Use of proprietary mutual funds by financial institutions and mutual f

[Guest Ann West]

In light of the First Union and related lawsuits, I'm interested in finding out what financial institutions and mutual fund companies are doing with their own 401(k) Plans? Are most of them offering only their own mutual funds? Proprietary and non-proprietary funds? Do the mutual fund companies offer the whole family of funds to employees in their own 401(k) Plans or only a selection? Any ideas of where to go to find out this kind of information? I am striking out with the various consulting companies.

[Jon Chambers]

I'll answer anecdotally. I've seen about a half dozen financial services plans, including Franklin-Templeton, Merrill Lynch and Morgan Stanley Dean Witter. Generally, the financial services plans offer proprietary funds, some offer one or two outside funds. All plans I've seen offer a subset of funds, not the entire line-up.

I've had significant ongoing conversations with plaintiff's attorneys in both the First Union and New York Life lawsuits, and based on those conversations, I would expect more litigation relating to financial services plans, perhaps lots more. If I were a financial services plan sponsor, I would make sure that I had an independent consultant help with fund selection, and that I could document that outside funds had at least been considered. The current lever seems to be that it is a breach of fiduciary duty to only consider proprietary funds.