Compliance November 4, 2014

MassMutual Agrees to Settle Revenue Sharing Lawsuit

Massachusetts Mutual Life Insurance Company (MassMutual) has agreed to settle a lawsuit brought by a 401(k) plan sponsor alleging the company breached its fiduciary duties when it received certain revenue sharing payments.
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MassMutual has agreed to pay $9,475,000 to 401(a) and 401(k) plan clients it serviced via group annuity contracts to settle charges that it violated the Employee Retirement Income Security Act (ERISA) when it received revenue sharing payments from mutual funds and investment advisers. Plaintiff Golden Star Inc. alleged these payments were essentially “kickbacks” that constituted prohibited transactions under ERISA.

MassMutual had previously moved for summary judgment on the case, saying it was not an ERISA fiduciary. However, U.S. District Judge Patti B. Saris, of the U.S. District Court for the District of Massachusetts, found MassMutual exercised discretionary authority to determine its own compensation by setting separate investment account management fees (up to a maximum), which in combination with revenue sharing payments (RSPs), make up the provider’s compensation package. She ruled this makes MassMutual a “functional fiduciary.”

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The settlement agreement also calls for MassMutual to notify clients 60 days ahead of time of planned fund changes and to get consent from clients to change the funds. MassMutual is also to disclose expense ratios and any other fees for each fund, as well as any revenue sharing payments it receives.

A joint statement from MassMutual and the plaintiff provided to PLANSPONSOR says, “Both parties are pleased to have reached an agreement to amicably resolve this matter.  While Golden Star is confident of its claims, and MassMutual continues to deny any wrongdoing and believes that its actions fully complied with the law, this settlement helps to avoid the additional expenses, distraction and uncertainties associated with continued litigation, while providing substantial and meaningful benefits to the members of the class, including a cash payment of $9,475,000.”

The settlement agreement in Golden Star v. Massachusetts Mutual Life Insurance Company is here.

Compliance November 4, 2014

DOL Files $7M Improper Investment Suit

The Department of Labor filed a lawsuit to restore $7 million to participants in two Wheeling, West Virginia-based retirement plans, following alleged misconduct by plan fiduciaries.
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The Department of Labor (DOL) says it filed the suit on behalf of participants in the Wheeling Corrugating Company Retirement Security Plan and the Salaried Employees’ Pension Plan of Severstal Wheeling Inc. The department seeks to correct fiduciary breaches by the plans’ investment manager and plan administrator, which caused the plans to sustain losses and lost earnings in excess of $7 million.

“This case underscores the department’s commitment to hold fiduciaries accountable when we believe they have failed to meet their obligation to protect plan assets,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi.

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An investigation conducted by the department’s Employee Benefits Security Administration (EBSA) found that from Nov. 3, 2008, through May 19, 2009, the plans’ assets were imprudently invested by the plans’ fiduciaries, including the Severstal Wheeling Inc. Retirement Committee. Specifically, the DOL suggests committee members Michael DiClemente and Dennis Halpin—and WPN Corp. and its owner Ronald LaBow, who had been hired as the plans’ investment manager—committed the breaches.

The suit also alleges that the retirement committee and its members failed to properly oversee the plans and monitor the actions taken by WPN and LaBow.

Filed in the U.S. District Court for the Western District of Pennsylvania, the suit seeks to order the defendants to restore to the plans all losses, including interest or lost opportunity costs, caused by their fiduciary misconduct. It also seeks to remove the retirement committee as fiduciaries for the plans and appoint an independent fiduciary with authority to manage the plans. The plans previously terminated their relationship with WPN and LaBow.

The case resulted from an investigation conducted by EBSA’s Philadelphia Regional Office. The department’s Regional Office of the Solicitor in Philadelphia is litigating the case.

The civil action was filed as Perez v. WPN Corp., et al. More information is available at www.dol.gov/ebsa.

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