SEC's Approach to Equitable Settlement Questioned by Legal Veteran
Richard Choi said he was surprised to see how the agency now views retirement plan account statements and fee disclosures.
A veteran insurance lawyer has suggested that the Securities and Exchange Commission may have been unusually tough on account statements issued by Equitable Financial Life Insurance Co. when it negotiated a recent $50 million settlement with the company.
Richard Choi, the office managing shareholder in Carlton Fields’ Washington, D.C., office addressed the Equitable subsidiary’s SEC settlement last week in Washington, D.C., during a session at an American Law Institute Continuing Legal Education insurance products conference.
Choi was one of the conference faculty members. Other faculty members cited the Equitable Financial case as an example of a recent SEC enforcement action of note.
The SEC accused the company of misleading participants in 403(b) and 457(b) retirement plans by including only information about relatively unusual administrative, transaction and plan operating expense fees and not information about two much more common types of fees — variable annuity separate account expense fees and portfolio operating expense fees — in the statements.
Many statements showed that the participants had paid zero fees, when in fact they had paid separate account expense and portfolio operating expense fees.
Choi suggested during a discussion about the case that the SEC went beyond its traditional strategy, by looking at the Equitable Financial plan account statements on their own, rather than reviewing the account statements together with the plan prospectuses and contracts.
He said that, taken together, Equitable Financial plan documents seem to have met plan fee disclosure requirements.
At the Equitable Financial plans, the separate account expenses and portfolio operating expenses “are fully disclosed in the prospectuses, both at the contract level and the fund level, that are delivered annually to these participants,” Choi said.
Equitable Financial also included full fee disclosures in documents sent to the retirement plan sponsors, he added.
“The concern I have is, are we looking at documents in isolation now?” Choi asked. “The account statements were never intended to be a vehicle for ongoing fee disclosures. They’re really transaction-fee documents.”
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