Franklin Templeton pays $13,850,000 to settle self-dealing lawsuit

 

Franklin Resources will pay $13,850,000 and make other provisions to settle a lawsuit alleging that defendants breached their Employee Retirement Income Security Act (ERISA) fiduciary duties by causing Franklin Templeton’s 401(k) plan to invest in funds offered and managed by Franklin Templeton when better-performing and lower-cost funds were available. The case was settled shortly before trial of the lawsuit.

The company will also select a non-proprietary target-date fund (TDF) for its 401(k) investment lineup and increase the company match contribution rate for three years. According to the settlement agreement in addition to the settlement payment, the fiduciaries to the plan with responsibility for selecting plan investment options will add a nonproprietary target-date fund option (TDF) to the investment lineup, which will be maintained as a plan investment option for the duration of the compliance period in addition to the plan’s qualified default investment alternative (QDIA)—the LifeSmart Target Date Funds. “The choice of TDF will be made by the fiduciaries responsible for selecting Plan investment options in a manner consistent with their fiduciary oversight responsibilities, following a search of nonproprietary TDF options conducted by the Plan’s independent investment consultant, Callan Associates, Inc.,” the settlement agreement says. Franklin is listed on the New York Stock Exchange under In 1973 the company’s headquarters moved from New York to California . As of March 2017, Franklin Templeton Investments had US$740 billion in assets under management (AUM) on behalf of private, professional and institutional investors.

A month before the trial in the case was set to begin, the parties in the lawsuit announced they had reached a settlement but needed 60 days to file a motion for preliminary approval.

According to the settlement agreement, in addition to the payment, the fiduciaries to the plan with responsibility for selecting plan investment options will add a nonproprietary target-date fund option (TDF) to the investment lineup, which will be maintained as a plan investment option for the duration of the compliance period in addition to the plan’s qualified default investment alternative (QDIA)—the LifeSmart Target Date Funds. “The choice of TDF will be made by the fiduciaries responsible for selecting Plan investment options in a manner consistent with their fiduciary oversight responsibilities, following a search of nonproprietary TDF options conducted by the Plan’s independent investment consultant, Callan Associates, Inc.,” the settlement agreement says.

Also, Franklin has agreed to increase the company match contributions to the plan from a 75% company match rate to an 85% company match rate beginning with the first full quarter of participant deferrals following the effective date of the settlement agreement, for a period of three years.