JP Morgan 401(k) Plan Challenged Again

Plaintiffs argue that, instead of acting for the exclusive benefit of the plan and its participants and beneficiaries, “defendants acted for the benefit of themselves,” by favoring JP Morgan's own investment products. 

By John Manganaro | March 03, 2017
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The 401(k) retirement plan offered by JPMorgan Chase Bank to its own employees is now the target of a second Employee Retirement Income Security Act (ERISA) lawsuit, this one filed in the U.S. District Court for the Southern District of New York.

The main crux of the challenge, labeled Orellana vs JP Morgan, is very similar to the previous suit filed in late January. According to the lead plaintiff, who is seeking class certification for other similarly situated plan participants, the JP Morgan plan sponsors “violated their fiduciary duties by larding the plan with proprietary fund investment options that charged excessively high fees that inured to the benefit of affiliates of JPMorgan and one of JPMorgan’s closest business partners, BlackRock Institutional Trust Company, N.A. (“BlackRock”), at the expense of plan participants.”

Plaintiffs argue that, instead of acting for the exclusive benefit of the plan and its participants and beneficiaries, “defendants acted for the benefit of themselves—by forcing the plan into costly investments managed by JPMorgan and BlackRock. Rather than engage in a systematic, arm’s-length review of available Plan investment options, JPMorgan sought out investment options that allowed its affiliates and business partners to reap outsized fees to the detriment of plaintiff and members of the Class. During the Class Period (defined herein), half of all Plan investment options were affiliated with JPMorgan entities, while more than 70% were affiliated with either JPMorgan or BlackRock.”

Those retirement industry professionals closely following ERISA litigation will recognize many of the themes called up in this complaint—and they will probably disagree with many of them. For example, the complaint bemoans the inclusion of active management funds and argues their inclusion robbed investors of an opportunity to save on fees by investing passively. This is despite the well-established standard that investments have to be reasonably priced, rather than the cheapest possible, to meet the requirements of prudence and care under ERISA.

This is how the plaintiffs make the case: “These funds were also actively managed, and therefore charged higher fees, even though passively managed investment options were available that would have allowed plan beneficiaries to utilize similar strategies during the class period at a significantly lower cost. For most of the class period, these JPMorgan-affiliated investment options were the priciest in the plan. For example, the JPMIM-managed Mid Cap Growth Fund charged fees of 0.93%, while the Vanguard Mid-Cap Growth Index Fund Admiral also utilized a mid-cap growth strategy and had an annualized expense ratio of only 0.08%.”

For its part, JP Morgan tells PLANSPONSOR, “We are reviewing the complaint. We disagree with the fundamental allegations in the complaint and believe the case is without merit.” 

NEXT: Reading further into the complaint