This marked the beginning of the M&T Bank class act lawsuit of 401(k) practice. Early this month, M&T Bank agreed to pay 20.85 million dollars to settle the Employee Retirement Security Act of 1974 (ERISA) lawsuit.
A 401(k) is a company retirement plan that allows employees deemed eligible to save and invest for their retirement on a tax-deferred basis. Usually, the employee chooses the amount of money to payout to the plan from their paycheck.
In return, the employer is responsible for running the retirement assets according to the rules and regulations, law, and provisions of the 401(k) plan. Thus, the employer is given the responsibility of determining the right investment options for the plan, the features of the plan, and the time taken before a person can reallocate their assets.
According to the M&T Bank class act lawsuit of 401(k) practice, by violating their duties, the fiduciary was committing fraud. It was said in the case that the defendants used the plan as an opportunity to promote their business interests at the expense of the 401(k) participants.
The case presented evidence that identified 8 of the 23 designated investment alternatives offered by the defendants in 2010 to be M&T Bank proprietary mutual funds. Additionally, the expenses from these investments were 90 percent greater on average than the same funds found in equal-sized contribution plans.
Moreover, only one of the M&T affiliated funds did not underperform its benchmark within the one to the ten-year mark. In addition, the lawsuit determined that the retirement plan sponsor added more proprietary mutual funds within the investment lineup instead of removing the failed ones.
More information from the suit identified that in 2011, when M&T Bank finalized its Wilmington Trust purchase, from a total of Wilmington’s nine mutual fund offerings, the defendants added 6 to the 401(k) retirement plan.
Wilmington Trust already had its fair share of problems with its overpriced mutual funds. Some of these problems include a history of poor performance and very high expenses. For five years, the plaintiffs kept accusing the defendants of keeping the failing investment options within the plan.
Despite all the complaints made, the defendants removed only a few of the options. However, the actions were not taken for the good of the employees. Instead, the wrong investment options were removed because the investments no longer served a purpose for the defendants.
Besides, in the suit, it was alleged that the defendants failed to obtain the lowest cost class of shares available.
This was unconventional since M&T Bank is a large institutional investor with excellent bargaining power. Also, the plaintiffs claimed that the defendants did not monitor the plan to ensure that the investments made were of the cheapest possible share class.
M&T Bank was also accused of failing to offer the plan participants the benefits of alternative investment vehicles. As a result of these actions, the 401(k) participants lost tens of millions of dollars in damages.
The M&T Bank class act lawsuit of 401(k) practice settlement agreement included a contribution of 20.85 million dollars from M&T Bank to a collective settlement fund. The money will be invested through the company’s insurers.
Any net profits made from this settlement will be distributed among all the eligible members of the 401(k) plan. The accounts of the current participants in the plan will be automatically credited with their percentage of the net settlement amount.
On the other hand, former plan participants are required to issue a claim form before they can get part of their net proceeds. Other agreements made by the Bank in the settlement include:
A review of the proprietary mutual funds plan by an independent investment consultant.
The independent consultant will provide a written opinion stating whether the funds should be retained
If the funds are kept, they will rebate to the plan with equal management fees to other retirement plans
The independent consultant will determine whether the existing mutual funds should be replaced by alternative investment vehicles
M&T Bank’s move to settle voluntarily is a move that avoids a lengthy and costly litigation process.