MassMutual to Pay More Than $9 Million to Settle Revenue-Sharing Class-Action Suit
November 12, 2014 by Fran Matso Lysiak
BOSTON – Massachusetts Mutual Life Insurance Co. has agreed to settle a class-action lawsuit in which it will pay more than $9 million and change its business practices to resolve allegations over receiving allegedly improper revenue-sharing payments from mutual fund companies and related entities in its retirement plans.
These payments “are essentially part of a pay-to-play scheme” in which MassMutual receives payments from mutual funds in the form of 12b-1 fees, administration fees and other fees in return for providing the mutual funds with access to its retirement plan customers, including its 401(k) plan customers, the complaint alleged. Golden Star sued as plan administrator of the Golden Star Associates’ 401(k) Plan and the Golden Star Bargaining Associates’ 401(k) plan.
In a statement to Best’s News Service, MassMutual said, “Both parties are pleased to have reached an agreement to amicably resolve this matter.”
Under the settlement, MassMutual will deposit $9.475 million in a common fund to provide compensatory relief to the “monetary relief” class and make several changes to its business practices, according to court documents.
“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,” MassMutual said.
The parties agreed to certify two settlement classes. The monetary relief class, which is “all current and former retirement plans that are or were serviced by MassMutual pursuant to a group annuity contract from Oct. 19, 2005, through the date of the court’s preliminary approval order.” This settlement covers current and past retirement plan customers of MassMutual.
It also includes a “structural changes” class, which is “all retirement plans that received services from MassMutual pursuant to a group annuity contract on or after the date of entry of the preliminary approval order.” This settlement covers current and future retirement plan customers of MassMutual.
Among the business practice changes that MassMutual is to make, among others:
— Identify to plan sponsors via its plan sponsor website or other electronic media that it makes available to them any addition of any insurance company separate investment account, mutual fund, bank collective trust fund or other investment options to the product menus.
— Provide on the plan sponsor website for each fund it makes available a disclosure of the expense ratio for each fund, including the amount, if any, of direct fees associated with each fund. MassMutual also will disclose for each fund it makes available the revenue it is paid from a fund, including disclosing the funds that make no revenue-sharing payments to it.
— Advise current and future plan fiduciaries that it will not delete, change or replace any funds, including share classes of a given fund, on a product menu that is in a plan’s selected investment lineup without providing an applicable fiduciary for each affected plan with 60 days written notice.
In September, the ING Life Insurance and Annuity Co. was to pay $14.9 million in compensatory funds and implement business practice changes to also settle a similar class-action suit (Best’s News Service, Sept. 29, 2014). That settlement ended nearly four years of litigation, with Healthcare Strategies Inc. alleging ING Life also entered into revenue-sharing pacts with mutual funds and their affiliates. The initial complaint alleged ING received payments from the mutual funds that amounted to kickbacks and violated ERISA. In exchange for the payments, the mutual funds were given access to retirement plan customers, the suit alleged.
Massachusetts Mutual Life Insurance Co. currently has a Best’s Financial Strength Rating of A++ (Superior).
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
