Compliance October 7, 2022

Insurer the Target of ERISA Lawsuit

An ERISA lawsuit against Mutual of America has alleged that 401(k) plan fiduciaries breached their duties to participants.

Reported by

Retirement plan participants have brought a class action lawsuit against Mutual of America Life Insurance Company for alleged breach of fiduciary duty under the Employee Retirement Income Security Act.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Plaintiffs have alleged Mutual of America 401(k) plan fiduciaries breached its fiduciary duties of loyalty and prudence to participants by selecting a proprietary, closed architecture recordkeeping platform and for failing to monitor or control the plan’s administrative expenses, the complaint states.

Through the class period “Mutual of America used its own proprietary closed-architecture recordkeeping platform, causing participants to pay annual administrative fees roughly [10] times higher than what participants would have paid for administrative services had Mutual of America diligently investigated the marketplace and hired a third-party recordkeeper to provide either the same set of services or services of superior quality,” according to the court document.  

The plaintiffs brought one count, for breach of fiduciary duties of loyalty and prudence, against Mutual of America.

“Among other things, Mutual of America caused the plan to pay excessive administrative fees and failed to properly monitor and control administrative expenses, retaining a proprietary recordkeeping platform because doing so was in Mutual of America’s financial interest,” the complaint states.

Additionally, plaintiffs have alleged that Mutual of America failed to use a prudent and loyal process for selecting, monitoring and removing from the investment lineup expensive, proprietary Mutual of America funds that underperformed their benchmarks “and gave an improper and unjustified preference to these funds over superior, less expensive alternative available options.”

Plaintiffs claimed that plan fiduciary mismanagement—failure to act in the best of interests of participants, as required by ERISA—was “imprudent and disloyal conduct” and harmed participants by costing millions of dollars over the class period.

“Mutual of America has not acted in participants’ best interest,” the complaint states. “To the contrary, Mutual of America used the plan to promote Mutual of America’s proprietary services and investments and earn profits for Mutual of America.”

The complaint explains that, while plan fiduciaries’ decision to use a proprietary recordkeeping platform, is not “per se imprudent,” Mutual of America’s selection “severely limited the plan’s investment menu and caused plan participants to pay excessive administrative expenses, for proprietary investment funds in the plan.”

In 2016, plaintiffs claim, the plan charged participants $350 per person in average annual administrative and recordkeeping fees. And in 2020, plan participants paid an average of approximately $500 per person, the complaint states.  

“Based on plaintiffs’ investigation, a prudent and loyal fiduciary of a similarly sized plan could have obtained comparable administrative services for approximately $50-80 per participant—or less—at that time,” plaintiffs’ attorneys argued in the complaint. “It was not prudent or in the best interest of participants to allow the plan to be charged up to [10] times more than this amount.”

It is alleged that the Mutual of America plan included 29 proprietary investments, at the end of 2020—comprised of one proprietary fixed-interest account and 28 proprietary mutual funds—in a menu that consisted of 50 total investments.

“As of the end of 2016, the plan’s investment menu consisted of 40 investments, 26 of which were proprietary Mutual of America funds—including a suite of proprietary target-date funds and index funds,” the complaint states. “From 2016 until 2020, Mutual of America did not remove a single one of these 26 proprietary investments from the plan’s menu. In fact, it added [three] additional proprietary investments, as well as some non-proprietary investments.”

The Mutual of America 401(k) plan’s investments are held in a group annuity contract administered by the company, according to the complaint. Nearly all the investments are mutual funds held within a group annuity subaccount vehicle, a separate account, except for the Mutual of America’s proprietary fixed interest account, documents show.  

From 2016 through the end of 2020—the last year for which data is publicly available—the plan had between 1,800 and 2,000 participants and approximately $274 million to $436 million in assets, according to court documents.

Mutual of America is an insurance company headquartered and incorporated in New York. Mutual of America also provides retirement plan services to the small retirement plan market. 

The complaint is before US District Court for the Southern District of New York. Minneapolis-based firm, Nichols Kaster, is counsel for the plaintiffs.  

Plaintiffs asked the court to certify the class period as any time on or after September 14, 2016.

In response, Mutual of America told PLANSADVISER, “Mutual of America Financial Group has a long history and extensive experience in providing a competitive array of retirement savings plan products and services to its clients. As a retirement company, we take pride in helping our own employees save for retirement and prepare for a financially secure future. The company believes these claims lack merit and will defend against these allegations.”

Compliance October 7, 2022

ERISA Lawsuit Against Associated Bank Dismissed

A Wisconsin District Court judge was unconvinced by arguments made by the plaintiffs that plan fiduciaries breached their duty to participants.

Reported by

A federal judge has dismissed a lawsuit seeking class action certification against fiduciaries of the Associated-Banc Corp. 401(k) and employee stock ownership plan.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

U.S. District Court Judge William Greisbach dismissed the plaintiff’s entire lawsuit, brought under the Employee Retirement Security Income Act, in the decision and order granting the defendants’ motion. The defendants to the lawsuit were Associated-Banc Corp, the Associated-Banc Corp. Plan Administrative Committee and 20 unnamed individuals.

