A former BlackRock employee has sued the company, alleging that BlackRock's 401(k) plan executives breached their fiduciary duties by emphasizing proprietary investments that underperformed comparative funds and which also charged higher fees.
The plan's executives “selected and retained high-cost and poor-performing investment options with excessive layers of hidden fees that are not included in the fund expense ratios,” said the lawsuit by Charles Baird, a former employee who is a current participant in the BlackRock Retirement Savings Plan.
The lawsuit was filed Wednesday in U.S. District Court in San Francisco. The complaint, Baird vs. BlackRock Institutional Trust Co. et al., seeks class-action status.
“Almost all of the fund options offered to BlackRock employees and participants are funds affiliated with BlackRock Inc.,” according to the complaint, which argued that “several” proprietary funds should have been removed.
Failure to do so represented “imprudent and disloyal monitoring” of investments — a breach of fiduciary duty under the Employee Retirement and Income Security Act, the lawsuit said. A “prudent and loyal” fiduciary would have removed them, the suit said.
The 401(k) plan had about $1.5 billion in assets and 9,700 participants as of Dec. 31, 2015, according to the lawsuit. It said about 93% of plan assets were invested in BlackRock-affiliated funds.
The fees charge by BlackRock's proprietary funds “were higher than the fees charged by comparative funds with like assets and similar investment strategies,” the lawsuit alleged.
BlackRock spokesman Farrell Denby said: “The suit is without merit and contains a number of factual inaccuracies. We will vigorously defend against the action. BlackRock is committed to making the best decisions in the interest of our plan participants, continually looking for ways to help them secure a better financial future.”