New York Life Sued For Allegedly Steering Company 401(k) To It’s Own Expensive Mutual Fund

Another day, another lawsuit levied against a 401(k) plan. This time, self-dealing is on the investment menu.

A class-action lawsuit is being filed against New York Life for allegedly using a high-cost mutual fund in the company’s 401(k) plan. The mutual fund, which is operated by New York Life, is significantly more expensive than its peers.

According to an article on Investment News:

Current participants in two New York Life 401(k) plans filed a class-action lawsuit — Andrus et al v. New York Life Insurance Company et al — alleging self-dealing by the firm and other affiliated fiduciaries for retention of a MainStay-branded S&P 500 index mutual fund in two company retirement plans.

The MainStay brand of funds is owned and operated by New York Life and subsidiaries, and the entities “improperly and unjustly benefited from the excessive fees and expenses,” according to the complaint, filed July 18 in the U.S. District Court for the Southern District of New York.

“A prudent fiduciary managing the plans in a process that was not tainted by self-interest would have removed the MainStay S&P 500 Index Fund from the plans,” the complaint said.

Rather, by not investigating availability of lower-cost funds between 2010 and the present, plan fiduciaries breached their duties of loyalty and prudence under the Employee Retirement Income Security Act of 1974, plaintiffs allege.

The MainStay fund cost 35 basis points, whereas a similar mutual fund offered by Vanguard Group cost 2 bps and a collective investment trust fund offered by and State Street Global Advisors cost 4 bps, the complaint said.

Retaining the MainStay fund ultimately caused participants in the two 401(k) plans — the $2.5 billion Employee Progress-Sharing Plan and the $600 million Agents Progress-Sharing Plan — to overpay by nearly $3 million, plaintiffs claim.