A participant in the Palace Entertainment 401(k) plan has filed a lawsuit against Stadion Money Management and Mutual of Omaha alleging that she and other participants in a proposed class lost money due to violations of Employee Retirement Income Security Act (ERISA) fiduciary duty by Stadion Money Management and Mutual of Omaha.

According to the complaint, as a provider to retirement plans, Mutual of Omaha pitches Stadion’s managed account service to plan sponsors. If employers include Stadion’s service, Stadion exercises complete discretion over participating employees’ accounts by selecting investments from the menu of options in the employer’s retirement plan. Stadion receives a fee from participating employees, which it shares with United of Omaha and its affiliates.

While the complaint says, “It is not unusual for a managed account provider to depend on another provider to pitch their service to employers. Nor is it unusual for the managed account fee to be split between them,” it alleges that Stadion and Mutual of Omaha abused their managed account arrangement by putting their own interests ahead of participants’.  According to the lawsuit, Stadion directed participants’ accounts into United of Omaha- and Stadion-affiliated investment options, despite the availability of lower-cost, higher-performing investment options within the plan that would have better met the needs of participants.

The complaint says that in certain instances, there were identical options available in the plan menu that would have charged 50% less in fees. The participant alleges, “Stadion avoided these options because they did not generate as much revenue for its business partner, United of Omaha.” In other instances, according to the lawsuit, Stadion financially benefited itself and United of Omaha by continuing to use Stadion-affiliated accounts despite their underperformance on both an absolute and risk-adjusted basis.

For its part, Mutual of Omaha is accused of improperly retaining revenue sharing resulting from Stadion’s actions.

The lawsuit says the conduct of the defendants caused participants to incur millions of dollars in losses due to excessive fees and investment underperformance.

Counts against Stadion include alleged breach of fiduciary duties of loyalty and prudence and alleged prohibited transactions. Mutual of Omaha is being sued for knowingly profiting from a fiduciary breach.

In statements to PLANSPONSOR, Mutual of Omaha said its practice is not to comment on pending litigation, and Stadion said, “Class action lawsuits against financial services firms and insurance companies have become a normal occurrence. It’s now Stadion’s turn to defend against misstatements and omissions. Our goal, all day and every day, is to help employees achieve retirement security. To do that, we have made significant commitments, both internally and externally, to develop investment practices that equal or exceed industry standards and legal requirements.”