JPMorgan Sued for Including ‘Underperforming’ Stable Value Fund in 401(k) Menu
The company was accused of using an in-house stable value investment that underperforms competitors.
A former employee of JPMorgan Chase Bank N.A. filed a complaint against the company last week, arguing that a stable value investment in the bank’s 401(k) plan performed poorly when compared with other available stable value funds.
In Gonzalez v. JPMorgan Chase Bank N.A. et al., filed in U.S. District Court for the District of New Jersey, plaintiff Alexandro Gonzalez claimed that JPMorgan Chase Bank failed to objectively and adequately review the plan’s investment offerings, initially and on an ongoing basis, with due care to ensure each investment option was prudent in terms of performance.
As of the end of 2023, the plan had more than $44 billion in assets under management and 295,407 participants. Gonzalez’s complaint argues that, as a jumbo plan, the plan had substantial bargaining power regarding the fees and expenses charged against participants’ investments.
According to the lawsuit, fiduciaries at JPMorgan allowed substantial assets in the 401(k) plan to be invested in the JPMorgan Stable Value Fund that invested in synthetic guaranteed investment contracts offered by MetLife, Prudential Financial, Transamerica and Voya Financial.
GICs are issued by insurance companies in the form of a fixed annuity contract.
“A prudent fiduciary would not have included this underperforming investment option that also carried significantly more risk than other investment options that had similar goals, i.e., preservation of investment assets,” the complaint states.
The complaint also states that a more prudent fiduciary could have demanded higher crediting rates from the insurance companies by submitting requests for proposals to the insurance companies and other providers of stable value investments.
In addition, the plaintiff alleges that the insurance companies “benefited significantly” from participants in the plan investing in the stable value fund. The complaint states that the crediting rates the insurance companies provided to the plan “were and are so low that the insurance companies reaped a windfall on the spread.”
The complaint also accuses JPMorgan of failing to monitor its investment committee to ensure that it was adequately performing its fiduciary obligations under the Employee Retirement Income Security Act.
The plaintiff is asking the court to declare that JPMorgan breached its fiduciary duties under ERISA and order the company both to disgorge all profits received from the plan and to make good on all plan losses resulting from “imprudent investment of the plan’s assets,” among other demands.
Gonzalez is represented by law firm Capozzi Adler P.C. in the case.
JPMorgan declined to comment on the lawsuit.
The bank was also sued last week by current and former health plan participants who allege the company mismanaged the prescription drug benefit under its health insurance offering.
Source: https://www.plansponsor.com/jpmorgan-sued-for-underperforming-stable-value-fund-in-401k-menu/
Reported by: Remy Samuels
