Citigroup Inc. has reached a $6.9 million settlement with plaintiffs in a ten-year-old lawsuit, in which plaintiffs alleged the financial services firm included within its retirement plan expensive in-house investments, thereby enriching the company at the expense of its employees.
The lawsuit, Leber v. Citigroup Inc. et al., was originally filed in October 2007 in the U.S. District Court for the Southern District of New York. Plaintiffs claimed the company breached its fiduciary duty by including high cost, underperforming investment products managed by Citigroup subsidiaries and affiliates, which included Smith Barney and Salomon Brothers, in the Citigroup 401(k) plan.
Parties filed for approval by the judge of the proposed settlement in August. Citigroup declined to comment.
The eligible class of plaintiffs in the class action lawsuit includes participants in the Citigroup 401(k) plan who invested in one of nine in-house funds between Oct. 18, 2001, and Dec. 1, 2005. The Citigroup plan has roughly $12 billion in assets and more than 144,000 participants, according to BrightScope Inc. "Citigroup reaches $6.9 million settlement in 401(k) lawsuit" www.investmentnews.com (Aug. 06, 2020).
Many asset managers, primarily those focused on the active management of their investments, have been sued in recent years based on self-dealing allegations because they included proprietary funds in their 401(k) plans.
The Citigroup settlement is another in a line of other financial services firms that have settled in these cases. In 2017 and 2018, for example, American Airlines settled similar claims against it for $22 million; Allianz for $12 million; TIAA for five million dollars; and New York Life for three million dollars. Other suits, including those against Wells Fargo & Co., Capital Group, and Putnam Investments, were dismissed.
The question of whether a plan fiduciary breaches its ERISA-mandated duty of the fiduciary duty of prudence by including underperforming, or more expensive investment options is often litigated. Many class action plaintiffs have successfully shown that the inclusion of more expensive or underperforming investments was a breach of that duty.
Other courts have dismissed those claims, finding that because of the variety of options available to them, plaintiffs could avoid the high fees simply by choosing a less expensive option because they were not forced to choose higher or poor performing investments.
Recently, the United States Supreme Court has agreed to address the question of: "Whether allegations that a defined-contribution retirement plan paid or charged its participants fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim against plan fiduciaries for breach of the duty of prudence under ERISA 29 USC sec. 1104(a)(1)(B").
A decision is expected in 2022.