New York Life to Pay $3M in 401(k) Suit

The lawsuit claims New York Life kept the MainStay S&P 500 Fund in the 401(k) plan when a less expensive alternative investment was available

New York Life Insurance Co. agreed to settle for $3 million a lawsuit that claimed it breached its fiduciary responsibilities in its 401(k) plans.

"While we believe we have acted in full compliance with the duties owed to our plan participants, we have decided that the best use of resources is to fund a settlement rather than litigation,” Kevin Maher, corporate vice president of external communications for New York Life, said in an emailed statement. “The company's retirement plans continue to be a valued and important part of the high quality, comprehensive benefits package we provide to employees and agents."

The class-action complaint, which was filed on July 18, 2016, claims plan participants were financially harmed when New York Life kept the MainStay S&P 500 Fund in the plans’ investment lineup when a less expensive alternative investment was readily available from Vanguard.

The complaint alleges that the MainStay S&P 500 Fund is managed by affiliates of New York Life Insurance Co., and the plans’ fiduciaries profited from the “alleged imprudent retention” of the MainStay S&P 500 Fund in the plans.

According to the complaint, it was imprudent for the plans’ fiduciaries to retain the MainStay S&P 500 Fund because the MainStay S&P 500 Fund had annual costs of 35 bps (0.35%) per year, whereas a comparable index fund offered by Vanguard had annual expenses of only 2 bps (0.02%) per year.

The MainStay S&P 500 Fund was included and retained in the plans’ investment lineup from the beginning of the class period in 2010 until July 19.

On that day, New York Life removed the MainStay S&P 500 Fund from the menu of investment options and replaced it with the Vanguard Institutional Index Fund.

“Plaintiffs allege that by this point, however, the plans’ participants already had incurred significant losses due to excess fees,” as stated in the memo in support of settlement. “During the relevant period, hundreds of millions of dollars of plan assets were invested in the MainStay S&P Fund.”

The complaint estimated that the plans incurred approximately $3.9 million in excess costs from July 18, 2010 to July 19, 2016.

Judge Katherine Polk Failla filed an order granting preliminary approval to the proposed settlement on Thursday. A fairness hearing is set for June 15 to determine if the settlement agreement should be approved.

--- Check out 6 Ways Advisors Can Protect Against 401(k) Lawsuits on ThinkAdvisor.

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