“Defendants’ motion to dismiss is Granted and the case is dismissed with prejudice,” wrote Judge Greisbach. 

Plaintiffs alleged plan fiduciaries engaged in self-dealing and retained proprietary investments that underperformed their benchmarks Additionally, plaintiffs claim that Associated Trust Company failed to properly monitor and control administrative expenses and charged higher fees for services than similarly sized plans and caused plan participants to pay excessive recordkeeping and administrative fees for similarly sized plans to subsidiary Associated Trust Company.

“Plaintiffs assert that defendants breached their fiduciary duties of prudence and loyalty to the detriment of the Associated Banc-Corp 401(k) and Employee Stock Ownership Plan, its participants, and its beneficiaries,” the order to dismiss states. “They also assert that Associated Bank failed to adequately monitor the fiduciaries responsible for administering the plan.”

Defendants are alleged to have breached their fiduciary duties to participants “by applying an imprudent and inappropriate preference for products associated with Associated Bank within the plan, despite their poor performance and lack of traction among fiduciaries of similarly sized plans,” according to the complaint.

From 2014, retirement plan assets totaled between $453 million and $690 million, for between 5,600 and covered 7,000 participants, court documents show. The plan “consistently ranked in the top half of the 99th percentile of all defined contribution plans by size,” plaintiffs stated in the complaint.

Judge Greisbach bounced each claim argued by plaintiffs in the complaint.  

Plaintiffs incorporated, into an amended complaint charts to purportedly show that in-plan funds underperformed alternatives with similar asset allocations, levels of risk and greater acceptance by fiduciaries of similar plans.

The documents consisted of Associated Bank’s Form 5500s and Morningstar fund fact sheets “all of which defendants rely heavily upon in their arguments,” judge Greisbach wrote in the order.

He noted the competing arguments, by plaintiffs and defendants, cited relevant case law and legal precedent, to conclude the fund fact sheets were not sufficient grounds to state claim.

“[Whereas] in certain cases consideration of fund fact sheets not attached or referenced in the complaint may be appropriate, especially where there is no dispute as to the accuracy of the documents,” Greisbach explains. “But in a situation such as this, where plaintiffs specifically allege that the information included on the fact sheets is inaccurate, consideration of the fact sheets would be inappropriate. As was the case in Miller [v. Astellas], although the complaint refers to Morningstar on three occasions, the amended complaint does not refer to the specific fund fact sheets submitted by defendants.

“Because the fund fact sheets are not attached to the complaint, central to the complaint and referred to in it, or information that is properly subject to judicial notice, the court may not consider them at this stage.”

The complaint further alleged defendant’s mismanagement of the retirement plans harmed participants and resulted in “costing the plan missions of dollars in excessive administrative fees,” plaintiffs claimed.

The plaintiffs asserted that defendants improperly included “proprietary investments overwhelmingly rejected by fiduciaries of similarly sized plans, when a nonconflicted fiduciary would have selected among the more popular and better performing nonproprietary alternatives available,” the judge’s order states.

Plan fiduciaries improperly included unpopular, expensive and underperforming in-plan proprietary investments—the Associated Balanced LifeStage, Associated Growth Balanced LifeStage funds and Associated Equity Income Fund—while superior nonproprietary alternatives were available and more frequently used by “nonconflicted fiduciaries,” plaintiffs alleged.  

Judge Greisbach was unconvinced: “The facts alleged in support of these conclusory allegations, however, fail to plausibly support them,” he wrote.

“In the absence of allegations plausibly alleging underperformance of a character and degree sufficient to support an inference that defendants breached their fiduciary duties to the participants, the allegations that defendants included proprietary funds in the plan that no other similarly sized plans included adds nothing.”

Among 34 different funds offered by the plan, eight, or below 25%, were Associated-branded funds, Greisback explains.

“As to the three funds highlighted in the amended complaint, the allegations of underperformance do not create an inference of imprudence because they are based on short-term performance,” he states in the order to dismiss. “Short-term performance is an unreliable indicator of overall performance because it can mask year-to-year performance and is a poor predictor of future performance.”

Greisbach’s order also dismissed plaintiff’s allegations that Associated Bank’s subsidiaries, Associated Trust Company and Kellogg Asset Management, breached their fiduciary duty to prudently and loyally monitor the underlying collective investments trusts of Associated Bank funds in the plan.  

Associated Bank CITs comprised up to 45% of the underlying holdings of the Associated Bank asset allocations funds in the plan, costing participants 45 basis points, while comparable managers charged 10 bps for similar services that “defendants could have obtained the same CIT portfolio management services,” the plaintiffs argued. 

“[P] laintiffs’ claim is that ATC and Kellogg were imprudent and disloyal by utilizing Associated Bank’s proprietary funds as underlying investments of Associated Bank’s LifeStage Funds,” judge Greisbach wrote. “Plaintiffs’ allegations are insufficient to state a plausible claim on these grounds.”

The lawsuit sought an order compelling the defendants to personally make good to the plan all losses that the plan incurred because of the breaches alleged and an order requiring Associated Bank to disgorge all profits received from the plan, among other things.

The lawsuit was brought in 2021.

Requests for comment to plaintiff’s attorneys and Associated-Banc Corp. were not returned. 

«