The financial services firm is the latest to be targeted for including proprietary products in its retirement plan
March 3, 2020 By Emile Hallez
A former John Hancock employee is leveling class action claims against the company, alleging it broke the law by packing its 401(k) menu with proprietary products.
The plaintiff, Jennifer Baker, was a participant in the insurance and investment provider’s plan between 2014 and 2019, according to the Feb. 27 complaint filed in U.S.
District Court in Massachusetts. Ms. Baker allegedly suffered financial harm by being invested in John Hancock’s products instead of comparable, lower-cost investments
from third parties that produced higher returns.
The case is the latest among many “self-dealing” claims filed in recent years against financial services firms over their own retirement plans. Others, including Goldman
Sachs, Prudential, Morgan Stanley and Charles Schwab have similarly been sued. And as of 2018, there were at least 40 such class actions filed against financial firms for
including their own products on their 401(k) menus, according to a report by the Center for Retirement Research at Boston College.
Although mutual fund sponsors and other financial services companies can have legal footing to add in-house products to their retirement plans, they generally must be
able to show that they went through a prudent selection process.
“Two fiduciaries could choose the same investment option and face different risks of liability if one followed a prudent decision-making and monitoring process — for
example, by considering the performance and costs of relevant benchmarks — and the other did not,” according to the CRR report. “So, plan fiduciaries have tended to
face this kind of litigation when their funds have experienced persistently poor historical performance compared to similar ‘benchmark’ funds.”
The John Hancock plan was established in 1988 and represented $1.6 billion among 9,800 participants as of 2018, according to Labor Department data aggregated by
BrightScope. The plan uses a group annuity structure in which participants opt for different investment options — all of which have been the company’s own investments
since 2014, according to Ms. Baker’s complaint.
Anil Vazirani is president of Secured Financial Solutions, independent insurance advisor investment advisor rep with a fiduciary obligation and in the financial services industry since 1994. A+ rating with the Better Business Bureau for over a decade and a half, members in good standing with the National Association of Insurance and Financial Advisors.
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