Two former American Century Investments employees have sued the Kansas City-based mutual fund company, saying their retirement plan charged “excessive fees” while offering “chronically under-performing” American Century funds as choices.
The lawsuit, filed in U.S. District Court in Kansas City, said a “disloyal and imprudent process” led the 401(k) plan to offer only American Century funds and shares of American Century itself as investment choices.
As a result, employees’ accounts were “laden with high cost, proprietary mutual funds” that would not have survived a selection process that was “not tainted by self interest,” the lawsuit said. It said putting American Century-managed funds in the 401(k) plan generated revenues for American Century, though lower-cost alternatives were available.
The lawsuit complained about the American Century Vista and American Century International Bond funds as examples of “chronically under-performing” funds left in the plan as options for employees.
The lawsuit seeks class-action status for the 2,250 or so participants in the 401(k) plan. Former employees Steve Wildman and Jon Borcherding sued on behalf of the others in the plans.
American Century, in an emailed statement, rejected the claims and said it was proud of contributing to employees’ retirements.
“The lawsuit is entirely without merit, and we will mount a vigorous defense,” American Century said. “We offer our employees competitive compensation and a generous benefits package, which includes our retirement plan. The plan provides employees with a wide range of investment options and is managed in the best interests of participants.”
American Century said the retirement plan offers brokerage account access to other investment options.
Financial planners tell consumers to closely watch fees on their investments as even relatively small differences in fees can add up to large changes in an account’s balance over the many years that a retirement account invests.
Carl Engstrom, an associate attorney with the Nichols Kaster law firm representing the former employees, said the lawsuit is similar to suits against some other money management companies. His firm has represented clients suing Putnam Investments and Allianz Asset Management, which owns the Pimco group.
The lawsuit against American Century challenged a committee that selected investment choices for the company’s 401(k) plan. It said the committee members worked at American Century and allowed their choices to be “influenced by their desire to drive revenues and profits” to American Century.
Defendants named in the suit include the members of the committee, several unidentified members and past members listed as John Does, and several entities that form American Century.
Six counts in the lawsuit include the claim that various defendants breached their fiduciary duties of loyalty and prudence, failed to monitor fiduciaries, and engaged in prohibited transactions with a party in interest and with a fiduciary.
In addition to establishing the case as a class action, the lawsuit asks the court to order restitution to the class members, disgorgement of revenues by American Century and other relief.