Prudential Goalmaker is an “app” designed to help balance an individual retirement account portfolio. By guiding plan participants through several multiple-choice questions, the Prudential app helps each participant to identify their investor style, risk profile and resulting portfolio model—choosing among various offered investments.
The Prudential Goalmaker app is under fire in an ERISA lawsuit pending in Auburn Hills, Michigan (US Eastern District of Michigan). Plaintiffs allege that “GoalMaker served Prudential’s interests by funneling participants’ retirement savings into Prudential’s own overpriced proprietary investment products and into investments that paid kickbacks to Prudential.”
The case recently came up on the defendants’ motion to dismiss. However, Prudential is not a named defendant. Defendants are plan the employer’s pension plan sponsor, GKN NORTH AMERICA SERVICES, and its management committee. While the court allowed several claims against GKN to go forward, thereby surviving a motion to dismiss, the claims involving the Prudential Goalmaker app were dismissed, since plaintiffs could not show that the GKN pension managers intended to benefit Prudential in any self-dealing scheme.
This gap between the pension plan sponsor and an investment advisor (like Prudential) highlights the challenge for plaintiff’s ERISA cases. Some active investment managers obfuscate retirement fund transactions to create opportunities for self-dealing. Unfortunately, this is not uncommon, even among well-known investment companies.
Self-dealing opportunities are highest in actively managed funds, that offer “collective investment trusts” (rather than mutual funds) and include private equity investments or derivatives. This style of investment investing strategies rife with the opportunity for self dealing. But do plan sponsors really know what is going on in these obfuscated investments? Not likely. And that is undoubtedly why the judge in the GKN case would not hold plan sponsors and managers responsible for alleged self-dealing by Prudential.
ERISA plaintiffs and lawyers need to dig deeper into investing strategies of investment managers to see, exactly, what is under the covers and where the opportunities for self-dealing lie.
Please contract us with any questions or comments about your retirement plan: [email protected]