With Court Date Approaching, Another 401(k) Revenue Sharing Case Settles

By Nevin Adams • 3/30/2015 • 0 Comments

Its day in court just days away, Ameriprise Financial, Inc. opted to settle a 2011 lawsuit claiming breach of fiduciary duty in the company’s 401(k) plan for $27.5 million.

As noted below, while the case had many of the same issues and factual considerations common in these so-called “excessive” 401(k) revenue-sharing cases, the Ameriprise case involved a couple of unique elements: Ameriprise provided record keeping services for its own plan, and included proprietary funds on its 401(k) menu that provided revenue-sharing to its investment management subsidiary.

A joint motion for approval of the settlement was recently filed by the parties in the Court of Judge Susan Richard Nelson of the U.S. District Court for the District of Minnesota, who must approve the settlement. The settlement, which would cover around 24,000 employees, also requires that Ameriprise:

  • Conduct a request for proposal (RFP) competitive bidding process for record keeping and investment consulting services (within a year of the settlement effective date).
  • Refrain from receiving compensation for administrative services provided to the plan other than reimbursement of direct expenses from the plan as permitted by ERISA.
  • Pay fees to the plan record keeper on a flat fee or fee per participant basis.
  • Provide participant statements that comply with all applicable Department of Labor participant disclosure regulations that include: a disclosure of all plan expenses paid by the participant (directly or through investment options); a list of all transaction fees paid by the participant; benchmarks for each fund; and statements, in dollar terms, of the money paid by the participant in administrative record keeping costs and for each investment option.
  • Consider the use of collective investment trusts or separately managed accounts and will seek the lowest cost of participation for any collective trusts used.
  • Finally, the settlement agreement provides that the plan's fiduciary committee for investment selection will not include any member who is an executive of Columbia Management Investment Advisers, LLC or its investment management affiliates.

Case History

In a complaint originally filed on Sept. 28, 2011 in the U.S. District Court of Minnesota, the plaintiffs in Krueger v. Ameriprise Financial alleged that their employer not only failed to ensure that the record keeping and management fees and expenses paid from 401(k) plan assets were reasonable, they also claimed that the plan’s fiduciaries breached their duties by selecting and retaining proprietary investment options.  Additionally, they alleged the plan engaged in prohibited transactions by receiving compensation from the plan as a result of those decisions, benefiting its subsidiary RiverSource Investments LLC (now known as Columbia Management Investment Advisors, LLC).

Ameriprise denied all of the allegations, contended that the fees were reasonable and contended it complied in all respects with the law and did not commit any fiduciary breaches. However, its attempt to have the charges dismissed in 2012 was rebuffed by Judge Susan Richard Nelson of the U.S. District Court for the District of Minnesota, who found the plaintiffs plausibly alleged Ameriprise selected affiliated funds to benefit themselves at the expense of participants. While in that decision Judge Nelson noted that Department of Labor (DOL) regulations permitted firms like Ameriprise to select affiliated investment options for the plan, it still had a fiduciary duty to act with an “eye single” toward the participants in the plan.

Plaintiffs were represented by St. Louis-based Schlichter, Bogard & Denton.

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