Great-West Annuity Challenge Certified as Class Action

According to the court opinion, as of November 2015, there were more than 270,000 ERISA plan participants in 13,600 retirement plans invested in the fund at issue in the lawsuit.

The U.S. District Court for the District of Colorado has granted a motion for class certification in an Employee Retirement Income Security Act (ERISA) lawsuit against Great-West Life & Annuity Insurance Company.

The complaint underlying the case alleges Great-West breached its fiduciary duty of loyalty under ERISA Sections 502(a)(2)-(3)—namely by setting predetermined interest rates artificially low and charging excessive fees in order to increase its own profits from the sale and servicing of certain group annuity contracts.

At question in the case is the Great-West Key Guaranteed Portfolio Fund. John Teets, a participant in the Farmers’ Rice Cooperative 401(k) plan, elected to invest his plan contributions in the fund. The investment relationship between Great-West and the plan is governed by a group annuity contract which, among other provisions, provides for a participant’s investment to accrue interest at a rate set prior to each quarter. According to Teets, the interest rate here is “determined unilaterally by Defendant, without any specified methodology … However, pursuant to the contract, the effective annual interest rate is guaranteed never to be less than 0%.” Money invested in the fund is not kept in a segregated account, but rather is deposited into defendant’s general account.

Last year, the court denied Great-West’s motion to dismiss. The company had argued that the Guaranteed Portfolio Fund falls under the guaranteed benefit policy (GBP) exemption in ERISA.

In the current opinion, U.S. District Judge William J. Martinez found that Teets demonstrated that all four prerequisites of Federal Rule of Civil Procedure 23(a) are clearly met. Martinez certified a class definition of “all participants in and beneficiaries of defined contribution employee pension benefit plans within the meaning of ERISA Section 3(2)(A), 29 U.S.C. Section 1002(2)(A), who had funds invested in the [Fund] from six years before the filing of this action until the time of trial.” As of November 2015, there were more than 270,000 ERISA plan participants in 13,600 retirement plans invested in the fund.

Martinez also denied Great-West’s motion to exclude expert opinion of Steven Pomerantz about excess fees and damages. According to the opinion, Pomerantz opines that 89 basis points and the credited rate are the only true costs that Great-West must subtract from the fund’s investment returns to calculate net profits, to the exclusion of other alleged costs that might be factored into the equation. But, Great-West argues that Pomerantz’s choice to exclude other alleged costs makes his methodology “fundamentally flawed,” and renders his report contradictory to established facts.

Martinez said Great-West is free to cross-examine Pomerantz on these issues.