Compliance April 19, 2023

Mutual of America Agrees to $2.75 Million 401(k) Lawsuit Settlement

Subject to court approval, the retirement plan services and investments provider will pay participants in a class action case who alleged it charged excessive fees.  

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Mutual of America and retirement plan plaintiffs have agreed to terms of a proposed settlement, possibly closing for $2.75 million a 401(k) lawsuit brought in 2022, documents show, in Goldstein et al v. Mutual of America Life Insurance Co. in U.S. District Court for the Southern District of New York.

The company and attorneys for the plaintiffs—Eric Goldstein, Matt Sudol and Bonnie Zelazek—on April 14 submitted a memorandum in support of a class action settlement. The lawsuit alleged breach of fiduciary duty to participants of the Mutual of America Life Insurance Co. savings plan under the Employee Retirement Income Security Act.  

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The proposed settlement would provide meaningful relief to the plaintiffs if finalized by court, the motion argues.

“This is a significant recovery for the Settlement Class compared to the claims that were alleged, and it falls well within the range of negotiated settlements in similar ERISA cases,” the court filing stated. Going forward, “Defendants will ensure that at least half of the Plan’s investments are unaffiliated with Defendants (i.e., investments not managed by Mutual of America or any of its affiliates or subsidiaries) for the next three years. Defendants have also agreed to retain the Plan’s current net asset value investment platform for the next three years provided, however, that Defendants will not be bound by this if they determine that using the NAV platform is no longer consistent with ERISA.”

Under the proposed settlement’s terms, Mutual of America will direct its insurers to pay a $2.75 million gross settlement amount into a common settlement fund. After accounting for attorneys’ fees and costs; administrative expenses; and class representatives services awards approved by the court, the net settlement amount will be distributed to the eligible class members.

Under the plan of allocation, the net settlement amount will be divided between the recordkeeping claim (25%) and the investment claim (75%), according to the filings. 

The proposed settlement agreement will apply to all participants in and beneficiaries of the Mutual of America Life Insurance Co. Savings Plan at any time on or after September 14, 2016, through the date the court enters the preliminary approval order, excluding any persons with responsibility for the plan’s administrative functions or investments, the motion states.

Mutual of America was alleged to have breached the fiduciary duties of loyalty and prudence by selecting a proprietary, closed architecture recordkeeping platform for the retirement plan. The plaintiffs’ complaint alleged Mutual of America caused plan participants to pay excessive administrative and recordkeeping fees by retaining a proprietary recordkeeping platform and that Mutual of America was imprudent and disloyal in its preference for proprietary funds within the plan, despite the fund’s poor performance and high costs.

The plaintiffs requested that the court approve the proposed settlement agreement, approve proposed settlement notices, authorize distribution of notices to the proposed settlement class, certify that proposal class and schedule a final approval hearing in the case, according to the motion for preliminary approval.

The proposed settlement is pending final court approval at a forthcoming hearing that is yet to be scheduled.   

Mutual of America did not respond to a request for comment on the proposed settlement. 

The class of plaintiffs is represented by lawyers from Nichols Kaster LLP, based in Minneapolis. Attorneys from the law office of New York-based Goodwin Procter LLP represented the defendants.

Benefits April 18, 2023

Several States Approve COLA Increases for Pension Funds, Other States Still Considering

COLA boosts to pension distributions have been proposed in Pennsylvania and Texas, while they have already been announced in Maryland and Rhode Island.

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Across the U.S., some state pension plans have announced cost-of-living-adjustment increases to retirees’ and beneficiaries’ monthly benefits, while other state lawmakers have introduced bills that would boost pension benefits for teachers, government employees and more. 

These COLA increases come on the heels of the Social Security Administration’s announcement at the end of 2022 that its COLA for 2023 is 8.7%, up from 5.9% in 2022. The back-to-back years are the first of at least 5% since the COLA was 5.8% in 2008. The recent increase is largely due to the high inflation rate the U.S. economy experienced in 2022.  

