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Great-West Life & Annuity Insurance Co. acted as an ERISA fiduciary when it managed annuity contracts for 401(k) investors, the AARP told a federal appeals court.
The industry group representing Americans 50 and older wants the U.S. Court of Appeals for the Tenth Circuit to revive a class action by 270,000 people who invested in Great-West’s guaranteed investment annuity contracts. Investors say that because Great-West kept the difference between the rate of return they received and the returns actually earned by the investment, the company essentially set its own compensation.
In an April 18 brief, the AARP supported the investors’ attempt to hold Great-West liable as a fiduciary under the Employee Retirement Income Security Act for this alleged conduct. The AARP says a district judge wrongly confused fiduciary status with fiduciary liability in rejecting the lawsuit against Great-West.
Guaranteed investment products are investments in which the offering company assumes the risks—and reaps the benefits—of market fluctuations. The underlying investors, who typically invest their 401(k) assets, are promised a set rate of return that is usually fairly modest.
Several financial companies have been sued over their abilities to set the rate of return in these products, with 401(k) investors accusing companies of setting their own compensation. Some lawsuits have seen early success, with judges forcing Principal Life, Metropolitan Life, and Prudential to defend their guaranteed investment products. The Principal case recently was certified as a class action, and the MetLife and Prudential cases were dismissed by mutual agreement.
In its brief, the AARP argued that Great-West could be liable as an ERISA fiduciary because it exercised discretion over the guaranteed investment’s crediting rate, which in turn affected both investors’ returns and Great-West’s compensation.
The AARP took particular issue with the idea—endorsed by the district judge who ruled for Great-West—that because the crediting rate was announced in advance, investors could “vote with their feet” and move to new investments if they didn’t like the rate. This factor may have some bearing on whether Great-West committed an ERISA violation, but it had no bearing on the company’s status as an ERISA fiduciary, the AARP argued.
“Under the district court’s rationale, a plan could offer investment options, all of which do not meet the requirements of prudence and loyalty; the only exercise of control a participant would have is whether to participate in the plan at all or choose among allegedly imprudent investment options. This makes no sense,” the AARP wrote. “The burden of avoiding the consequence of the fiduciaries’ imprudent investment decision should not fall wholly on plan participants.”
The brief was filed by AARP Foundation Litigation.
The case is Teets v. Great-West Life & Annuity Ins. Co., 10th Cir., No. 18-01019, amicus brief 4/18/18.
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