Category Archives: ERISA Litigation Index

After 13 years, Haddock v. Nationwide settles for $140,000,000

On Friday December 12, 2014, the parties in Haddock v. Nationwide filed a motion for the court to approve a settlement worth $140,000,000. Originally filed in 2001, the lawsuit concerned the plaintiffs’ allegation that Nationwide received undisclosed revenue sharing payments from non-proprietary mutual funds in violation of ERISA.

The procedural history is extensive with 6 published orders from the court and multiple trips to the 2nd Circuit Court of Appeals. A more thorough background of the case is included in the motion seeking settlement.

As noted above, the $140,000,000 is split between two different certified classes, with $110,000,000 for one and $30,000,000 for the other. The plaintiffs’ will seek up to 35% of the settlement amount in attorney’s fees or $49,000,000 and up to $2,000,000 in costs.

The settlement also calls for extensive non-monetary relief:

Defendants will supplement the disclosures for its new group variable annuity customer proposals, its new group variable annuity contracts, and its plan sponsor website that relate to Mutual Fund-related fees and expenses in connection with group variable annuity products. Defendants will also add language in new customer proposals or plan sponsor website(s) informing trustees of Plans holding group variable annuity contracts of the opportunity to be transferred to a product where Mutual Fund Payments are credited to the Plan in the form of reduced asset fees in an amount equivalent to the disclosed reimbursement rate received for each Mutual Fund investment option.

Defendants will also supplement the disclosures for its new individual variable annuity customer proposals and its new product prospectuses that relate to Mutual Fund-related fees and expenses in connection with individual variable  annuity products with specific language in these disclosures that Nationwide shall provide, upon Plan Trustees’ written request, its best estimate of plan-specific, aggregate data regarding the Mutual Fund Payments received in connection with the Plan’s investments for the previous calendar year.

Defendants will also supplement the disclosures for its trust customer proposals, new trust, custodial, services or program agreements, and plan sponsor website that relate to Mutual Fund-related fees and expenses in connection with trust products. Defendants will also add language to the new customer proposals; trust, custodial, service or program agreements; or plan sponsor website(s) informing trustees of Plans holding group variable annuity contracts of the opportunity to be transferred to a product where Mutual Fund Payments are credited to the Plan in the form of reduced asset fees in an amount equivalent to the disclosed reimbursement rate received for each Mutual Fund investment option.

Defendants will enhance the procedures for certain future changes to the Product Menus in connection with Annuity Contracts and the Program Menus for the Trust Platforms as follows:

For group variable annuity products and Trust Platforms, Defendants will specifically identify to Plan Trustees, via mail, electronic delivery, or Defendants’ plan sponsor website, any addition of a Mutual Fund investment option to a Product Menu or Program Menu at the time of the addition. Defendants will update the new customer proposals; trust, custodial, service or program agreements; or plan sponsor website(s), as applicable, to inform Plan trustees that such Product and Program Menu additions are identified on the plan sponsor websites.

For group variable annuity products and Trust Platforms, Defendants will provide to Plan trustees written notice of any removal or substitution of a Mutual Fund investment option from the Product and Program Menus that is initiated solely by Defendants, and will not remove or substitute that fund from the Product or Program Menu for a particular Plan until it has received affirmative consent from that Plan’s trustee(s). Such notice shall be provided via mail, electronic delivery, or published on the plan sponsor websites at least thirty (30) days prior to the removal or substitution of a Mutual Fund investment option, and shall state the effective date of such removal or substitution. Defendants will update their new customer proposals; trust, custodial, service or program agreements; or plan sponsor website(s), as applicable, to inform Plan trustees that such removals or substitutions from the Product and Program Menus are identified on the plan sponsor websites.

For group variable annuity products and Trust Platforms, Defendants generally will not substitute one fund for another or otherwise unilaterally remove or substitute a fund from a Plan Menu. Defendants will confirm this change in their business practices by modifying their contracts  and Trust Platforms to eliminate any authority to unilaterally remove or substitute a fund from a Menu (the group variable annuity modifications will be subject to State insurance department approval).

