Insurance Companies Agree to Settle Self-Dealing Suit

Parties in a lawsuit accusing Mutual of Omaha Insurance Co. and its subsidiary United of Omaha of self-dealing in Mutual of Omaha’s 401(k) plan have agreed to settle.

The settlement agreement calls for a cash payment of $6.7 million as compensation to a class of participants.

In a memorandum in support of the motion for preliminary approval of the settlement agreement, attorneys say the $6.7 million cash payment “represents a substantial recovery.” It adds that the settlement is “particularly beneficial to the class in light of the risks posed by continued litigation, including the possibility of the court ultimately finding no liability or the inability to prove damages.”

The attorneys say that substantiating the plaintiffs’ claims regarding excessive administrative fees would have required detailed and expert examination of United of Omaha’s operations and financial records supporting the cost of those operations. “Proving plaintiffs’ claims regarding the Guaranteed Account would have been even more complex and time-consuming,” the memorandum states.

The original complaint alleged the 401(k) plan’s fiduciaries violated their fiduciary duties by selecting numerous investment options not to benefit the plan or its employees, but because they paid fees to Mutual of Omaha or its subsidiaries. In particular, the suit said fiduciaries selected United of Omaha-branded investment funds when each of these Omaha-branded funds invested all of its assets in another publicly available investment fund managed by an unrelated third party—causing the plan to pay a fee to United of Omaha in addition to the fee charged by the underlying fund’s manager when the plan could simply have offered the underlying fund and avoided paying any additional fee to United of Omaha. In addition, it said, for several of the non-United of Omaha funds offered in the plan, the fiduciaries added on a fee in addition to the fee charged by the fund.

The complaint alleged the plan’s fiduciaries included several United of Omaha-branded Mutual GlidePath target-date funds (TDFs), which charged plan participants more than non-plan investors paid to invest in those funds. The lawsuit also claimed plan fiduciaries elected to include in the plan a capital preservation option called the Guaranteed Account, which was managed by United of Omaha, despite scores of other better capital preservation funds on the market, simply because the Guaranteed Account paid significant fees to United of Omaha.

Last January, Senior U.S. District Judge Joseph F. Bataillon of the U.S. District Court for the District of Nebraska denied Mutual of Omaha’s motion to dismiss the suit. In his opinion, Bataillon said an Employee Retirement Income Security Act (ERISA) complaint of this nature does not need to describe in exhaustive detail the ways in which plaintiffs believe defendants breached their fiduciary duties.