M&T Settlement shows the problem of using proprietary funds


Plan sponsors with their proprietary funds have a unique problem. Using proprietary funds will lead to litigation and not using them, makes them look bad in the eyes of competitors. A 401(k) plan sponsor not using their funds is like restaurant workers who order takeout, it looks bad. Yet there is a price for these proprietary fund plan sponsors for looking good.


As part of a class-action lawsuit, M&T Bank or its insurers will pay a gross settlement amount of $20,850,000. Also, M&T will have to hire an independent consultant who will review plan investment options and opine whether proprietary funds should be retained. if any proprietary M&T funds are retained, those mutual funds shall rebate to the plan the same percentage of investment management fees rebated to other retirement plans (or their recordkeepers) that hold the same share class of such proprietary funds.


It is my opinion that these types of settlements are the cost of doing business for a mutual fund company or a company that has their proprietary mutual funds.


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