DOL Secures $124 Million Settlement on Behalf of DST Systems Participants

Fiduciaries of a retirement plan sponsored by DST Systems Inc., including New York City-based investment management firm Ruane, Cunniff & Goldfarb Inc., will pay more than $124.6 million to resolve violations of federal law due to their failure to manage the profit-sharing portion of their plan properly, according to the Department of Labor.

In October 2019, the DOL filed one of several lawsuits alleging the mismanagement of investments in the DST Systems Inc. 401(k) Profit Sharing Plan.

The DOL suit alleged that DST Systems’ fiduciaries violated the Employee Retirement Income Security Act by “failing to diversify the plan’s assets to minimize the risk of large losses and failing to act prudently and loyally in managing these assets when the investment manager invested the plan’s assets on a highly concentrated basis in a select number of securities.”

DST Systems is an information processing software and service provider based in Kansas City, Missouri, and was acquired by SS&C Technologies Holdings Inc. of Windsor, Connecticut. The company hired Ruane, Cunniff & Goldfarb & Co. to serve as an investment adviser to the plan.

The complaint challenged DST Systems’ investment in Valeant Pharmaceuticals International Inc. stock, which grew to more than 45% of the plan’s assets. Soon after, Valeant’s stock fell dramatically in 2015, following a fraud scandal.

According to the DOL, participants experienced significant losses to their retirement savings because of the plan’s concentrated portfolio. The participants who originally sued DST Systems Inc.’s profit-sharing and 401(k) plans alleged that the losses were well in excess of $100 million.

An investigation by the department’s Employee Benefits Security Administration identified ERISA violations and found that Ruane, Cunniff & Goldfarb controlled 100% of the investments of the profit-sharing portion of the plan. EBSA also found that DST Systems and individual defendants failed to monitor the investment manager’s activities properly.

Since the complaint was filed in 2019, Ruane, Cunniff & Goldfarb has taken steps to limit the investment concentrations of other ERISA-covered plans it manages, according to the DOL.

The settlement agreement was filed on July 14. In 2019, when the DOL’s case was filed, the plan had 9,233 participants and $1.2 billion in assets, according to its Form 5500 for the 2019 plan year.

“This resolution protects the rights and benefits of the plan’s participants and shows that we will aggressively pursue appropriate legal action to ensure those rights and benefits,” said Solicitor of Labor Seema Nanda in a press release. “Fiduciaries to retirement plans must comply with the Employee Retirement Income Security Act’s safeguards—including diversification—to protect workers’ retirement benefits and fulfill their own fiduciary responsibilities.”

Assistant Secretary for Employee Benefits Security Lisa Gomez also stated in the release, that: “This settlement restores hard-earned retirement funds for more than 9,000 participants in DST Systems’ retirement plan. The U.S. Department of Labor is determined to investigate and seek remedies for potential violations of the Employee Retirement Income Security Act.”

SS&C Technologies Holdings Inc. did not immediately respond to a request for comment.

DST Systems Inc. is represented by lawyers from Paul, Weiss, Rifkind, Wharton & Garrison LLP. Attorneys for the government include Michael R. Hartman and Amy Tai of the U.S. Department of Labor.