An Acceptable Portfolio
A federal court dismissed a 401(k) plan participant’s claims that plan fiduciaries inappropriately selected plan funds and allowed excessive fees.
The U.S. District Court for the Southern District of New York found Bruce Laboy’s claim of inappropriate selection of the plan’s default fund was time-barred, and that Laboy, filing on behalf of Local 32BJ, failed to specifically allege that other plan investments underperformed or compare their performance to any comparable funds. U.S. District Judge Harold Baer Jr. said Laboy failed to state a claim that either the default fund or the alternative funds were imprudently selected or monitored.
According to the court’s opinion, Laboy’s claim of excessive fees for the funds also failed. The court found that even among Laboy’s handpicked group of funds, the fees charged by the default fund were not outliers—one fund had higher management fees, a second had identical management fees, with the remaining six charging fees that were lower by varying amounts. Laboy also failed to allege facts indicating that the default fund fees were excessive in light of the services rendered; as to the other funds, Laboy failed to provide any evidence of their expenses at all.
Baer noted that decisions where courts allowed allegations of imprudence to go forward rested on allegations that the defendants selected certain funds out of self-interest or demonstrated clear incompetence. In this case, there was no similar allegation that defendants chose funds based on affiliation with the defendants or the plan sponsors. Though he dismissed the claims, Baer granted Laboy leave to amend the complaint within 30 days.
According to the opinion, Local 32BJ is a union with more than 120,000 members within the Service Employees International Union; after a qualifying period, members are eligible to participate in a defined contribution 401(k) plan. Putnam Investments provided services to plan participants from January 1, 2001 to June 2011. Participants had the option of self-directing investments among 14 funds or allowing their funds to be invested in the default fund.