Putnam Investments and Fidelity Investments have prevailed in separate legal fights centering on their fiduciary duty to retirement plans, at a time when financial services companies are
increasingly being targeted for 401(k) self-dealing.
A federal judge shot down plaintiffs' arguments that Putnam breached its fiduciary duty to its own 401(k) plan participants by "stuffing" the plan with Putnam-affiliated investment funds, without regard to cost, performance or other metrics.
The claims over using in-house funds are similar to those filed in recent lawsuits against such asset managers as Capital Group, BlackRock Inc., JPMorgan Chase & Co., Franklin Templeton Investments and American Century Investments.
Some, such as New York Life and TIAA, settled, for $3 million and $5 million, respectively. But Wells Fargo & Co. last month won its case regarding use of proprietary target-date funds in its company 401(k), which
some saw as an "atypical" outcome.
In the Putnam lawsuit, Judge William G. Young of the District of Massachusetts said plaintiffs had "failed to point to specific circumstances" in which the firm put its interests ahead of plan participants'.
"Pointing to self-dealing alone is insufficient for the Plaintiffs to meet their burden of persuasion to show by a preponderance of the evidence a breach of the fiduciary duty of loyalty, particularly where the practices are common within the industry," Mr. Young said in the order, filed June 19.
The judge also called plaintiffs' contention that Putnam lacked an objective process to monitor plan investments, thereby making the entire plan lineup imprudent, a "non sequitur."
"Indeed, a person could lack an independent process to monitor his investment and still end up with prudent investments, even if it was the result of sheer luck," Mr. Young said.
The judge had
earlier sided with Putnam on two counts, and is now striking down the remaining counts following a bench trial that began April 7. The case, Brotherston et al v. Putnam Investment, LLC et al, was originally filed in November 2015.
The Fidelity lawsuit, Ellis et al v. Fidelity Management Trust Co., concerned the firm's alleged mismanagement of a stable value fund.
Plaintiffs claimed the fund's low investment returns and high fees made it an imprudent investment for 401(k) plan participants.
Judge Young, who also heard the Putnam lawsuit, disagreed with plaintiffs, saying in an order filed June 19 that they failed to carry their burden of proof.
The lawsuit was
originally filed December 2015 in Massachusetts district court.
