The Capital Group Cos. is being sued for allegedly reaping profits from its 401(k) plan at the expense of plan participants, by loading its company retirement plan with high-cost proprietary investment options.
Capital Group is among the largest asset managers in the world, with roughly $1.4 trillion under management, and sponsors the American Funds family of mutual funds, a perennial favorite among advisers. It is the latest in a string of asset managers to be sued for using proprietary funds in its company retirement plan.
A plan participant, D'Ann M. Patterson, is seeking to recover losses and secure disgorgement of "unjust profits" to Capital Group and its subsidiaries for "conflicted, disloyal, imprudent and self-interested decisions" regarding the company's investment selections. The suit was brought under the Employee Retirement Income Security Act of 1974.
Using in-house investment funds "resulted in plan participants and beneficiaries paying excessive and prohibited fees that substantially diminished their retirement savings, and resulted in windfall profits for Capital Group and its subsidiaries," according to the complaint, filed June 13 in the U.S. District Court for the Central District of California.
In the proposed class-action lawsuit, D'Ann M. Patterson vs. The Capital Group Companies Inc. et al., the plaintiff claimed 95% to 98% of investment options offered in the plan since June 2011 were "unduly expensive" Capital Group-affiliated funds.
The Capital Retirement Savings Plan, which has roughly $3.2 billion in plan assets and more than 9,000 active participants, offered between 38 and 46 fund options during that period, according to the complaint.
Capital Group spokesman Tom Joyce said the complaint is without merit, and that the funds offered to employees "are recognized in the industry as having among the lowest fees in their peer categories and superior investment results."
"Capital Group sued for self-dealing in its 401(k) plan" originally appeared on InvestmentNews, a sister publication of Pensions & Investments.