Court Sides With MassMutual in Stable Value Fund Lawsuit

The court found MassMutual did not breach provisions of a prior settlement to which the plaintiff was bound.

A federal district court judge has enjoined a retirement plan participant from filing a claim against Massachusetts Mutual Life Insurance Company (MassMutual) over the “spread” its stable value fund offering received.

The participant filed the lawsuit on behalf of the Arthur J. Gallagher & Company Savings and Thrift Plan and all other similarly situated Employee Retirement Income Security Act (ERISA)-covered employee benefit plans. The suit alleged that MassMutual collects excessive and undisclosed revenue in relation to stable value accounts it offers to retirement plans by crediting those accounts an interest rate (the “crediting rate”) below the defendant’s internal rate of return (the rate defendant itself earns on the invested capital in its general account), thereby earning excessive “spread.” The complaint was originally filed in Connecticut, but was moved to Massachusetts.

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In Massachusetts, MassMutual sought to enjoin the participant from bringing the action in light of a previous lawsuit settlement agreement. The U.S. District Court for the District of Massachusetts held that her claims, as pled in the original complaint, were barred by the settlement agreement. 

“Nevertheless,” the court explained, “as defendant itself has suggested [in the briefing], plaintiff may have a remedy by suing under the theory that defendant breached the settlement by failing to comply with Section IV, regarding defendant’s promises to change its business practices.”

Prior settlement agreement

On June 25, 2015, following two fairness hearings, the Massachusetts court approved a settlement agreement in Golden Star, Inc. v. Massachusetts Mutual Life Insurance Co., an ERISA class action. In Golden Star, the plaintiff had asserted a variety of claims related to MassMutual’s fees and compensation in servicing retirement plans pursuant to group annuity contracts, including similar allegation regarding spread and stable value investment options as the participant asserts in the current case.

The parties in Golden Star reached a settlement agreement and sought court approval on behalf of two classes. The court granted final approval of the settlement agreement, which indeed provided relief to two classes. First was a monetary relief class, defined as “all current and former retirement plans that are or were serviced by MassMutual pursuant to a group annuity contract from October 19, 2005, through the date of the court’s preliminary approval order.” The second class was a structural changes class, defined as “all retirement plans that receive services from MassMutual pursuant to a group annuity contract on or after the date of entry of the preliminary approval order.” Pursuant to the settlement, MassMutual paid nearly $9.5 million to the monetary relief class, and for the benefit of the structural changes class, agreed to make certain changes to its 401(k) plan administration, including changes to the manner in which it disclosed fees.

“It is undisputed that the Gallagher Plan (and its participants, including plaintiff) is a member of both classes,” U.S. District Judge Mark G. Mastroianni wrote in his latest opinion.

According to Mastroianni’s order, Section 4.2(b) of the settlement agreement provides the following: “[Defendant] will provide on the plan sponsor website for each fund it makes available 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. [Defendant] will also disclose for each fund it makes available the revenue paid to [defendant] from a fund, including disclosure of those funds that make no revenue sharing payments to [defendant].”

No violation of prior settlement

According to the participant, MassMutual’s failure to disclose spread violates the language in the second sentence of Section 4.2(b). However, Mastroianni agreed with MassMutual that this language plainly does not require the disclosure of spread with regard to the stable value account.

He concluded that spread is not “paid to” MassMutual “from a fund,” but rather constitutes the earnings MassMutual retains in its general account above the interest rate credited to the stable value account. “Spread, therefore, is not ‘paid to’ defendant from the stable value account but is, instead, the amount not paid to investors from excess earnings in the defendant’s general account. Accordingly, the ‘plain, ordinary, and natural meaning’ of § 4.2(b) does not require the disclosure of spread in this context,” Mastroianni wrote in his order.

He ultimately found that MassMutual did not breach the provisions of the earlier settlement agreement, which barred further claims from class members. Mastroianni ordered the clerk of court to enter judgment for MassMutual and close the case.

Retirees’ Biggest Financial Objective is Having Peace of Mind

Most of their spending concerns are related to health care.

A survey of retirees and employees ages 21 or older by T. Rowe Price found that retirees’ No. 1 financial objective is having peace of mind. Following that is maintaining an acceptable quality of life, managing day-to-day expenses, reducing debt and having a plan to convert assets into a stream of income.

The report, “Retirement Savings and Spending: Behaviors and Attitudes Toward Retirement,” also found retirees report being financially sound, with 77% saying they have enough money to pay for health care, 69% saying they live as well or better than when they were working, 59% saying they will be able to leave money to family members or charities, and 27% saying they will be able to help younger family members with tuition or housing expenses.

Only 20% said they will have to reduce their standard of living, a mere 16% said they will work at least part-time in retirement, and 9% said they will run out of money.

Asked about their concerns, 69% say it is their health, 68% say health care costs, 65% say it is whether their assets will last, 57% worry about who will provide them with care if needed, 51% are concerned about spending their time meaningfully and 46%, each, are concerned about whether their spouse/partner wants the same things out of retirement as well as how much time they can spend with their family.

Asked about their spending concerns, 28% say it is long-term care services, such as a nursing home, 23% say it is health insurance premiums, 20% say it is out-of-pocket health expenses, and 15% say it is housing expenses.

Asked about their financial habits, 81% of retirees say they always or often pay their credit card balances in full when due, 79% say they are always or often are able to stick to a monthly budget, and 46% say that after taking care of their expenses, they make some after-tax savings.

Workers were also asked about their financial habits, and they appear to be in slightly worse shape than retirees. Fifty-seven percent of workers say they always or often pay their credit card balances in full when due, 63% say they always or often are able to stick to a monthly budget, and 39% say that after taking care of their expenses, they make some after-tax savings.

The survey also asked retirees what sources they would turn to if they were to face an emergency that required more cash than they had on hand. Forty percent said they would turn to their savings, 30% said they would use an emergency fund they had built up, 28% said they would get cash from their credit cards, and 26% said they would turn to their workplace retirement accounts.

Workers, asked the same question, said they would turn to the following sources: credit cards (47%), family members or friends (32%), an emergency fund account (31%), personal savings (24%) and an emergency fund (21%).

T. Rowe Price’s findings are based on an online survey of 3,005 workers and 1,005 retirees conducted last July and August. The full report can be downloaded here.

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