Bank of America Corp. employees are suing the company for allegedly using part of their pension accounts as an “arbitrage scheme” to enrich itself at their expense, according to The Wall Street Journal. The lawsuit, Pothier v. Bank of America Corp., was filed in federal court in the Southern District of Illinois.
Prior to the 1998 merger of BankAmerica Corp. and NationsBank Corp. that formed Bank of America, each of the predecessor banks had converted its traditional pension plan to a cash-balance plan. The old NationsBank set up “an unusual and particularly aggressive sort of cash-balance pension plan,” alleges the lawsuit, reported the Journal.
The employees maintain that they were required to invest their pension assets in “virtual funds,” explained the paper; these portfolios track the returns of in-house mutual funds managed by the bank. NationsBank also encouraged its employees to transfer $1.4 billion in 401(k) assets to the plan, and after the merger, former BankAmerica employees were encouraged to transfer a further $1.3 billion in 401(k) accounts to the cash-balance plan at the new Bank of America, according to the Journal’s account.
The bank then invested this money and reaped higher returns than what it would in turn pay the employees for their so-called virtual funds, using the difference in the returns to boost its earnings, according to the paper. Bank of America even charged the employees fees on those virtual funds, creating a conflict of interest because the bank controlled the fees and, indirectly, the returns. the lawsuit reportedly charges.
In a statement, Bank of America spokeswoman Heloise Hale told the paper that cash-balance plans “offer many advantages to our associates and we believe they meet the needs of today’s diverse and mobile work force better than traditional pension-plan designs. We believe that our plans have been designed and operated in accordance with applicable law. We intend to defend ourselves vigorously against the claims in this lawsuit.”