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Compliance January 28, 2022
Lawsuit Against Trust Company Alleges Self-Dealing
The defendants are accused of using the company's 401(k) plan to prop up its mutual fund business.
Reported by Noah Zuss
A former retirement plan participant of the Bessemer Trust Company 401(k) and Profit-Sharing Plan has filed a lawsuit against the company and its plan committee alleging breaches of fiduciary duty under the Employee Retirement Income Security Act (ERISA).
The plaintiffs allege the plan was managed in a manner that benefited the company rather than participants. According to the complaint, the defendants used the plan to promote Bessemer Trust’s Old Westbury mutual fund business and maximize the company’s profits.
The lawsuit alleges that among all plans with at least $100 million in assets, none other than the Bessemer plan invested in any Old Westbury funds.
“The defendants’ favoritism towards Old Westbury Funds has not only led to the retention of overpriced proprietary funds, but also the retention of underperforming proprietary funds,” the complaint states. “For example, the Old Westbury Large Cap Strategies fund, the plan’s largest holding, trailed its benchmark by a staggering 6.40% percent per year over the five-year period ending 2020.”
The plaintiffs say stuffing the plan with Old Westbury proprietary funds cost retirement plan participants millions in excess fees from high cost, poor-performing investments and subsequent lost compounding and uncaptured investment growth.
The lawsuit alleges the plan’s overall expenses were also excessive for its’ size.
“For plans with $100 million to $500 million in assets, like the plan, the average asset-weighted total plan cost is between 0.42% and 0.47%,” the complaint states. “In contrast, the plan’s total costs were approximately two times higher, ranging from 0.73% to 0.99% throughout the statutory period.
Additionally, high-cost Old Westbury funds comprised over 98% of the plan’s investment expenses, according to the complaint.
“Despite the Old Westbury Funds’ clear disfavor among similarly situated plan fiduciaries, defendants have selected and retained a lineup of funds laden with Old Westbury Funds,” the complaint states. “Indeed, defendants have not passed up a single opportunity to self-deal in the plan: the only non-Old Westbury options in the plan represent 401(k)-staple asset classes or investment styles for which Old Westbury does not maintain a proprietary offering.”
Bessemer Trust has not yet responded to a request for comment about the lawsuit.