Guaranteed Investment Suit Against Stable Value Provider Dismissed

A federal district court judge has granted a motion to dismiss for failure to state a claim in a suit alleging 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.”

In Insinga v. United of Omaha Life Ins. Co., U.S. District Court Judge Robert Rossiter, Jr. ruled that United is not a fiduciary of the plan under ERISA and cannot be liable for breach of fiduciary duty or for engaging in transactions prohibited to fiduciaries. The case was dismissed without prejudice.

Brought by Philip Insinga, a participant in the Safe Auto Insurance Company 401(k) Plan, the suit sought class action status on behalf of all participants and beneficiaries who had funds invested in the United of Omaha Guaranteed Account. The suit alleged that United improperly profited from the DC plans’ investments in the guaranteed account and the amounts credited to the plans were “consistently dwarfed by United of Omaha’s investment returns.”


United entered into a contract with the plan to provide various investment services for plan participants, who had the option to invest in three different accounts, one of which was a maturity account at issue in this case. Under the contract, United would declare at least once a month a guaranteed interest rate for any contributions directed to a maturity account. The guaranteed interest rate is declared before contributions were made; once any contributions are received, the guaranteed interest rate and maturity date are locked in and continue in effect until the maturity account is terminated and all funds are transferred or withdrawn from it.

Discretionary Authority?

Insinga argued that United’s ability to declare the guaranteed interest rate monthly and its ability to close a maturity account to new contributions and open a new one with a different guaranteed interest rate constituted discretion over the contract. He also argued that because the contract is a plan asset, United has discretion over plan assets, thus, making it a fiduciary.

Judge Rossiter concluded otherwise, ruling that United does not change the terms of the contract, nor does it become a fiduciary when it declares a new guaranteed interest rate every month. “The plan entered into the contract to gain, among other options, the chance to invest money into an account where the interest is guaranteed. The plan received that exact benefit,” the judge wrote. “If Insinga is unhappy with the investment options that his plan has contracted to provide, those complaints are more appropriately addressed to the plan,” he noted.

As for the ability to close a maturity account, the judge emphasized that, even if Insinga’s interpretation is correct, ERISA requires that a person exercise discretionary authority, not merely possess it. He added that the plaintiff would also need to assert that those actions resulted in its alleged injury. “Insinga fails to allege that United ever limited the maximum amount of contributions and invested the excess in a new maturity account with a different guaranteed interest rate,” he wrote.

Discretion to Set Compensation

Insinga further argued that because United can set its own compensation by varying the guaranteed interest rate, it is an ERISA fiduciary, and pointed to case law from the 2nd, 5th and 6th Circuits as support for the claim.

Judge Rossiter did not buy that argument either. “Those cases are factually distinguishable because, here, the connection between the guaranteed interest rate and United’s compensation is too attenuated as to give United discretion over its compensation,” he wrote. Since United’s compensation is largely controlled by the plan’s choices and other factors outside its control, United is not setting its own compensation in the same way as the entities in the other cases cited by Insinga, the judge added.

Similar Suits

Similar suits over guaranteed investment products have been filed against fund providers in recent months, including suits against Great-West Life & Annuity Insurance Co., Metropolitan Life Insurance Co., Principal Life Insurance Co., and Prudential Retirement Insurance & Annuity Co. While Prudential defeated a bid for class certification, the Principal and Great-West cases have been certified.

New York Life Insurance Co. late last year was able to successfully defend its guaranteed investment products against similar claims, when a proposed class action suit was voluntarily dismissed shortly after a federal judge issued an “order to show cause” to the plaintiffs.

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