This class action lawsuit alleges that Deutsche Bank Americas Holding Corp. and other fiduciaries of the Deutsche Bank Matched Savings Plan breached duties imposed by the Employee Retirement Income Security Act (ERISA) by engaging in prohibited transactions and unlawful self-dealing with regard to selecting investments, to the the detriment of the Plan, its participants and beneficiaries.
The plaintiffs in this action are former participants in the Deutsche Bank Matched Savings Plan ("Plan"), the balance of whose accounts were distributed in 2010 and 2015, respectively. The defendants in this case are the Plan's fiduciaries, charged with making investment offering and management decisions and acting solely in the interest of the participants and beneficiaries, pursuant to ERISA. Fiduciaries are required to discharge their duties for the exclusive purpose of providing benefits to participants and beneficiaries and defraying reasonable expenses of administering the plan. ERISA imposes duties of loyalty and prudence on fiduciaries and also provides a detailed list of transactions that are expressly prohibited due to their high potential for abuse.
The Plan at issue in this matter is an employee pension benefit plan and a defined contribution plan commonly referred to as a 401(k) plan. It covers all eligible employees of Deutsche Bank-owned subsidiaries in the United States. Participants in a plan of this nature are responsible for directing the investment of their contributions, choosing from a lineup of options offered by the Plan. Therefore, the investment lineup determined by Plan fiduciaries is critical to participants' investment results and the retirement benefits they will eventually receive.
According to the complaint, the defendant fiduciaries in this case have not acted in the best interest of the Plan and its participants, but have rather used the Plan as an opportunity to promote the business interests of Deutsche Bank AG and its affiliates and subsidiaries at the expense of the Plan and its participants. For instance the Plan held more than $300 million in the Deutsche Equity 500 Index Fund over the course of several years, even though the fees for the fund were eleven times higher than a comparable Vanguard fund with an identical investment mix. Defendants' decision to retain the fund until February 2013 cost Plan participants millions of dollars in investment management fees which ultimately went to Deutsche Bank itself.
Further, the Plan kept hundreds of millions of dollars in other actively-managed proprietary funds that had significantly higher fees than comparable funds as well as track records of poor performance. From 2009-2012, Deutsche Bank was rated among the worst-performing mututal fund companies in the U.S. for the previous five- and ten-year periods, with certain Plan-included funds consistently underperforming their benchmark indices. By the end of 2014, not a single defined contribution plan anywhere besides the Plan included these funds among their own investment offerings. Other fiduciaries had seen fit to exclude them entirely. However, the Plan fiduciaries kept them in place, costing participants tens of millions of dollars.
It is also alleged that the defendants failed to procure the least expensive available share class for several of the mutual funds included in the Plan, including so-called institutional shares of the Deutsche Capital Growth Fund and Deutsche High Income Fund. Prudent investors would not have retained more expensive share classes when other less expensive ones were indeed available.
Lastly, the complaint alleges that the defendants did not explore the option of using separate accounts and collective trusts instead of mutual funds, despite the fact that they tend to cost less and offer the same sorts of investment options. Specifically, the Plan remained invested in the Deutsche Capital Growth Fund, even though Deutsche Bank offered institutional clients a separately-managed account in the same investment style at a substantially lower cost.
As the result of these fiduciary breaches, it is alleged that the plaintiffs and similarly situated members of the proposed class have sustained significant financial losses. The complaint seeks a declaration that fiduciary duties under ERISA were breached by the defendants, an order compelling defendants to make good to the Plan all losses sustained, an order requiring disgorgement of profits received from the Plan, an order enjoining further ERISA violations, attorney fees and costs.
This class action lawsuit was filed on December 21, 2015. We will continue to review the docket in 2016 and provide updates as needed.