Plaintiffs in the case were current and former participants in CIGNA’s own in-house 401(k) plan — the largest plan in CIGNA’s retirement division — which CIGNA had sold to Prudential in 2004 for more than $2 billion.
The plaintiffs alleged that CIGNA operated the 401(k) plan not in the best interests of employees, as required by ERISA, but for the benefit of CIGNA’s bottom line.
CIGNA plan managers took unreasonable fees from participant accounts, used the company’s own funds, never put plan services out for competitive bidding, and engaged in prohibited transactions with plan assets, their suit alleged.
Furthermore, the suit said, plan participants received none of the profit CIGNA received from the sale to Prudential. Rather, a secret “gentlemen’s agreement” between CIGNA and Prudential allowed Prudential to continue earning the same unreasonable and prohibited fees as CIGNA had.
“It’s unfortunate that it took litigation to focus attention on costs,” Fred Reish, an ERISA attorney with Drinker, Biddle and Reath told The New York Times, “but it has.”
The suit reflects a generally rising interest in the abuse of fees by 401(k) plan sponsors and managers. Recently, the Department of Labor began requiring companies that provide 401(k) plans to disclose their fees in more detail, making it easier for sponsors to compare plans. The DOL also requires plan sponsors to share the details of their fee structures with plan participants.
Plaintiffs were represented by Schlichter, Bogard & Denton, which will seek to receive $11,666,667 in fees of its own, along with $1.2 million in costs. Cigna was represented by Morgan Lewis & Bockius LLP, while Prudential was represented by O’Melveny & Myers, LLP.