401(k) lawsuit: DOL secures $124M settlement for DST Systems plan participants
The software provider was accused of mismanaging its profit-sharing 401(k) plan and failing to fulfill its fiduciary duties by diversifying the plan’s assets, which resulted in significant losses, according to the Labor Department.
Fiduciaries of DST Systems Inc. will pay more than $124.6 million to resolve violations of federal law related to their failure to properly manage the profit-sharing portion of the company’s retirement plan, the U.S. Department of Labor announced.
“This settlement restores hard-earned retirement funds for more than 9,000 participants in DST Systems’ retirement plan,” said Lisa M. Gomez, assistant secretary for employee benefits security. “The U.S. Department of Labor is determined to investigate and seek remedies for potential violations of the Employee Retirement Income Security Act.”
DST Systems, an information processing software and service provider based in Kansas City, was acquired by SS&C Technologies Holdings of Windsor, Conn. The settlement resolves litigation by the U.S. Department of Labor and private plaintiffs against Ruane, Cunniff & Goldfarb, DST Systems and individual defendants, pending court approval of the related class- action settlement.
In October 2019, the Labor Department filed suit in the U.S. District Court for the Southern District of New York alleging that the defendants violated ERISA by failing to diversify the plan’s assets to minimize the risk of large losses. The suit also alleged that the defendant failed to act prudently and loyally in managing these assets when the investment manager invested the plan’s assets on a highly concentrated basis in a select number of securities.
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The complaint highlighted an example in which the investment manager invested the plan’s assets in the stock of a single pharmaceutical company, Valeant Pharmaceuticals International. The concentration in Valeant stock grew to more than 45% of the plan’s assets and soon after fell dramatically in price. The plan’s participants experienced losses in excess of $100 million to their retirement savings because of the plan’s concentrated portfolio.
An investigation found that Ruane, Cunniff & Goldfarb controlled 100% of the investments of the profit-sharing portion of the plan and that DST Systems and individual defendants failed to monitor the investment manager’s activities properly. Since the events that gave rise to the complaint, Ruane, Cunniff & Goldfarb has taken steps to limit the investment concentrations of other ERISA-covered plans it manages.
“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,” Solicitor of Labor Seema Nanda said. “Fiduciaries to retirement plans must comply with ERISA safeguards — including diversification — to protect workers’ retirement benefits and fulfill their own fiduciary responsibilities.”