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Franklin Templeton sued over options in its 401(k) plan

A former participant in the Franklin Templeton (BEN) 401(k) Retirement Plan sued the plan and its corporate parent, Franklin Resources Inc., alleging plan executives violated ERISA rules by offering primarily Franklin Templeton funds instead of comparable cheaper funds.

“Better-performing and lower cost funds were available,” asserted former participant Marlon Cryer in the lawsuit filed July 28 in U.S. District Court in San Francisco. “Defendants were motivated to cause the plan to invest in Franklin funds to benefit Franklin Templeton's investment management business.”

The 401(k) plan had assets of just less than $1.1 billion as of Sept. 30, according to the lawsuit.

Stacey Coleman, a spokeswoman for Franklin Templeton, wrote in an e-mail: “We are reviewing the complaint and do not have a comment at this time.”

The lawsuit, Cryer vs. Franklin Resources Inc. et al., alleges the 401(k) plan's investment options were chosen “because they were managed by, paid fees to, and generated profits for Franklin Templeton and its subsidiaries.” The lawsuit seeks class-action status,

The complaint alsoalleges the fees for various funds “were and are significantly higher” than the median fees for “comparable 401(k) plans,” citing information compiled by the Investment Company Institute. The lawsuit argued that many of the funds performed below the median returns of their respective peer funds.

“Defendants failed to remove the funds even though a prudent fiduciary would have done so given the high fees, poor performance prospects and availability of lower-cost alternatives,” the lawsuit said.