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Great-West Life & Annuity Insurance Co. defeated a class action challenging the money it makes off annuity contracts sold to 401(k) investors.
Great-West isn’t a fiduciary under the Employee Retirement Income Security Act with respect to the money it earns from guaranteed investment contracts, a federal judge ruled Dec. 14. That’s because Great-West doesn’t have direct authority to set its own compensation for these contracts, the judge said.
The investors, a certified class of 270,000 people in about 13,600 different retirement plans, argued that since Great-West kept the difference between the rate of return they received and the returns actually earned by the fund, the company essentially set its own compensation. The judge sided with Great-West, which pointed out that the money it earned depended on how many plan participants agreed to invest in the fund, which they were allowed to withdraw from at any time without penalty.
The decision is also a victory for the American Council of Life Insurers, which in May took the unusual step of asking the district court judge to rule that Great-West wasn’t an ERISA fiduciary.
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) participants 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 was recently certified as a class action, while Prudential defeated a bid for class certification and later saw the case dismissed by agreement of the parties.
By contrast, New York Life had more success defending its guaranteed investment products. A proposed class action making similar claims was voluntarily dismissed two days after a judge expressed doubt that the investors suing New York Life could proceed with their claims.
In the Great-West case, the parties disputed whether the Great-West Key Guaranteed Portfolio Fund was a “guaranteed benefit policy,” which would qualify it for legal exemptions. The judge agreed with Great-West that that the fund qualified for the exemption, because the company assumed all market risk. Even so, the judge said this was “irrelevant,” because the scope of the exemption was much smaller than Great-West imagined it to be.
In addition to rejecting the investors’ attempts to hold Great-West liable as an ERISA fiduciary, the judge also blocked them from imposing non-fiduciary liability on the company.
Judge William J. Martinez of the U.S. District Court for the District of Colorado wrote the decision.
The investors were represented by Keller Rohrback LLP, Schneider Wallace Cottrell Brayton Konecky, Feinberg Jackson Worthman & Wasow LLP, and Scot D. Bernstein P.C.
Great-West was represented by Sidley Austin LLP and Wheeler Trigg O’Donnell LLP.
The case is Teets v. Great-West Life & Annuity Ins. Co. , D. Colo., No. 1:14-cv-02330-WJM-NYW, order granting summary judgment to defendant 12/14/17 .
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