Compliance December 31, 2019

M&T Bank 401(k) Lawsuit Settlement Agreement Includes Review of Investments

M&T Bank or its insurers will also pay a gross settlement amount of $20,850,000 into a common fund for the benefit of class members.

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Defendants in a lawsuit alleging self-dealing by fiduciaries of the M&T Bank 401(k) plan have reached a settlement agreement.

According to the complaint, in 2010, eight of the plan’s 23 designated investment alternatives were M&T Bank proprietary mutual funds that cost significantly more than similar funds and performed worse. Rather than remove these overpriced and underperforming funds, the defendants expanded their proprietary funds offerings in 2011, after M&T purchased Wilmington Trust and added six of Wilmington’s expensive, poor-performing mutual fund offerings.

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The suit also alleges the plan failed to use its bargaining power as a large institutional investor to obtain the lowest-cost class of shares available, and in several instances, failed to prudently monitor the plan to determine whether it had invested in the cheapest possible share class. The plaintiffs also claim the defendants were aware of the benefits of alternative investment vehicles such as collective trusts but failed to offer them to plan participants.

Under the terms of the proposed settlement, M&T Bank or its insurers will pay a gross settlement amount of $20,850,000 into a common fund for the benefit of class members. “This is a significant recovery for Class Members, and falls well within the range of negotiated settlements in similar ERISA cases,” the Memorandum in Support of Plaintiffs’ Motion for Preliminary Approval of Class Action Settlement says.

The settlement also includes a number of non-monetary terms. Specifically, M&T Bank has agreed that:

  1. an independent investment consultant will review the proprietary mutual funds in plan (i.e., funds affiliated with M&T Bank) and provide a written opinion regarding whether those funds should be retained;
  2. an independent investment consultant also will provide a written opinion regarding whether any of the existing mutual funds (both proprietary and non-proprietary funds) should be replaced with alternative investment vehicles such as collective investment trusts or separate accounts for the same or equivalent mutual funds;
  3. in the event that any proprietary funds are retained, those mutual funds shall rebate to the plan (or its recordkeeper) the same percentage of investment management fees rebated to other retirement plans (or their recordkeepers) that hold the same share class of such proprietary funds; and
  4. the defendants will issue a request for information to multiple potential recordkeepers to obtain the best combination of recordkeeping pricing and services available to the plan.
In a previous court decision, several defendants, including M&T Bank and certain Wilmington Trust subsidiaries, were found not to be fiduciaries and dismissed from the case; however excessive fee allegations and a prohibited transaction claim were moved forward against the bank’s retirement plan committee.
Compliance December 31, 2019

NAIC Committee Advances Annuity Transaction Suitability Rules

Notably, the proposed revisions to the Suitability in Annuity Transactions Model Regulation would provide a safe harbor for firms and producers that comply with the SEC’s Regulation Best Interest.

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The Life Insurance and Annuities Committee of the National Association of Insurance Commissioners (NAIC) voted on Monday to advance its revised Suitability in Annuity Transactions Model Regulation for final consideration.

The NAIC is the United States’ standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews, and coordinate their regulatory oversight.

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The full NAIC still must approve the annuity transaction suitability regulation before individual states may consider it for adoption, but Monday’s committee vote was significant in that the updated model now formally includes a safe harbor for all insurance producers who are subject to, and actually comply with, the Securities and Exchange Commission’s (SEC) Regulation Best Interest or the fiduciary standard under the Investment Advisers Act.

Jason Berkowitz, the Insured Retirement Institute’s chief legal and regulatory affairs officer, says he is confident the full NAIC executive committee and plenary will vote to adopt the revised suitability model regulation early in 2020.

“This revised model regulation will advance consumer protection with a best interest standard for insurance producers,” Berkowitz says, noting that the Insured Retirement Institute advocated for the inclusion of the Regulation Best Interest safe harbor. “Throughout this process, insurance regulators at NAIC working group and committee level have worked in an open, transparent manner to craft a model that is generally consistent with Regulation Best Interest and the right approach to provide strong consumer protection.”

Important provisions of the Regulation Best Interest, or “Reg BI,” take effect on July 1, 2020. Finalized in 2019, Regulation Best Interest has both fans and detractors. Supporters say Reg BI represents a workable and sufficiently flexible framework for tamping down on conflicts of interest through greater disclosure requirements. On the other hand, pointing to this disclosure-based approach and the fact that brokers and advisers will continue to be subject to different standards of conduct, Reg BI’s opponents say the ruleset will likely fall far short of its stated goals.  

“We are optimistic that the NAIC will approve this important revised model regulation,” Berkowitz says. “If approved at the February retreat, [we are] prepared to work immediately with states to quickly implement this important new consumer protection regulation.”

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