Putting your proprietary funds in a 401(k) plan makes you a target and if you don’t offer them, it gives you the impression you don’t like your products.
McKinsey & Co. is shelling out $39.5 million to 33,000 people who were participants in the company’s profit-sharing and money-purchase plans.
Participants in the plans sued them in early 2019, alleging that McKinsey violated ERISA by including in-house managed funds from McKinsey Investment Office on the plan menu. The McKinsey office received investment management fees of between $20 million to $36 million per year from those funds, which the Plaintiffs allege were more expensive and had weak performance relative to other available investment options. McKinsey also agreed to retain a third party to review the plan’s investment options and expense reimbursements.
I don’ know anyone at McKinsey, I think offering these funds were a recipe for disaster especially because they were pocketing fees on the plan. Putting your own proprietary funds in your own plan should only be about appearances, not pocketing the money.
The two plans in question had more than $6 billion in assets, which helps explain the $39.5 million settlement.