Compliance November 15, 2022

MassMutual Faces Four ERISA Breach Counts in Retirement Lawsuit

Plaintiff seeks class certification in alleging mismanagement and violations of fiduciary duty.

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A retirement plan participant has brought a lawsuit seeking class certification against MassMutual, CEO Roger Crandall, its investment fiduciary committee and its plan administrative committee for alleged breach of fiduciary duty to participants in the company’s 401(k) plan.

The plaintiff alleges MassMutual retirement plan fiduciaries mismanaged the plan and violated their fiduciary duties owed to participants under the Employee Retirement Income Security Act, the complaint states.  

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“Plaintiff has suffered financial harm and has been injured by defendants’ unlawful conduct,” the complaint states. “In turn, MassMutual has been unjustly enriched from the various fees and expenses generated as a result of plaintiff’s plan investments, and also through the fees charged to plaintiff for recordkeeping services.”

The complaint includes an additional 20 unnamed defendants.

The complaint alleges four separate counts of fiduciary breach, all of which harmed the claimant’s retirement readiness, against the defendants:

  • Retaining excessively expensive and underperforming propriety investments in the plan.
  • MassMutual plan fiduciaries failing to ensure the plan held the least expensive share class and/or investment vehicle for the defendant-selected investment strategies.
  • Plan fiduciaries causing the MassMutual plan to transfer a substantial portion of assets into MassMutual’s general account in connection with the plan’s stable value investment.
  • Charging participants unreasonable recordkeeping fees (while attempting to offload the line of business to Empower).

 

“This conduct ultimately resulted in the plan and its participants and beneficiaries sacrificing tens of millions of dollars in retirement savings through poor performance and above average expenses (for which MassMutual was usually the benefactor),” states the complaint. “Notably, in the past few years, [MassMutual] brought in well over $50 million in compensation directly from the plan’s investment in its proprietary products, all while using the plan as an anchor client to support its marketability and corporate initiatives, like the sale of the company’s retirement business to Empower for $2.35 billion.”

The plaintiff alleges plan fiduciaries breached their duties under ERISA by using the MassMutual Group Annuity Contract to offer investment options to participants. The plaintiff’s excessive fee claims are centered on the Group Annuity Contract, an annuity that guarantees a fixed rate of return for participants.

“Defendants invested plan assets through the MassMutual GAC in order to benefit MassMutual, not the plan’s participants and beneficiaries,” the complaint states. “Through the MassMutual GAC, MassMutual offers a series of proprietary investment products that generate revenue and fees for MassMutual. Moreover, investing plan assets through the MassMutual GAC significantly increased MassMutual’s assets under management, which was beneficial to MassMutual for marketing and other business reasons.”

As of December 31, 2021, MassMutual’s plan had approximately $4.1 billion in assets and 23,662 participants, according to the court filing.

“Had defendants divested from the MassMutual GAC and moved the plan into an unaffiliated structure more typical for mega plans, MassMutual’s efforts to sell its retirement plan business would have been impaired because the plan’s exit would have caused a significant outflow of assets,” the complaint states.

Empower acquired MassMutual’s retirement plan business in 2020.

Additionally, the plaintiff’s complaint claimed “it is uncommon for mega-sized retirement plans—those holding assets of $1 billion or more—to offer investment options through a MassMutual Group Annuity Contract.

The complaint added, “according to a 2019 research paper by PLANSPONSOR, MassMutual does not serve the mega plan market.”

Crandall, the chairman and CEO of MassMutual, is specifically named in the complaint because—as MassMutual is a fiduciary for the plan—the investment fiduciary committee and plan administrative committee are empowered to “appoint and remove members,” the complaint states.

“Given his personal role in appointing committee members, defendant Crandall also had a duty to monitor the committee members, but breached that duty, rendering him similarly liable for all losses to the plan resulting from the unlawful fiduciary conduct that he failed to monitor or address, and other appropriate relief,” according to the court filing. “Given MassMutual’s overall responsibility for the plan, and its authority to appoint and remove committee members and defendant Crandall, MassMutual had a fiduciary responsibility to monitor the performance [of] the committees and their members, as well as defendant Crandall, to ensure that they were performing their fiduciary responsibilities properly and in accordance with ERISA, and to take prompt and effective remedial action in the event that they failed to do so.”

Crandall is chairman of the company’s board of directors and serves as the executive chair of the board’s Investment Committee and Technology & Governance Committee, according to the complaint. Crandall has served as the CEO since 2010, the court filing shows.

Crandall was also responsible for selecting and monitoring the plan’s investment options, controlling investment-related fees and other matters relating to the plan, the complaint states.

“Because Crandall has exercised discretionary authority or discretionary control with respect to management and administration of the plan and disposition of plan assets, he is a functional fiduciary,” the complaint states.

A MassMutual spokesperson said the company will defend itself against the allegations.

