 45 proprietary mutual funds, two proprietary collective trust funds, and a self-directed brokerage account option. The core investment options consisted of 12 target-date funds, six balanced funds, 12 domestic equity funds, five global/international equity funds, six domestic bond funds, two international bond funds, and four specialty funds in technology, currency, commodities, and real estate. By the end of that year assets had increased to approximately $772 million, consisting of $628 million in proprietary mutual funds, $44 million in proprietary collective trust funds, $93 million in SDBAs, and $7 million in plan participant loan liabilities.
Taking into account all administrative and investment expenses within the plan, and using 2013 year-end balances (as reported on Form 5500 for 2013) and publicly available information regarding each investment’s expenses, plaintiffs estimate that “total plan costs for 2013 were approximately $5,950,000, equal to 0.77% of the $772 million in Plan assets.”
Plaintiffs suggest this fee level “is outrageously high for a defined contribution plan with over $500 million in assets,” suggesting the “average fee” for this segment is closer to 0.44%. “Forty-three of the 45 proprietary mutual funds within the Plan in 2013 had expenses that were above the average for plans with between $500 million and $1 billion in assets, and many of those funds had expenses that were two to three times higher than the average for similarly-sized plans.”
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According to the complaint, the defendants’ alleged imprudence in selecting unreasonably expensive funds is not the result of mere negligence.
“Rather, the Fiduciary Defendants intentionally exposed Plan participants to unreasonably high fees because doing so significantly benefited the Allianz Family. This is perhaps best illustrated by the Fiduciary Defendants’ improper use of the Plan to promote new and untested mutual funds for the purpose of furthering the Allianz Family’s mutual fund business.”
A variety of PIMCO-provided investment funds and series are named in the complaint, including target-date funds. Defendants suggest the competitive pressures of the investing industry drove plan fiduciaries to include new and untested investment products on retirement plan menus, in essence to help Allianz and PIMCO turn profits more quickly from new and developing funds.
The compliant goes as far as accusing PIMCO/Allianz of conspiring to use the plan’s qualified default investment alternative (QDIA) slot to “to funnel plan assets into untested funds.”
Allianz, PIMCO’s parent company, shared the following statement with PLANADVISER: "Allianz Asset Management, PIMCO and Allianz Global Investors offer employees a wide range of investment options to save for retirement and provide plan participants the flexibility to elect to invest in affiliated and non-affiliated investment products. Our 401(k) plan has been administered in accordance with applicable rules for the benefit of our participants. The action is without merit; we are confident it will be resolved accordingly."
A full copy of the complaint is here.