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State Adjustments 

The Maryland State Retirement and Pension System announced Tuesday that eligible retirees and beneficiaries will receive more in their monthly pension payments beginning in July, as the new COLA rate of 8.003% takes effect. That rate exceeds the statutory COLA rate caps that apply to all or a portion of the allowance payable to many payees.  

Because the pension system’s total investment performance for the 2022 calendar year did not equal or exceed the 6.8% assumed rate of investment return established by the Board of Trustees, the statutory rate cap for the portion of an allowance based on creditable service earned on or after July 1, 2011, is 1% for many payees, according to a press release. 

Payees of Maryland’s Correctional Officers’ Retirement System, Employees’ and Teachers’ Pension Systems, Law Enforcement Officers’ Pension System, Local Fire and Police System and State Police Retirement System will all receive a boost in benefits due to the COLA increase. 

In order to be qualified to receive the COLA on Pennsylvania payouts this July, a payee must be receiving a benefit based upon a retirement that was effective on or before July 1, 2022. Those receiving a benefit based on a retirement that was effective after July 1, 2022 will receive their first COLA increase in July 2024. 

In Rhode Island, members of 76 municipal pension plans will also receive a COLA increase of 3.11% in 2023. The full list of plans can be viewed here. 

To be eligible for the annual COLA, members who meet age and length of retirement requirements must also be retirees of a plan that offers COLA and has a funding level that exceeds 80%. For retirees of COLA-eligible plans that are less than 80% funded, a COLA is paid every four years.  

Current eligible beneficiaries of the Employees’ Retirement System of Rhode Island’s Teachers’ Survivor Benefit also receive the same COLA increase of 8.7% that is granted to members of Social Security. 

Lawmakers Propose Bills  

Plenty of other states do not habitually make COLA adjustments. Democrats in both houses of the Pennsylvania General Assembly held a hearing on March 21 to discuss legislation that would provide a COLA for retirees in the Pennsylvania State Employees’ Retirement System and the Pennsylvania Public School Employees’ Retirement System.  

No cost-of-living adjustment has been approved in Pennsylvania for 20 years. But according to statistics provided by the Pennsylvania Association of School Retirees, inflation has reduced purchasing power by more than 50% since the last COLA was enacted.  

“It is time that our legislature stands up for public school employees and our state employees—and it is time that PSERS and SERS prioritize the retirement security of their annuitants over high-priced investment managers and risky private equity investments,” Katie Muth, a Democrat Pennsylvania state senator, said at the hearing. “I look forward to working with my colleagues in the House and Senate on our legislation to enact a COLA and to allow our retirees to live with dignity.” 

Muth and John Kane, also a Democrat state senator, have introduced two bills that would give annuitants their first COLA in more than 20 years. Pennsylvania law requires the General Assembly to enact legislation to grant COLA increases to teachers and retired state workers. Democratic representatives Steven Malagari and Dan Deasy are also working on similar legislation to enact a COLA for PSERS and SERS annuitants. 

Similarly, in Texas, two different Texas Senate bills would increase teacher pensions across the state. 

Senate Bill 10 would create a COLA at 4% for retirees who have been retired for more than 10 years. For teachers and school workers who have been retired anywhere from two to nine years, the COLA would be adjusted to 2%.  

In addition, the bill would give retired teachers above the age of 75 a 13th annual check of $7,500. The bill states that this group of retired educators have struggled financially for many years due to fixed lower retirement benefits. State Senator Joan Huffman, a Republican, is the author of the bill, which was approved by all 31 senators signing on as joint authors.  

The Texas House proposal for a COLA is built into a supplemental budget bill, House Bill 600, which seeks to create a COLA based on how many years former teachers have been retired. HB 600 states that for those who have been retired for 20 or more years, there would be a 6% COLA. For those who have been retired for more than 10 years, but fewer than 20, a 4% COLA, and so on. 

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