An order to show cause bodes well for a stable value provider accused of collecting “millions of dollars annually in undisclosed compensation.”
The Charges
Not quite a year ago, a class action was filed in the Southern District of New York by John W. Wittman on behalf of the Voith Retirement Savings Plan for Bargaining Unit Employees and all other similarly situated ERISA-covered employee pension benefit plans against New York Life Insurance Company (NYL) regarding its stable value funds (SVAs) offered to retirement plans. The suit alleged that NYL sold group annuity contracts that periodically credited a certain amount of income to retirement plans and the participants in such plans who invest their retirement plan accounts in those SVAs. The income, generally expressed as a percentage of the invested capital, was determined pursuant to the Crediting Rate, which the suit alleged was set by NYL “well below” its internal rate of return (IRR) on the invested capital it holds via the SVAs, and thus, according to the plaintiff, “guarantees a substantial profit for itself.”
Moreover, the suit claims that since NYL does not disclose to its retirement plan clients and their respective participants the difference between its IRR and the Crediting Rate, the firm “collects tens of millions of dollars annually in undisclosed compensation.”
Additionally, the suit alleged that NYL reserved to itself under the GACs, "substantial authority to protect its own interests at the expense of the Plans,” including the ability to ignore “withdrawal and transfer requests if New York Life determines that making such withdrawals and transfers would have a potential adverse financial, legal or administrative impact on the obligations of New York Life under this Contract,” as well as imposing “substantial restrictions on transfers from the SVAs to other investment options,” and the ability to impose “substantial penalties” upon participants if an employer terminates the GAC.
Other Cases
It is a case that, at least in terms of the violations alleged, largely mirrors cases subsequently brought against MassMutual and Voya.
The Ruling
In the most recent “order to show cause” (Wittman v. N.Y. Life Ins. Co., S.D.N.Y., No. 1:15-cv-09596-AKH, order to show cause 11/28/16), Judge Alvin K. Hellerstein noted that NYL represented at a status conference that it had complied with the court’s instruction to provide plaintiff with full documentation showing that this “spread” theory of the case is unfounded. Moreover, Judge Hellerstein noted that the plaintiff “conceded that the documents so showed and that there was no ‘spread’ between any internal rate of return and the rate of return owed to the beneficiaries.” Regardless, Judge Hellerstein noted that the plaintiff “insists that defendant made an improper profit from the group annuity contracts at issue,” though he was “unable to explain how defendants could have profited if, as defendant's documents show, there was no ‘spread.’”
“Clearly, without an amendment, the complaint is insufficient and must be dismissed,” Judge Hellerstein wrote, leaving the plaintiff, by Dec. 9, 2016, to “show that it can state a meritorious claim for relief, and shall identify the documents providing sufficient confirmation of its claim,” with NYL having until Dec. 23, 2016 to file opposition, and the plaintiff having until Jan. 5, 2017 to reply to that. “The Court will then determine whether additional limited discovery is appropriate, or if the case should be dismissed.”
Stay tuned.
