MetLife Smacked with Proprietary Fund Suit

(Another) group of participants in (another) multibillion-dollar 401(k) plan have sued plan fiduciaries for their decision to rely on fund options managed by their employer.

The plaintiffs in this case are Rita Kohari, John Radolec and Mohani Jaikaran, who, “individually and as representatives of the Class” on behalf of the MetLife 401(k) Plan are alleging that the defendants MetLife Group, Inc., Metropolitan Life Insurance Company, the Benefit Plans Investment Advisory Committee, and “John and Jane Does 1-20” for breaching their “fiduciary duties with respect to the Plan in violation of ERISA, to the detriment of the Plan and its participants and beneficiaries, by applying an imprudent and disloyal preference for MetLife index fund products within the Plan, despite their poor performance, high costs, and lack of traction among fiduciaries of similarly sized plans.” The suit—the plaintiffs here are represented by Nichols Kaster PLLP—alleges that this “imprudent and disloyal conduct has cost Plan participants millions of dollars over the statutory period.”

The suit (Kohari et al v. MetLife Group, Inc., S.D.N.Y., No. 1:21-cv-06146, complaint 7/19/21) may be big (the plan itself some $7.3 billion, with as many as 42,000 participants involved), but the filing is—well, “brief”—just 25 pages. The claims are similar to other suits against providers who include their proprietary offerings in their retirement plans—essentially that the decision to do so was based on a desire “promote MetLife’s proprietary financial products and earn profits for MetLife,” rather than what was in the best interests of participants. 

More specifically, the suit claims that the defendants “selected and retained seven proprietary index funds for the Plan’s investment menu: the Met Life Bond Index Fund, Balanced Index Fund, Large Cap Equity Index Fund, Large Cap Value Index Fund, Large Cap Growth Index Fund, Mid Cap Equity Index Fund, and Small Cap Equity Index Fund”—that these are the only index funds offered to Plan participants, and that while they “do not challenge either the decision to use passive investments for these asset classes or the index used to represent each asset class”—their issue is the specific funds selected. 

The suit claims that “instead of investing in any of these competitive index fund offerings in the marketplace, Defendants choose to generate profits for MetLife by investing exclusively in the MetLife Index Funds, which charged fees that were up to six times higher than marketplace alternatives that tracked the exact same index.” 

“Not only were the MetLife Index Funds more expensive, but they were also of lower quality than other options when it came to their sole function—tracking the underlying index,” the suit alleges, claiming that most (five of the seven) of the index funds included performed worse than expected—and that none performed better than expected.

“A prudent fiduciary managing the Plan through a process that was not tainted by self-interest would have removed the MetLife Index Funds from the Plan,” the suit states.

NOTE: In litigation there are always (at least) two sides to every story. However factual it may turn out to be, the initial lawsuit in any action is only one side, and one generally crafted toward a particular result. In our coverage you'll see descriptions of events qualified with statements such as “the suit says,” or “the plaintiffs allege”—and qualifiers should serve as a reminder of that reality.