For group variable annuity products, in those circumstances where a substitution or removal is necessitated by the actions of Mutual Funds (such as decisions by Mutual Funds or corresponding separate accounts to liquidate a fund, merge funds, change investment advisers or sub-advisers, or make other changes that prevent Nationwide Life from offering an investment option on the Plan Menu, or otherwise require Nationwide Life to change the Plan Menu), where administratively feasible, Nationwide Life will provide sixty (60) days written notice to the trustee of each Plan affected by the change via notice sent by first class mail, fax, or email. The notice will: (1) explain the proposed modification to the Plan Menu; (2) fully disclose any resulting changes in the Mutual Fund Payment rate received by Nationwide; (3) identify the effective date of the change; (4) explain the Plan trustee’s right to terminate the Annuity Contract; and (5) reiterate that, pursuant to the contract provisions agreed to by the Plan trustee, failure to object or otherwise respond shall be deemed to be consent to the proposed change. Nationwide Life will confirm this change in their business practice by modifying their existing and future Annuity Contracts to reflect this notice process (the Annuity Contract modifications will be subject to State insurance department approval).

For Trust Platforms, NFS has enhanced its notification procedures in those circumstances where a substitution or removal is necessitated by the actions of Mutual Funds (such as decisions by Mutual Funds or corresponding separate accounts to liquidate a fund, merge funds, change investment advisers or sub-advisers, make other changes that prevent NFS from offering an investment option on the Plan Menu, or otherwise require NFS to change the Plan Menu). These notification enhancements are substantially the same as the proposed enhancements to the group variable annuity products’ notification procedures.

For Individual Variable Annuities, Nationwide Life agrees to follow applicable U.S. Securities and Exchange Commission regulations, including notice requirements, with regard to the addition, substitution or removal of any investment option.

As part of the Settlement, current and future group variable annuity contract holders and those holding trust, custodial, services or program agreements, shall be offered the opportunity to be transferred to a product or Trust Platform where Mutual Fund Payments are credited to the Plan in the form of reduced asset fees in an amount equivalent to the disclosed reimbursement rate received for each Mutual Fund investment option. Defendants agree that they will continue to make available at least one Trust Platform offering for which Mutual Fund Payments are passed through in their entirety and/or the Mutual Fund Payment amounts are disclosed, subject to the restrictions on Defendants’ ability to substitute one fund for another as set forth in the Stipulation.

Defendants shall begin to implement these changes within six (6) months of the Settlement Effective Date, and will make diligent and good faith efforts to ensure that the implementation of these changes is concluded within twelve (12) months of the Settlement Effective Date, unless there is a change in applicable law or regulatory policy that renders any change or practice unlawful or impracticable or imposes different disclosure or other substantive requirements.

Our Thoughts

Needless to say, this is the most substantial settlement ever in an ERISA fiduciary breach case involving the receipt of revenue sharing by a service provider. It is unclear from the settlement how much of the conduct at issue in the lawsuit is still being done by Nationwide. Nonetheless, this settlement is nearly 10 times greater than recent settlements against ING (see ING Settles ERISA Class Action Lawsuit Over Revenue Sharing Practices) and MassMutual (see MassMutual Settles Excessive Fee Lawsuit).

 

Excessive Fee Case Against Lockheed Martin Goes to Trial – UPDATED

[UPDATE – On Sunday, the court entered an order entertaining a joint motion by the parties to delay the start of the trial until Tuesday. The parties filed such a motion stating “Plaintiffs and Defendants hereby jointly request a one-day continuance so that the parties can determine whether the case can be resolved short of a full trial. ” We will continue to monitor.]

On Monday, December 15, 2014, the excessive fee lawsuit against Lockheed Martin goes to trial in the Southern District of Illinois after 8 years since the case was filed, two trips to the 7th Circuit and one failed cert petition to the Supreme Court. It is the third such fee lawsuit to go to trial against employer fiduciaries since a “blitzkrieg” of lawsuits was filed against Fortune 500 companies on September 11, 2006. The previous trials were against Edison International and ABB, Inc.  and those cases have been covered extensively on this blog, as has the case against Lockheed Martin. See Victory for Plaintiffs: 7th Circuit Allows Class Certifications for Excessive Fee Cases and Supreme Court Declines to Hear Lockheed Martin Class Cert Appeal.

The three primary issues to be decided at trial concern the payment of excessive administrative fees, the stable value fund, and the company stock fund. Here are the final trial briefs as filed by the parties:

We will be monitoring the trial and will report on any major developments.

Supreme Court Declines to Hear Appeal of Tussey v. ABB

Yesterday, November 10, 2014, the Supreme Court published an order declining to hear the appeal of the 8th Circuit decision in Tussey v. ABB from earlier this year. (see Tussey v. ABB Affirmed, Reversed, and Vacated in Part by 8th Circuit).

