There’s more 401(k) litigation afoot — this time over fees on stable value funds.
A class action was filed Jan. 29 by a participant in the Arthur J. Gallagher & Company Savings and Thrift Plan against MassMutual regarding its stable value funds (SVAs) offered to retirement plans, all of which it says utilize group annuity contracts and periodically credit 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, is determined pursuant to the Crediting Rate, which the suit alleges MassMutual sets “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 MassMutual 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.”
The suit claims that MassMutual earned approximately 4.6% on the invested assets within its general account in 2014, which it termed “a substantial spread over its SVA Crediting Rates.” It notes that MassMutual disclosed that its 3-year return average on its guaranteed investment account, a GIA and one of its SVAs, inclusive of 2014, was only 1.82%. “Therefore, in addition to all of the expenses it was paid as alleged above, Defendant earned undisclosed spread compensation of approximately 2.78%,” it says.
The suit states that MassMutual deducts a series of expense, administrative, marketing and recordkeeping charges directly from the SVAs, “which sharply reduces the net Crediting Rate (the Gross Crediting Rate minus these expenses)” and that “in addition to its substantial fees, Defendant pays itself a ‘pricing spread’ which is intended to cover investment management and administrative expenses, as well as expenses for risk and profit, which were substantial.”
The suit seeks class action status on behalf of all ERISA covered employee pension benefit plans whose plan assets were invested in Massachusetts Mutual Insurance Company’s group annuity contract stable value funds within the six years prior to, on or after Jan. 29, 2016.
In response to the suit, MassMutual notes that it “has a long history of delivering exceptional products and service to retirement plans and their participants,” that the firm regards the complaint “as meritless and will vigorously defend against it.”
