A federal judge has refused to dismiss a lawsuit in which employees of Ameriprise Financial Inc. accuse it of loading up the company 401(k) plan with its own expensive, underperforming mutual funds and charging employees excessive fees.
U.S. District Judge Susan Richard Nelson in St. Paul noted that the plaintiffs "plausibly allege that the defendants selected Ameriprise-affiliated funds to benefit themselves at the expense of plan participants." In her order filed Tuesday, the judge let stand seven counts, ranging from failure to monitor fiduciaries, to prohibited transactions and excessive record-keeping fees. One count of unjust enrichment was dismissed.
"Of any company, Ameriprise should know what is a good financial product," said plaintiffs' lawyer Jerome Schlicter. "This is a case of frank self-dealing."
The plaintiffs -- seven current and former Ameriprise employees in the Twin Cities -- are seeking class-action status, and the outcome of the case could potentially affect more than 14,000 participants in the company's $1 billion 401(k) plan. A judgment against Minneapolis-based Ameriprise would be a black eye for the country's largest employer of certified financial planners.
Ameriprise declined to discuss the case but issued a statement Wednesday saying, "We are confident in our ability to move forward and defend the case on the merits."
Lawyers for Ameriprise have argued there were plenty of non-Ameriprise funds offered for employees to choose from, but the judge rejected that argument. "Merely including a sufficient mix of prudent investments along with imprudent options does not satisfy a fiduciary's obligations," Nelson said in her ruling.
Schlicter said Ameriprise treated hard-earned employee retirement assets as its own money. He expects compensatory damages to exceed $70 million, not including punitive damages.
The dispute centers on 18 in-house mutual funds Ameriprise made available to workers in its 401(k) plan since 2005. Most are identified as RiverSource funds, funds that were rebranded as Columbia after Ameriprise bought the Columbia Management fund business from Bank of America in 2010.
The 401(k) plan lost $20 million because of the poor performance of the funds and excessive fees and expenses, the lawsuit states. There were more prudent investment choices the company could have included but didn't, according to the plaintiffs.
For example, Morningstar rated the RiverSource Balanced Fund a one out of five stars in October 2005, while it gave the equivalent Vanguard Balanced Index Fund a four-star rating, according to the complaint.
The fees for the RiverSource funds that are current investment options are significantly higher than for comparable mutual funds in other 401(k) plans as well as the other options available in the Ameriprise plan, according to the complaint. For example, the fee for the RiverSource midcap fund around 2005 was a high 1 percent, and the comparable Vanguard fund charged 0.08 percent, the plaintiffs argue.
They also assert that eight of the RiverSource funds were newly minted with no history when they were selected for the company's plan. Ameriprise used worker retirement assets to seed new and untested mutual funds, making the funds more marketable to outside investors and boosting profit for the company, they argue.
In court documents, Ameriprise argued its 401(k) plan has a sufficient mix of investments and is "extraordinarily popular." The company also noted that it switched brokerage windows in January 2011 from one managed by Ameriprise with 900 investment funds, to one managed by Charles Schwab offering more than 6,000 funds.
Ameriprise described the lawsuit against it as a copycat of others Schlicter has filed.
Schlicter acknowledged the Ameriprise case is one of a dozen cases Schlicter Bogard & Denton in St. Louis has filed in the past six years over excessive fees in company 401(k) plans. A few have been dismissed, some are pending and one is on appeal, Schlicter said.
Other companies have settled, he said, including Bechtel Corp., which settled for $18.5 million; Caterpillar Inc., which settled for $15.5 million; and Kraft Foods Group Inc., which settled for $9.5 million. The companies also agreed to significant changes in the 401(k) plans, Schlicter said.
Ameriprise is the only financial services company that the law firm has challenged, he added, and thus the only one accused of loading up the 401(k) plan with proprietary funds.
Jennifer Bjorhus • 612-673-4683