Latest DC Lawsuit Target: New York Life | Chief Investment Officer

New York Life Insurance Company is facing a lawsuit over mutual funds offered in its defined contribution (DC) plans—the latest in a string of 401(k) litigations.

The class action suit, filed on Monday in the US District Court for the Southern District of New York, claimed that New York Life breached its fiduciary duty in using its own brand of mutual funds—MainStay—in two employee pension plans, despite lower cost alternatives.

Specifically, the plaintiffs said New York Life “improperly and unjustly benefitted from the excessive fees and expenses” charged by the MainStay S&P 500 Index Fund, continuing to offer it even though “far less expensive S&P 500 index alternatives were available.”

The MainStay fund has annual costs of 35 basis points, the lawsuit said. Meanwhile, Vanguard’s S&P index fund costs 2 basis points per year, and State Street’s version charges roughly 4 basis points.

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Of more than 750 DC plans with over $1 billion in assets under management, New York Life was the only plan sponsor to offer the MainStay fund, according to the complaint.

“A prudent fiduciary managing the plans in a process that was not tainted by self-interest would have removed the MainStay S&P 500 Index Fund from the plans,” the complaint said.

New York Life did not respond to request for comment by press time.

Investors are stockpiling cash and exiting European and UK assets, according to a survey of asset managers.

The average cash balance among 160 global investors rose to 5.8% this month, according to Bank of America Merrill Lynch’s (BoAML) research. This was the highest level recorded by the survey since November 2001.

Managers are also buying protection against stock market falls at a record rate, BoAML reported, while taking up underweight positions in equities, especially in the Eurozone and the UK following the latter’s vote to leave the European Union (EU).

The survey reported participants’ first net underweight to the Eurozone in three years after a collapse in sentiment. In June, allocators had a net overweight to the region of 26%; by July this had fallen to a net 4% underweight.

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Asked about future central bank policy, 39% of respondents said they expected at least one major central bank to adopt a “helicopter money” strategy in the next 12 months, injecting cash directly into the economy rather than buying government bonds.

A net 44% of investors said global fiscal policy was “currently too restrictive”—a record level for BoAML’s survey.

Average cash balances, July 2016. Source: BoAML Managers’ average cash balance. Source: BoAML Global Fund Manager Survey.Reflecting the shift in sentiment, Columbia Threadneedle’s European CIO Mark Burgess this week stated his firm had pulled back on its favorable view of equities, which it had held for more than five years.

The post-referendum equity rally “feels somewhat unjustified and unsupported by the fundamentals,” Burgess said. “There are going to be a number of headwinds facing the UK economy as it detaches itself from the EU over the coming years, which will likely reduce economic activity in the UK and impact domestic profits.”

The impact of the US elections in November and a possible broader fallout from Brexit across the EU were also important concerns, Burgess added. “We are also mindful of the global debt burden and global overcapacity, and are particularly alert to the alarmingly high levels of non-performing loans in the Italian banking system, as well as China’s ongoing attempts to rebalance its economy.”