The Supreme Court does not provide a reason why they decline to hear appeals. However in this instance, there are at least a few speculative guesses. First, they have already agreed to hear two ERISA cases this term, with one being Tibble v. Edison and the other a retiree health care vesting case that had oral arguments recently. Second, on the issue of deference which was the heart of plaintiffs’ appeal, the district court will get to decide that issue for the first time. How the district court will decide could make the Supreme Court hearing the case unnecessary. The Supreme Court generally dislikes hearing cases that have an opportunity to work themselves out in the lower courts.

So what’s next? The case will now go back to the district court for it to decide the outstanding issue of deference and any lingering issues regarding attorney’s fees. I can guarantee one thing…this is not the last time we will hear about Tussey v. ABB.

MassMutual Settles Excessive Fee Lawsuit

On Friday, October 31, 2014, the parties in Goldenstar, Inc. v. MassMutual Life Insurance Co. filed a motion seeking the court to approve a settlement agreed to by the parties. (See previously MassMutual is Found to be a Fiduciary in ERISA Suit by Proposed Class of Client Plans)

The settlement agreement (Part 1 and Part 2) allows for two settlement classes to be approved: (1) the Monetary Relief Class and (2) the Structural Changes Class. The Monetary Relief Class covers current and past retirements plan customers of MassMutual, while the Structural Changes Class covers current and future retirement plan customers of MassMutual.

To note, it appears that the lawsuit brought by MassMutual’s own employees is not affected by this lawsuit (See Breaking: New Excessive Fee Case Filed By MassMutual Employees) as the following parties are excluded as plaintiffs:

Excluded from the Classes are (1) Defendant, (2) any administrators of retirement plans (“Plans”) for which Defendant’s directors, officers or employees are beneficiaries, (3) any Plans for which the Judge(s) to whom this case is assigned or any other judicial officer having responsibility for this case is a beneficiary, (4) any Plans that were former Hartford Plans (as that term is defined in the Settlement Agreement), and (5) any Plans which are invested through registered products.

The Monetary Class will receive a payment of $9,475,000, which will be reduced a claim for attorney’s fees up to 1/3 and costs up to $315,000.

The Structural Changes Class is much more involved. The promised changes to be implemented over the next 12 months include:

Defendant shall make the following changes to the menu(s) of investments it offers (“Product Menu(s)”):

(a) Defendant shall identify to plan sponsors, via MassMutual’s plan sponsor website or other electronic media made available by Defendant to the plan sponsor (“Plan Sponsor Website”), any addition of any insurance company Separate Investment Account, Mutual Fund, Bank Collective Trust Fund or other investment option (collectively “Funds”), to the Product Menu(s). Defendant shall inform current plan sponsors within ninety (90) days of the effective date of any settlement and future plan sponsors at point of sale in writing that such additions are identified on the Plan Sponsor Website;

(b) Defendant shall advise all current and future Plan fiduciaries that, notwithstanding any provision in any group annuity contract or group funding agreement (“Group Contract”), Defendant would not delete, change or replace any Funds (including share classes of a given Fund) on the Product Menu that is in a Plan’s selected investment lineup without: (1) providing an applicable fiduciary for each affected Plan with sixty (60) days’ written notice, and (2) obtaining a plan fiduciary’s consent to the proposed change, subject to the qualification that Defendant can remove a Fund from the Plan’s lineup if it is no longer available through merger or otherwise and further provided that a Plan fiduciary’s failure to object will be treated as consent to the proposed change. If the fiduciary affirmatively rejects the proposed change and Defendant ultimately implements the change, the Plan fiduciary has the right to terminate its Group Contract with Defendant without application of a surrender charge or similar charge (a “penalty”) and the Plan fiduciary will be provided with an additional sixty (60) days from the effective date of the change to identify an alternative service provider. The conditions described in this subparagraph (b) only apply to Fund changes initiated by the Defendant and not to any Fund changes initiated by an investment provider other than Defendant; and

(c) Defendant shall provide to plan sponsors notice on the MassMutual’s Plan Sponsor Website of any removal of a Fund from the Product Menu. Such notice shall be published on such website at least thirty (30) days prior to the removal, and shall state the effective date of the removal. The conditions described in this subparagraph (c) only apply to the removal of a Fund initiated by Defendant and not to the removal of a Fund initiated by an investment provider other than Defendant. Defendant shall inform current plan sponsors within ninety (90) days of the effective date of any settlement and future plan sponsors at point of sale in writing that such deletions will be identified on the Plan Sponsor Website.

