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November 06, 2014 at 05:26 AM
MassMutual settled a long running suit with a class of plan sponsors that could impact how all retirement service providers arrange compensation, and disclose compensation to their plan sponsor-clients.
In Golden Star Inc. v. MassMutual Life Insurance Co., the plaintiffs, a Kansas City-based flooring maintenance company and sponsor of two 401(k) plans, alleged that MassMutual, which had been servicing the GSI plans since 1993, breached its fiduciary duties when it received “kickbacks” from third-party mutual fund companies.
MassMutual never denied the revenue-sharing agreements. But the company did deny that it was a fiduciary, and therefore was not beholden to ERISA’s prohibited transaction rules.
That changed last May, when, in Massachusetts U.S. District Court, Judge Patti Saris ruled that MassMutual was a “functional fiduciary” after MassMutual requested the suit be thrown out on the grounds that it was not a fiduciary.
The decision paved the way for the two-part settlement, which directs MassMutual to pay $9.5 million to current and former retirement plans serviced by MassMutual group annuity contracts from October 19, 2005 up to the date of the settlement approval.
The question of whether or not MassMutual was acting as a fiduciary hinged on the fact that the service provider used its own discretion in establishing how it was compensated when it serviced GSI’s plans, which included designing investment options and record keeping.
In its agreement with GSI, MassMutual retained “exclusive and absolute ownership and control” of the plans’ assets, according to court documents.
