As per a court document issued yesterday, Ameriprise Financial, Inc. AMP will shell out $27.5 million to settle a 2011 lawsuit claiming breach of fiduciary duty in the company’s 401(k) plan. A 401(k) plan is a retirement savings plan sponsored by a company for its workers.
About the Lawsuit
In Sep 2011, a class-action suit was filed against Ameriprise in the U.S. District Court of Minnesota by a group of its current and former employees, who were participants in the company’s 401(k) plan.
The plaintiffs accused the company of deliberately investing millions of dollars in the financial instruments handled by its own subsidiary RiverSource Investments LLC (now known as Columbia Management Investment Advisors) and plan trustee Ameriprise Trust Co. These actions violated the company’s fiduciary obligations as the plan sponsor.
The financial investments offered by Ameriprise included expensive proprietary mutual funds relative to other non-proprietary options available. The suit alleged that Ameriprise risked the plan returns for personal gains as these costly funds rewarded higher fees. While the company earned substantial fees, the plan participants lost money as the plan investments performed poorly.
However, Ameriprise denied the charges, stating that it administered the plan in the best interests of participants and also offered the most suitable broad investment options and features.
Final Settlement
Ameriprise and the plaintiffs agreed upon a settlement amount of $27.5 million before the court trial, which was slated to take place on Apr 13. A joint motion of approval for the settlement was filed in the court. The settlement would cover around 24,000 employees.
Moreover, Ameriprise will carry out a bidding process for recordkeeping services and investment consulting services as part of the settlement. Also, the company will pay flat fee or fee on per-head basis to the record keeper. Further, adequate disclosures about plan fees would be provided to the participants. The company will utilize collective investment trusts and separately managed accounts along with looking for the low cost investment alternatives.
Notably, the settlement document stated that Ameriprise’s 401(k) plan's fiduciary committee for investment selection will not include any executive of Columbia Management Investment Advisors or its investment management affiliates.
Currently, Ameriprise carries a Zacks Rank #2 (Buy). Other well-ranked investment managers include AllianceBernstein Holding L.P. AB, The Blackstone Group L.P. BX and Janus Capital Group, Inc. JNS. All these stocks hold the same Zacks rank as Ameriprise.
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