Denying MassMutual’s motion for summary judgment in the long-running Golden Star v. MassMutual class action suit brought by similarly situated plan sponsors, a federal district court in Massachusetts ruled that the record keeper was a functional fiduciary based on discretionary pricing controls and the administrative services it provided.
Fiduciary Matters legal blogger Tom Clark notes that the law varies from district to district and that we may have lost an opportunity to clear that up when ING recently settled its lawsuit.
Small-market insurance providers regularly price a plan based on services required, as well as services like advisor compensation, and then offset these costs through mutual fund revenue sharing fees. If the revenue sharing is not enough, providers have the option to charge a wrap fee using separate investment accounts offered through group annuity contracts. In the Golden Star case, MassMutual was found to be a functional fiduciary because it had discretion to adjust that fee from 0%-1.0%. It was not found to be a functional fiduciary as the plaintiffs claimed because it had the discretion to change the underlying investments — the court found no evidence that it had used this authority to substitute funds.
If record keepers are found to be fiduciaries, the whole issue of receiving revenue sharing becomes questionable. This issue is reviewed by Groom Law Group in a BNA article about financial service companies using proprietary funds in their DC plans.
