Recent lawsuit raises questions about a company providing its own products and services to its own employees in its own qualified retirement plans.
W. Scott Simon is a principal at Prudent Investor Advisors, a registered investment advisory firm. He also provides services as a consultant and expert witness on fiduciary issues in litigation and arbitrations. Simon is the recipient of the 2012 Tamar Frankel Fiduciary of the Year Award.
Early last month, six current and one former employee of the Massachusetts Mutual Life Insurance Company (MassMutual) filed a class action lawsuit for breach of fiduciary duty against MassMutual in the United States District Court, District of Massachusetts. The plaintiffs also sued relevant operating divisions, subsidiaries, and affiliates of MassMutual, the current as well as the two immediately preceding chief executive officers of MassMutual, the Investment Fiduciary Committee and Plan Administrative Committee of the MassMutual Thrift Plan (Thrift Plan), as well as eight current officials at MassMutual who are alleged to be members of the two committees or are otherwise alleged to be fiduciaries of the Thrift Plan.
The Thrift Plan is a defined contribution plan with nearly 15,000 participants and almost $1.5 billion in assets (please see paragraphs 107.A and 140.B of the plaintiffs' 70-page complaint), and is offered to eligible MassMutual employees.
The plaintiffs' complaint sets forth seven counts, including the selection of unreasonably priced and imprudent investment options, entering into prohibited transactions, the failure to administer the plan in accordance with the governing plan documents, and the failure to monitor fiduciaries. This month's column will center on the first of these counts. Before looking at that, however, let's focus briefly on the allegations of Count V of the complaint: the failure to administer the plan in accordance with the governing plan documents.
Allegation of Failure to Administer the Thrift Plan in Accordance With the Plan Document
Section 404(a)(1)(D) of the Employee Retirement Income Security Act of 1974 (ERISA), which governs the Plan, requires a fiduciary (as relevant) to discharge its duties in accordance with the terms of a qualified retirement plan, but only to the extent that such terms don't conflict with ERISA.
Plaintiffs allege in paragraph 51 of their complaint that the plan document of the Thrift Plan states that "all expenses of establishing and administering the plan including expenses with respect to the group annuity contract and fixed income account agreement shall be borne by the employer [i.e., MassMutual] as a further contribution to the plan." In paragraph 53 they allege that "Contrary to the Plan document, however, Defendants caused the Plan [i.e., plan participants and their beneficiaries] to pay, among other items, investment, administrative, and recordkeeping expenses to each investment option and to MassMutual."
The preceding allegation would seem to be pretty cut-and-dried. It's alleged that MassMutual promised in the plan document to pick up the check for the Thrift Plan's administrative expenses including those related to the group annuity contract and fixed-income account agreement, and broke that promise. This issue doesn't appear to be one where reasonable minds may differ about whether or not a given fee or charge is "reasonable." (It's always possible, of course, that MassMutual could answer that it never made that promise or it could answer that, in fact, it is--and always has been--picking up that check.)