“MassMutual is proud to offer our employees and network of affiliated financial professionals generous and competitive benefits that help them secure their future and protect the ones they love,” said the spokesperson in an email. “We comply with all applicable laws and look forward to vigorously defending ourselves against these baseless claims.”

The plaintiff’s attorneys have sought to establish the class period as ranging from December 4, 2016, to the present day.

The complaint was filed in the Western Division office of the U.S. District Court for the District of Massachusetts.

Compliance November 15, 2022

DOL Hits Back at ForUsAll, Won’t Confirm Crypto Retirement Guidance Is “Not Binding”

The DOL said retirement provider ForUsAll misrepresented its cyptocurrency guidance from March and that the court overseeing the suit has no standing to force its hand in 401(k) crypto oversight.

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The U.S. Department of Labor is fighting back against the latest move by retirement provider ForUsAll in an ongoing dispute over DOL guidance cautioning plan fiduciaries and employers from providing cryptocurrency as an investment option within 401(k) plans.

The latest ForUsAll request had seen the retirement plan provider offer to drop the lawsuit, as long as the court confirmed the DOL’s initial guidance would not be enforced. This would essentially allow fiduciaries and plan sponsors to provide cryptocurrency assets without fear of regulation, ForUsAll said.

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On Monday, the DOL shot back in its response, saying ForUsAll misrepresented the guidance to fit its own purposes and that the court has no jurisdiction over the enforcement of “cryptocurrency investment offerings for an indefinite period of time.”

“In short, the parties now all agree that this case should not proceed further,” the DOL, the defendants in the case, said in its response. “The Court should grant Defendants’ pending motion to dismiss and reject ForUsAll’s effort at a tactical retreat.”

The battle between the DOL and ForUsAll is taking place even as the cryptocurrency market faces increased scrutiny by regulators after the collapse of multi-billion dollar exchange FTX on November 8. According to retirement plan fiduciaries and advisers, that case and the related market crash of established cryptocurrencies such as bitcoin have the industry second-guessing recent moves to give retirement participants access to digital assets in their 401(k)s.

ForUsAll originally sued the DOL in June, saying that guidance the department gave calling on fiduciaries and plan sponsors to use “extreme care” in considering cryptocurrency in retirement plans went beyond the DOL’s regulatory authority as provided by The Employee Retirement Income Security Act, and in addition did not go through the proper comment period. On November 1, ForUsAll reversed course, saying it would drop the suit if the court and DOL confirmed the guidance was not binding.

In a conversation with PLANADVISER earlier this month, ForUsAll co-founder and CIO David Ramirez made the case that the DOL guidance was not only warning against providing cryptocurrency in retirement plans, but also gave the department the right to question any investment offering made to participants, even through the self-directed brokerage window, which is often used to offer savers access to alternative investments.

“If I exclude crypto from investment options, then I’m taking an active bet that the wider market is wrong,” Ramirez said. “It’s my fiduciary responsibility to really understand this blockchain technology and its importance in a whole variety of areas.”

ForUsAll did not immediately respond to request for comment about the DOL’s latest court filing.

In its response, the DOL said the guidance purposefully does not take a “definitive position” on fiduciaries’ responsibilities regarding the self-directed brokerage window. The department noted that the court, in this case, should not dictate guidance or regulation going forward.

“Most significantly, [ForUsAll’s motion] would put the Court in the position of policing any modifications the Department makes in its approach to cryptocurrency investment offerings for an indefinite period of time,” the DOL said in its response. “That could lead to the Court being asked to interfere with agency enforcement proceedings in ways contrary to the separation of powers, and to the agency being handcuffed in its response to rapidly changing circumstances.”

The DOL response said ForUsAll misrepresented the initial guidance as stating that allowing cryptocurrency in retirement plans “does not violate a fiduciary duty.” What the guidance actually said, according to the department’s response, is that cryptocurrency as an investment option may comply with fiduciary duties and prudence, depending “on the specific circumstances in a given situation.”

The country’s largest retirement plan recordkeeper, Fidelity Investments, and small business plan provider ForUsAll currently have plan sponsor clients providing participants access to cryptocurrency within their 401(k) accounts.

ForUsAll offers the asset through the self-brokerage retirement window and requires a waiver of understanding, as well as a short quiz about cryptocurrency and blockchain, the technology used to create the asset. A spokesperson for Fidelity said in an email that the Boston-based firm has had plan sponsors signed up since the fall offering access to Fidelity’s Digital Assets Account as a part of their core 401(k) line up.

The DOL response also argued that ForUsAll’s request for the court to put conditions on the dismissal of the suit goes out of the bounds of the law.

“That is not the way this works,” the DOL response reads. “ForUsAll cannot bring a lawsuit over which the Court lacks jurisdiction and then turn around and request that the Court ‘retain Jurisdiction’ (that it does not have) to bind Defendants in perpetuity.”

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