Compliance

Connecticut District Court Tosses Voya Stable Value Suit

The lawsuit challenged how Voya set its crediting rate on certain stable value accounts offered to a 403(b) plan. 

By John Manganaro editors@strategic-i.com | July 17, 2017
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The U.S. District Court for the District of Connecticut has dismissed without prejudice a class-action Employee Retirement Income Security Act (ERISA) challenge filed by a participant on behalf of the Cedars-Sinai Medical Center 403(b) Retirement Plan.

Darlene Dezelan, the lead plaintiff, alleged in the suit that Voya Retirement Insurance and Annuity Company improperly profited from stable value funds offered to the plan through annuity contracts.

According to the original complaint, Voya sells group annuity contracts to retirement plans which include what it labels and markets as stable value funds, referred to in the complaint as “SVAs.” The SVAs periodically credit a certain amount of interest income to retirement plans and the participants in such plans who invest their retirement plan accounts in SVAs. This income, generally expressed as a percentage of the invested capital, is determined pursuant to the “Crediting Rate.” The Crediting Rate varies in each Crediting Period, and Voya sets a Crediting Rate for all money in and added to its SVAs in that period.

The lawsuit alleged that Voya set the Crediting Rate “well below the internal rate of return (IRR) on the plan’s deposits to the SVAs, guaranteeing a substantial profit for itself through both the retention of the spread between the two rates and/or the use of the spread for its own purposes.” Further, the lawsuit suggested, “Voya does not disclose to its retirement plan clients and their respective participants the amount of the spread, so it collects hundreds of millions of dollars annually in undisclosed compensation.”

As laid out in the district court decision, important to the outcome of this case is that Ms. Dezelan “does not allege that she has withdrawn money from the Separate Account or receives annuities from Voya. Rather, her allegations concern the accumulation phase of her Plan’s Contract. She alleges that Voya breached its fiduciary duties to the Plan during this period, reducing the amount of Plan funds that would eventually be available for her to withdraw.”

The decision further clarifies: “Ms. Dezelan makes three claims against Voya. The essence of all three claims is that Voya unlawfully profited by setting the Crediting Rate for its stable value funds for its own benefit. First, Ms. Dezelan alleges that Voya violated Section 406(a)(1)(C) of ERISA, which provides that a fiduciary shall not cause a plan to engage in a transaction if it knows that the transaction constitutes direct or indirect furnishing of goods or services by a party in interest to a plan. … Second, she argues that Voya violated Section 406(b)(1) of the law, which prohibits a fiduciary from dealing with plan assets in his own interest or for his own account. … Finally, she argues that Voya breached the fiduciary duties it owed to the Plan, in violation of Section 404(a)(1).”

NEXT: Voya’s successful counter arguments