MassMutual has agreed to pay $9,475,000 to 401(a) and 401(k) plan clients it serviced via group annuity contracts to settle charges that it violated the Employee Retirement Income Security Act (ERISA) when it received revenue sharing payments from mutual funds and investment advisers. Plaintiff Golden Star Inc. alleged these payments were essentially “kickbacks” that constituted prohibited transactions under ERISA.
MassMutual had previously moved for summary judgment on the case, saying it was not an ERISA fiduciary. However, U.S. District Judge Patti B. Saris, of the U.S. District Court for the District of Massachusetts, found MassMutual exercised discretionary authority to determine its own compensation by setting separate investment account management fees (up to a maximum), which in combination with revenue sharing payments (RSPs), make up the provider’s compensation package. She ruled this makes MassMutual a “functional fiduciary.”
The settlement agreement also calls for MassMutual to notify clients 60 days ahead of time of planned fund changes and to get consent from clients to change the funds. MassMutual is also to disclose expense ratios and any other fees for each fund, as well as any revenue sharing payments it receives.
A joint statement from MassMutual and the plaintiff provided to PLANADVISER says, “Both parties are pleased to have reached an agreement to amicably resolve this matter. While Golden Star is confident of its claims, and MassMutual continues to deny any wrongdoing and believes that its actions fully complied with the law, this settlement helps to avoid the additional expenses, distraction and uncertainties associated with continued litigation, while providing substantial and meaningful benefits to the members of the class, including a cash payment of $9,475,000.”
The settlement agreement in Golden Star v. Massachusetts Mutual Life Insurance Company is here.