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Waddell & Reed sued over favoring its own investment options in 401(k) plan

A participant in the Waddell & Reed Financial Inc. 401(k) plan has sued plan executives in federal court, alleging that the plan favored Waddell & Reed investment options over similar, less expensive ones in violation of ERISA.

The defendants exhibited "faithless, self-interested conduct" in managing the 401(k) plan, said the suit filed in U.S. District Court in Kansas City, Kan., by Stacy Schapker, a participant in the Waddell & Reed Inc. 401(k) and Thrift Plan. Ms. Schapker is seeking class-action status for the complaint filed June 23.

"Rather than choose non-proprietary, less costly, better-performing options for the 401(k) plan, defendants simply offered as investment options whatever investment products" were offered by Waddell & Reed and its Ivy Funds affiliate, said the complaint.

The 401(k) plan had $192 million in assets as of Dec. 31, according to its most recent 11-K filing.

Roger Hoadley, a spokesman for Waddell & Reed, declined to comment.

During a six-year period starting June 23, 2011, the complaint said more than 97% of investment options in the plan were managed by Waddell & Reed or its affiliates. In some years, the entire 401(k) plan lineup consisted of investment options from Waddell & Reed and affiliates, the complaint added.

"The fees charged to the 401(k) plan participants for their investments were — and continue to be — well in excess of the fees charged by unaffiliated companies for comparable mutual funds and investment products," the complaint said.

"The performance achieved by 401(k) plan participants for their investments were and continue to be worse than the performance achieved by unaffiliated companies for comparable mutual funds and investment products," the complaint added.