Another asset management firm has been accused ofself-dealing in the administration of its 401(k)plan.

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Related: Your 401(k) plan fees are attracting morelawyers

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Members of the investment committee for Franklin Templeton’s401(k) plan allegedly cost participants tens of millions ininvestment losses by stacking its plan with expensive and poorlyperforming proprietary investment options, according to courtdocuments filed in U.S. District Court for the Northern District ofCalifornia.

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Related: Case against small plan sponsorvoluntarily withdrawn

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The suit is the latest in a round of claims brought againstlarge asset managers, alleging that plan fiduciaries breached theirobligations under the Employee Retirement Income Security Act byoffering proprietary investments. Claims have been brought againstNew York Life Insurance Co., Putnam Investments LLC., TIAA, andAllianz, among others.

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Related: Settlement in Avon case gets preliminaryapproval

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As of September 30, 2015, assets in Franklin’s 401(k) plantotaled nearly $1.1 billion, according to Form 5500 data cited inthe complaint. Franklin Templeton or its subsidiaries managed all40 of the mutual funds offered. Allegedly, those funds lost inexcess of $64 million in investments since 2010, when compared to“prudent alternatives,” like comparable Vanguard Funds, claimattorneys for the lone named plaintiff, a current employee atFranklin Templeton.

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A request for comment from Franklin Templeton was made beforepress time, but no comment was provided.

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The Franklin 401(k) plan has over 5,800 active participants,according to Brightscope.com. The complaint hopes to certify allparticipants in the plan from July 28, 2010 in the classaction.

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In an email statement, Gregory Porter, a partner at Bailey andGlasser and the lead attorney for the plaintiff listed in thecomplaint, said fiduciaries of 401(k) plans have obligations onlyto plan participants.

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The question of whether or not investment management firms likeFranklin Templeton could be failing fiduciary obligations to otherinvestors in its mutual funds by not offering its proprietaryproducts in its own 401(k) plan is irrelevant, said Porter.

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“When Franklin officers make decisions for their employees'401(k) plan they have to act solely in the interest of the plan andits participants,” said Porter. “They cannot consider the impact onthe profitability of the business or on other shareholders ofFranklin Templeton mutual funds.”

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The allegations

Plan fiduciaries at Franklin Templeton invested hundreds ofmillions of dollars in its own proprietary mutual funds becausethey were “managed by, paid fees to, and generated profits forFranklin Templeton and its subsidiaries,” alleges the complaintagainst San Mateo, California-based Franklin Resources Inc., whichhad $732.1 billion in assets under management as of June 30, 2016,according to the company’s latest earnings report.

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Prior to 2015, the 401(k) investment menu offered only onenon-proprietary fund, the passively managed Standard and Poor’s 500Index Fund, according to court documents. The plan’s proprietaryinvestments averaged about $750 million in value annually, from2010 to the present.

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That resulted in “millions of dollars” in fees paid to FranklinTempleton and its subsidiaries, the suit says.

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In May 2013, plan fiduciaries introduced cheaper R6 shares ofthe proprietary funds, but even those were not competitive withVanguard funds with comparable investment objectives, allegeattorneys for the plaintiff.

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Beyond their costs, the complaint alleges that many of FranklinTempleton’s proprietary funds had, and continue to have poorperformance histories relative to “prudent” alternatives.

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In 2014, fiduciaries replaced three proprietary allocation fundswith a new series of proprietary target date funds.

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Cheaper alternatives with proven track records were available,the claim alleges. “A prudent, un-conflicted fiduciary would nothave chosen untested, more expensive funds,” said attorneys for theplaintiff, who also allege the funds managers, which were the samemanagers of the replaced allocation funds, had poor trackrecords.

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Franklin’s TDFs available to plan participants were all rated inthe bottom 10 percent of their Morningstar peer group during theperiod from January 1, 2016 to June 30, 2016, the complaintsays.

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And none of the other proprietary funds offered in the plan holda five-star rating by Morningstar, the highest rating available.Three funds held a one-star rating, and another 10 proprietaryfunds had two-star ratings from Morningstar, according to thecomplain

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The plaintiff also alleges the offering of a money market fundwas imprudent relative to a stable value fund, causing another $9million in losses to participants.

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In 2014 and 2015, the plan paid $6.5 million per year ininvestment management and administrative fees, meaning the totalplan cost was 57 basis points per participant, or 0.57 percent.

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In 2013, 401(k) plans with more than $1 billion in assetsincurred an average of total plan costs of 31 basis points,according to data from the Investment Company Institute andBrightscope cited in the complaint.

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In data independent of that study, Brightscope, which rates401(k) plans relative to peer groups, gave Franklin Templeton’s401(k) plan good, and even excellent marks.

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Its overall rating was in the top 15 percent of its peer group.Its total plan cost was rated as low, and its average accountbalance and the generosity of the company match are classified as“great.”

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