A former BlackRock employee has filed a lawsuit against BlackRock 401(k) Plan fiduciaries as a result of an alleged failure to monitor several proprietary funds in the Plan. They allege that the proprietary funds had high and hidden fees due to excessive fund layering, in which one BlackRock fund invests in other BlackRock funds, thereby “cannibalizing” the returns for plan participants. More specifically, the lawsuit contends that the 10 BlackRock LifePath funds offered in the Plan invest participants’ monies into as many as 27 other BlackRock funds, attributing to the extreme layering of fees, and causing participants to suffer losses of over $60 million. The plaintiff claims that there are other target date funds available that not only outperformed these funds, but have done so at a much lower cost. The lawsuit also comments that the Plan offers only 3 passively managed index funds; the committee selected actively managed options that underperformed and were much more expensive.
www.bna.com; April 7, 2017.