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Investment firm to pay $124M to settle 401(k) plan mismanagement allegations

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Investment management firm Ruane, Cunniff & Goldfarb Inc. will pay more than $124.6 million to settle lawsuits filed by the U.S. Department of Labor and private plaintiffs that alleged the firm improperly managed a 401(k) plan sponsored by DST Systems, DOL announced Monday.

The settlement is pending court approval of a related class action settlement, DOL said. The agency sued Ruane, Cunniff & Goldfarb in 2019 alleging that the firm used a “self-proclaimed investment strategy of ‘non-diversification’” that resulted in losses for the plan’s more than 9,000 participants.

In one example cited by DOL’s press release, one pharmaceutical company’s stock grew to encompass more than 45% of the plan’s assets. When the stock’s price fell, plan participants “experienced significant losses to their retirement savings because of the plan’s concentrated portfolio,” DOL said.

An investigation by the Employee Benefits Security Administration determined that the plan managers violated the Employee Retirement Income Security Act, which requires retirement plan fiduciaries to diversify a plan’s investments in order to minimize the risk of losses. Separately, DOL said EBSA determined that DST Systems and individual defendants failed to properly monitor the managers’ activities.

Following DOL’s 2019 suit, DST Systems sued Ruane, Cunniff & Goldfarb one year later over allegations including fraud and breach of contract. The parties eventually requested a stay of proceedings. Meanwhile, Ruane, Cunniff & Goldfarb moved to dismiss DOL’s suit, but a district court judge denied the motion in March.

Ruane, Cunniff & Goldfarb did not respond to an HR Dive request for comment. SS&C Technologies Holdings, Inc., which acquired DST Systems in 2018, also did not respond to a request for comment.

“This resolution protects the rights and benefits of the plan’s participants and shows that we will aggressively pursue appropriate legal action to ensure those rights and benefits,” U.S. Solicitor of Labor Seema Nanda said in the release. “Fiduciaries to retirement plans must comply with [ERISA]’s safeguards — including diversification — to protect workers’ retirement benefits and fulfill their own fiduciary responsibilities.”

DOL has notched high-profile legal wins within the past year in disputes involving retirement plans. Last September, Wells Fargo agreed to pay nearly $145 million to settle the agency’s investigation into whether a 401(k) plan for the bank’s employees overpaid for Wells Fargo preferred stock.

That same month, DOL sued the owner of a New Jersey design firm, alleging that the owner and her spouse unlawfully invested assets from an employee profit-sharing plan into a bank owned by the spouse. The defendants in that case entered into a consent order with DOL on Sept. 23 and agreed to pay more than $1.8 million to plan participants.

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