A participant has filed suit claiming that a stable value fund provider “improperly exercised its discretionary authority to maximize its own compensation and retain large profits rather than crediting the participants and beneficiaries of the plans with appropriate returns.”
The suit (Insinga v. United of Omaha Life Ins. Co., D. Neb., No. 8:17-cv-00179, complaint filed 5/26/17) brought by Philip Insinga, a participant in the Safe Auto Insurance Company 401(k) Plan, is seeking class action status on behalf of all participants in and beneficiaries of defined contribution plans within the meaning of ERISA § 3(2)(A), 29 U.S.C. § 1002(2)(A), who had funds invested in the United of Omaha Guaranteed Account from May 26, 2011 to the conclusion of this action.
The suit states that discovery will show that during the relevant time period, “United of Omaha made and retained millions of dollars annually from ERISA defined contribution retirement plans’ investments in the Guaranteed Account, and the amounts credited to the plans were consistently dwarfed by United of Omaha’s investment returns.” Said another way, that “United of Omaha retained excessive compensation at the expense of plan participants,” and that, “as a result of United of Omaha’s actions, the plans’ assets were diminished.”
Credit ‘Charges’
The suit alleges that plan participants’ contributions to the Guaranteed Account are received by United of Omaha and directed to “Maturity Accounts,” which are held as a part of Mutual of Omaha’s general assets, and that those contributions are credited with interest at the “Guaranteed Interest Rate.” However, the plaintiff claims that the “so-called Guaranteed Interest Rate is a misnomer,” that “there is no guaranteed minimum rate of return, and Contract sets forth no methodology for determining the Guaranteed Interest Rate.” Rather, the suit says that the Guaranteed Interest Rate is simply defined as “[a] rate of interest declared periodically by United.”
Moreover, the suit claims that United of Omaha “restricts the ability of plans to terminate their investment in the Guaranteed Account, by paying out less than the full value of the plan account in the event of Contract termination,” and that “in the event of a plan-initiated termination, in most circumstances United of Omaha pays out the account as a single payment reduced by a “Market Value Charge.” Further, that United of Omaha has the right to delay this payment for up to 180 days from the date of a request to withdraw by a plan, and that “if the plan terminates the contract before it has been in effect for 5 years, United of Omaha charges the plan a surrender fee.”
The suit also notes that participants are restricted in their ability to transfer funds in and out of the Guaranteed Account, that any transfer from the Maturity Account to a competing fund must be held by the plan trustee for a period of at least 90 days in a noncompeting (equity “wash”) investment option, and that the definition of what constitutes a competing fund is very broad. Additionally, the suit notes that there are restrictions on transfers by participants that appear to be engaging in market timing, and where there is an “unusual volume” of participant-directed transfers suggesting an employer-directed withdrawal. “These restrictions on contributions, transfers, and terminations protect United of Omaha from investment risk and shift such risk to participants in the Guaranteed Account,” the suit charges.
The suit notes that plan documents and fee disclosure materials provided to Plaintiff fail to disclose that United of Omaha can and does retain the difference between the credited interest rate it chooses to give retirement plans and its actual investment earnings on the funds it invests on behalf of the plans. Moreover, that the Contract “…promises only preservation of principal and an unspecified rate of return, minus fees,” and that the investment risk is borne by the participants “because United of Omaha can change the credited interest rate in its sole discretion, restrict participants’ and plans’ ability to cease investing in the Guaranteed Account (by using, for example, the equity wash and market value charge), and close the product if market conditions are not favorable to United of Omaha.”
The suit was filed in the U.S. District Court for the District of Nebraska by Car & Reinbrecht PC, Feinberg Jackson Worthman & Wasow LLP, and Nichols Kaster.
A number of suits have been filed in recent months against stable value fund providers, including Voya, MassMutual, Prudential, Galliard and New York Life.