Defendant shall provide on the Plan Sponsor Website for each fund made available by MassMutual a disclosure of the expense ratio for each Fund, including the amount, if any, of the SIA Management Fee or other direct fees specifically associated with each Fund. MassMutual shall also disclose for each Fund made available by MassMutual the revenue paid to MassMutual from a Fund, including disclosure of those Funds that make no revenue sharing payments to MassMutual.

Defendant shall modify its written point of sale disclosure, so as to:

(a) advise Plans that Defendant offers various Funds, including various share classes of certain Funds, to retirement plan customers depending on the amount of direct fees plan sponsors choose to pay and other factors, that these various Funds pay to Defendant differing amounts of revenue sharing as a percentage of the Funds’ assets, that only one share class of each Fund is typically offered to a Plan consistent with the Defendant’s pricing and product offering and that, as an investment option under a retirement plan, the primary difference between share classes of a Fund is the Fund’s expense ratio (i.e., the amount that the Plan’s participants pay as a Fund expense) and the amount of revenue sharing that Defendant receives from the Fund, which is paid from the revenue derived from the Fund’s fees and expenses, and that Funds are available to all Plans that pay no revenue sharing of any kind resulting in the expenses of a Plan being paid for entirely by direct fees assessed to the Plan and/or its participants;

(b) explain that revenue sharing payments are made by certain, but not all, Funds and the amount of revenue sharing payments received can be dependent on the share class(es) offered by the Fund and the share class(es) chosen by Defendant; and

(c) advise Plans that more detailed information regarding the share classes available on various menus offered by Defendant, as well as the revenue sharing associated with those share classes, and the revenue sharing received in connection with the plan’s investments, would be provided upon written request to Defendant.

Each of the Plans in the Settlement Classes will be deemed to have elected to reinvest all mutual fund dividends from the effective date of the Plan’s Group Contract. Defendant’s point of sale disclosures will now provide that, as a result of entering into a contractual relationship with Defendant through a Group Contract, each Plan is directing Defendant to reinvest any mutual fund dividends.

Defendant will include in its proposal an explanation of the option for Plan customers to pay all fees to Defendant through direct charges and, if requested by the plan sponsor or its advisor, will offer a menu of Funds for which Defendant does not receive revenue sharing payments.

Defendant shall not make any change in the compensation that it receives from the Plans, including the SIA Management Fees or the Funds without providing each affected Plan with sixty (60) days written notice and an opportunity to terminate its Group Contract without penalty if the changes are not acceptable.

The filings do not provide a monetary value to this affirmative relief.

Supreme Court Grants Cert in Tibble v. Edison – BREAKING

Today, October 2, 2014, the United States Supreme Court granted the Plaintiffs’ Petition for Writ of Certiorari in Tibble v. Edison International. The list of orders from the Court can be found here.

As we’ve discussed in the past, the Supreme Court requested the opinion of the Solicitor General of the United States along with the Department of Labor in asking whether cert should be granted for the two issues that Plaintiffs sought to have heard. The first, regarding the six year statute of limitations found in ERISA was granted after the Solicitor General recommended that the Court take the case:

The petition for a writ of certiorari is granted limited to
the following question: “Whether a claim that ERISA plan
fiduciaries breached their duty of prudence by offering
higher-cost retail-class mutual funds to plan participants, even
though identical lower-cost institution-class mutual funds were
available, is barred by 29 U. S. C. §1113(1) when fiduciaries
initially chose the higher-cost mutual funds as plan investments
more than six years before the claim was filed.”

The second issue regarding deference to a plan fiduciary in interpreting a plan document was not supported by the Solicitor General and the Supreme Court did not agree to hear it. However, the proper level of deference that a fiduciary is to be given under ERISA sec. 502(a)(2) fiduciary breach claims is also the subject of a cert petition in Tussey v. ABB before the Court. At this point, the Court has yet to put consideration of that petition on its calendar and ABB’s brief is due October 6 under the current schedule, which is always subject to change.

Oral arguments in Tibble have not yet been set but currently the Court has availability in January. If heard that late, we can expect a decision sometime between late Spring and the end of June when the term ends.