New York Life Nears Victory in Secret Profits Lawsuit

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By Jacklyn Wille

Nov. 29 — New York Life Insurance Co. got some good news as a federal judge expressed doubt about the viability of a lawsuit accusing the company of secretly profiting from the investments it sells to retirement plans ( Wittman v. N.Y. Life Ins. Co. , S.D.N.Y., No. 1:15-cv-09596-AKH, order to show cause 11/28/16 ).

The lawsuit claims that New York Life collects tens of millions of dollars in “undisclosed compensation” earned off the stable value funds it sells to 401(k) plans in violation of federal benefits law. After reviewing internal documentation showing that New York Life earned no “spread” between its personal rate of return and the interest credited to 401(k) investments, a federal judge Nov. 28 ordered the retirement investors who filed suit to explain why their case shouldn’t be dismissed.

This lawsuit is one in a series of proposed class actions challenging the way financial companies profit from the guaranteed investment products sold to 401(k) plans. So far, New York Life’s competitors haven’t been as successful in defending themselves: over the past several months, judges have declined to dismiss similar lawsuits against Prudential Retirement Insurance & Annuity Co., Metropolitan Life Insurance Co., Great-West Life & Annuity Insurance Co. and Principal Life Financial Insurance Co.

In the New York Life case, Judge Alvin K. Hellerstein of the U.S. District Court for the Southern District of New York issued a two-paragraph order explaining that the investors’ theory of the case—that New York Life manipulated the interest rate of its stable value fund to keep a secret stream of profit—was belied by the internal documentation provided by the company. According to Hellerstein, the investors “conceded” that the documents showed no unauthorized spread between the rates.

Given this, Hellerstein gave the investors two weeks to show that they could state a viable claim against the company.

Sidley Austin represents New York Life. The investors are represented by Izard Kindall & Raabe LLP and Bailey & Glasser LLP, which also serve as counsel for the investors suing MetLife and Prudential.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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