Court Approves Settlement in Revenue-Sharing Suit

 A federal judge has approved a $13.8 million revenue-sharing based settlement between a provider and the 401(k) plans it supports, but lawyers will take nearly half.

The settlement was approved last week by Judge Alfred V. Covello of the U.S. District Court for the District of Connecticut – some four years after Phones Plus Inc. brought the class action suit against The Hartford.  Plaintiff Phones Plus alleged that Hartford breached its Employee Retirement Income Security Act duties by receiving revenue sharing payments from various mutual funds, including Neuberger Berman Management Inc., which was also named as a defendant.

The class action, filed on behalf of all of Hartford’s 401(k) clients, alleged that the Hartford provided its clients with a menu of investment options from which plans chose a subset to be offered to plan participants.  The suit alleged that Hartford received revenue sharing payments from the various mutual funds, based on a percentage of the plan’s assets, and that the Hartford’s receipt of the revenue sharing payments constituted a breach of its fiduciary duties under ERISA Section 404.  Additionally, the suit alleged that a prohibited transaction resulted from the Hartford’s participation in the revenue-sharing arrangement, and that Neuberger Berman also breached its fiduciary duties by failing to properly disclose those revenue sharing payments to the plan.

In approving the settlement (see Hartford Agrees to $13.8M Revenue Sharing Case Settlement), Judge Covello noted that 19 clients had opted out from the class that included all 401(k) plans for which Hartford acted as a service provider at any time between November 14, 2003, and March 1, 2010.

Furthermore, it was noted that “counsel to the settlement classes shall be entitled to receive reasonable attorneys’ fees, expenses and costs” – in the amount of $6,862,500.



In addition to the monetary settlement, the Hartford agreed to make a number of changes to its business practices, including:

  • taking provisions out of plan documents limiting a plan’s selection of investment options;
  • not enforcing provisions allowing it to invest plan assets in short-term money market instruments, cash, or cash equivalents;
  • asking state insurance regulators for the okay to change parts of its group annuity contract dealing with mutual fund availability to clarify that Hartford will not take out or substitute an investment option chosen by a plan, unless the option is no longer available;
  • adding language to its plan disclosures to make clear that the fund options offered in the plan submit revenue sharing payments to Hartford or its affiliates; and
  • giving plans a list of investment options with revenue sharing amounts paid by each.