Provider Settles Proprietary Fund Default Suit

A provider sued for including a proprietary fund as its own plan’s default investment option has settled the case.

Last July,  two New York Life employees who are plan participants filed a potential class action accusing the firm of profiting from the “improvident retention of the MainStay S&P 500 Index Fund as a designated investment alternative” within the firm’s 401(k) plans.

Under the terms of the proposed settlement (Andrus v. N.Y. Life Ins. Co., S.D.N.Y., No. 1:16-cv-05698-KPF, motion for preliminary settlement approval filed 2/14/17), New York Life has agreed to pay a gross settlement amount of $3 million into a common fund for the benefit of class members, plus an additional $50,000 to cover certain administrative expenses associated with the settlement.

In petitioning the court to approve the settlement, the parties also noted that “…the issue giving rise to this suit has now been resolved, as the MainStay S&P 500 Fund has been removed from the Plans and replaced with a less-costly Vanguard Institutional Index Fund.” That said, the plaintiffs allege that by the time this was done, “…the Plans’ participants already had incurred significant losses due to excess fees,” since, during the relevant period, “hundreds of millions of dollars of Plan assets were invested in the MainStay S&P Fund.”

Settlement Terms

“Based on the significant amount of monies that were invested in the MainStay S&P 500 Fund, Plaintiffs estimate that the Plans incurred approximately $3.9 million in excess costs during the class period” (from July 18, 2010 to July 19, 2016).

Additionally, the settlement notes that Class Counsel will seek an award of attorneys’ fees of no more than $1 million or one-third of the Gross Settlement Fund, and actual litigation costs incurred by Class Counsel not to exceed $25,000. Additionally, the Settlement Agreement provides that service awards of up to $10,000 may be sought for the Class Representatives, subject to Court approval, to compensate these individuals for the time, effort, and risks assumed by them in connection with this action.

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