Posted January 11th, 2019.
Stephen Gruber-Miller, Des Moines Register
Employees of a Cedar Rapids investment company are suing their employer for allegedly costing them millions of dollars in poorly performing retirement accounts.
Three employees of Transamerica allege in a class action lawsuit filed in federal courtin Iowa on Dec. 28 that poor performance of their employers’ funds cost them and thousands of other current and former employees between $15 million and $20 million. The company’s corporate headquarters is in Baltimore but it has major operations in Cedar Rapids.
The investment, retirement and life insurance firm provides internally managed investment funds so its employees can save for retirement. The lawsuit alleges six of those funds underperformed market benchmarks by significant margins over a 10-year period.
The low performance should have been apparent to the company in real time, the employees allege. One fund, the International Equity Portfolio, underperformed its benchmark, the Morgan Stanley All-World Country Index ex-USA, by about 30 percent between 2008 and 2017.
“When that performance starts to go in the wrong direction, the employer needs to take prompt action,” said Charles Field, an attorney at Sanford Heisler Sharp LLP, a national class action law firm that is representing the plaintiffs.
In a statement, a Transamerica spokesperson called the lawsuit’s allegations false and said the company will vigorously oppose the case. The company has not yet filed a formal response to the lawsuit, court records show.
“Our business complies with all applicable state and federal statutes and regulations, and participates in periodic regulatory reviews,” the statement says in part.
Beyond the six proprietary funds at issue in the lawsuit, Transamerica’s retirement plan options include a range of non-proprietary funds and other funds, both actively and passively managed, the company said in the statement.
The plaintiffs hope to learn more about what actions Transamerica took to monitor and correct its investments as the lawsuit moves forward. Field said Transamerica’s investment committee should have acted to review and remove the poorly performing investment options.
“We’re not saying you need to do it after a year or two years, but after three, four, five, six years, you’re a little bit slow in replacing what needs to be replaced,” Field said.
Transamerica’s plan provides retirement income for 17,000 current and former employees and had more than $1.9 billion in assets as of Dec. 31, 2017, according to the lawsuit. He said the employees are asking for Transamerica to restore any losses caused by the underperforming funds.
The plaintiffs argue the funds’ consistent underperformance violates the company’s responsibilities under the Employee Retirement Income Security Act. They are asking a judge to confirm that Transamerica breached its duties under the law.
The three plaintiffs — Jeremy Karg, Matthew LaMarche and Shirley Rhodes — are all participants in Transamerica’s retirement plan and own interests in one or more of the portfolios they allege are underperforming.
Scott Lempert, a Washington, D.C., attorney at Cohen Milstein who handles employee benefits cases, said the fact that the funds consistently fell short of their benchmarks is “a huge red flag.” Lempert is not involved in the Transamerica case but reviewed the lawsuit at the Des Moines Register’s request.
“One signal that these claims are strong as it relates to performance is the benchmark, that they didn’t meet the benchmark year after year after year, quarter after quarter after quarter,” Lempert said.
The lawsuit accuses Transamerica of neglecting its duty to monitor its plans’ performances by continuing to offer the same proprietary portfolios in the face of low performance.
“It appears that Transamerica was not kind of minding the store,” Lempert said.
Transamerica encouraged its employees to sign up for Portfolio Xpress, which automatically allocated their money to the company’s investment products and exacerbated their losses, the lawsuit alleges.