The rash of 401k lawsuits have been a bonanza for law firms specializing in the area of participant litigation, class action lawsuits, self-dealing claims and actions against plan sponsors, advisors and providers. Many lawsuits have been settled out of court and even more have begun to reach the courtroom and are litigated.
In the case of Neuberger Berman, plaintiffs are getting a fight. A suit brought against the $246 billion New York-based money manager will be contested by the firm according to reports. The lawsuit was brought by a former employee who claims that Neuberger violated self-dealing rules in one of the funds offered to employees in the company 401(k) plan. The subject of the lawsuit named the Value Equity Fund (VEF) which was managed by Neuberger for its employee 401(k).
The plaintiff claims that Neuberger breached its fiduciary responsibility under the Employee Retirement Income Security Act (ERISA) because it failed to act in the best interest of the participants. The suit claims that other index funds would have generated better returns with lower fees than the VEF.
In their response, lawyers for Neuberger argued that Bekker’s case should be dismissed on the grounds that, among other things, there is no basis for alleging that the firm breached its fiduciary duty based on fees or performance.
“Bekker has not even established that VEF’s fees were excessive, or its performance poor, because he improperly compares VEF to a passive index fund with a completely different objective and investment style,” states the brief. Neuberger attorneys also noted that the VEF actually outperformed the S&P index fund.
According to the original report which first ran on Institutional Investor:
Neuberger says too that Bekker had several other investment options to choose from, including actively managed products and target-date funds from managers not affiliated with Neuberger, as well as index funds. Neuberger also allows its employees to use a brokerage account to select among thousands of other funds.
The firm’s lawyers further argue that it is not a breach of fiduciary duty for plan sponsors that manage investment funds to offer these funds to their own employees via their retirement plans, saying that Congress ruled that these so-called proprietary fund investments can be included in such plans.
Neuberger is attempting to dismiss the case at the same time that two universities are confronting similar lawsuits. The Massachusetts Institute of Technology and Duke University are fighting suits that contend their retirement plans charged excessive fees and violated their duty as fiduciaries.
