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June 16 — Massachusetts Mutual Life Insurance Co. will pay nearly $31 million to settle a lawsuit claiming that it mismanaged its 401(k) plan, according to recently filed court documents ( Gordan v. Mass. Mutual Life Ins. Co. , D. Mass., No. 3:13-cv-30184, motion for preliminary settlement approval filed 6/15/16 ).
The lawsuit, filed in 2013 by a proposed class of more than 14,000 plan participants, alleged that MassMutual and its top executives “larded” the company's retirement plan with “excessive fees” and “unreasonably priced, proprietary investment options” in violation of their fiduciary duties under the Employee Retirement Income Security Act. The participants also attacked the fixed income investment included in the MassMutual plan, calling it “unduly risky and expensive.”
In addition to a $30.9 million settlement payment, MassMutual also agreed to keep the plan's annual record-keeping fees no higher than $35 per participant for the next four years. The agreement includes a four-year ban on calculating record-keeping fees as a percentage of plan assets.
This asset-based method of calculating record-keeping fees has come under fire in recent years, with critics arguing that it allows service providers to earn big profits off of large 401(k) plans that are disproportionate to the services provided. Proponents contend that asset-based fees can be appropriate for certain plans, depending on complexity of payroll and composition of workforce.
This case is one of the many lawsuits challenging 401(k) plan fees filed by St. Louis-based Schlichter, Bogard & Denton. In addition to recently filed lawsuits against Insperity Inc., Anthem Inc., Oracle Corp. and Chevron Corp., Schlichter also has obtained multimillion dollar settlements in similar lawsuits against Boeing Co. and Lockheed Martin Corp.
The settlement papers in the MassMutual case provide some insight into how Schlichter approaches these high-dollar lawsuits against large companies and their 401(k) plans. Papers indicate that Schlichter spent more than a year investigating MassMutual before filing the lawsuit, including reviewing public documents, personally interviewing plan participants and "exhaustively" researching the management structure of the plan.
The settlement agreement was filed with the U.S. District Court for the District of Massachusetts on June 15, and it must still receive court approval. The agreement allows Schlichter to seek attorneys' fees as high as $10.3 million.
Goodwin Procter LLP represents MassMutual.
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Text of the motion for settlement approval is at http://www.bloomberglaw.com/public/document/Gordan_et_al_v_Mass_Mutual_Life_Insurance_Co_et_al_Docket_No_313c/4.
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