Capitol News | PLANADVISER July/August 2017

Compliance News

Legislative and judicial actions.

By PLANADVISER Staff | July/August 2017
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Art by Jean Wei

Voya Suit Dismissed
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 Co. improperly profited from stable value funds (termed “SVAs”) offered to the plan through annuity contracts.

According to the original complaint, Voya sells group annuity contracts to retirement plans, which include  Voya SVAs. The funds periodically credit a certain amount of interest income to the plans and to their participants invested in the accounts. This income, generally expressed as a percentage of the invested capital, is determined according to a crediting rate that Voya has the discretion to set, then reset periodically. 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.”

The court found that Dezelan, whose plan does not offer the Voya general account stable value funds, lacks the standing to bring her claims. The decision stressed that, to successfully bring an ERISA suit to trial, a plaintiff “must demonstrate both constitutional standing and a cause of action under ERISA.”

Self-Dealing Suit Filed Against Capital Group
D’Ann Patterson, individually and on behalf of all other similarly situated participants and beneficiaries of the Capital Retirement Savings Plan, has filed a lawsuit against The Capital Group Companies Inc., the board of directors of Capital Group, the U.S. Retirement Benefits Committee of the plan, Capital Guardian Trust Co. (CGTC), Capital Research and Management Co. (CRMC) and Capital International Inc. (CII) for violations of Employee Retirement Income Security Act (ERISA) provisions regarding fiduciary duties of and prohibited transaction provisions between June 13, 2011, and the present.

The lawsuit claims that when selecting and retaining investment options in the plan, the benefits com-mittee put the interest of Capital Group and its subsidiaries ahead of plan participants and beneficiaries by selecting, retaining and failing to remove expensive group-affiliated investment options managed by CGTC, CRMC and/or CII. The suit says this breached the plaintiffs’ fiduciary duties of prudence and loyalty, and generated significant revenue for Capital Group and its subsidiaries.

According to the complaint, during the relevant period, between 94.7% and 97.8% of all investments offered by the plan were “the unduly expensive Capital Group-affiliated investments managed by CGTC, CRMC and/or CII.” Further, it claims there was access to comparable investment options, from unaffiliated companies, that cost less and have performed comparably, if not better than, the Capital Group-affiliated investment options. It also says the benefits committee selected and retained the more expensive R5 share class of the funds despite the availability of the less expensive R6 share class.