Compliance February 17, 2010

Hartford Agrees to $13.8M Revenue-Sharing Case Settlement

The Hartford Life Insurance Co. will pay $13.8 million to settle a four-year-old fiduciary breach suit over revenue-sharing payments from mutual fund companies.
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Lawyers for Phones Plus Inc. have asked U.S. District Judge Alfred V. Covello of the U.S. District Court for the District of Connecticut to approve the settlement.

On behalf of its 401(k) plan, Phones Plus Inc. sued Hartford and investment firm Neuberger Berman Management Inc. in 2006, alleging that Hartford’s receipt of revenue-sharing payments from mutual funds based on a percentage of plan assets invested in those funds violated the Employee Retirement Income Security Act (ERISA). Phones Plus alleged that Neuberger committed an ERISA breach by not properly informing the plan of the revenue-sharing arrangement.

The request submitted to Covello said if the settlement pact is approved, all 401(k) plans using Hartford as a service provider between November 2003 and the date of the settlement approval would share in the settlement proceeds.

In addition to the fine, Hartford agreed to change several business practices, including:

  • taking provisions out of plan documents limiting a plan’s selection of investment options;
  • not enforcing provisions allowing it to invest plan assets in short-term money-market instruments, cash, or cash equivalents;
  • asking state insurance regulators for the OK to change parts of its group annuity contract dealing with mutual fund availability to clarify that Hartford will not take out or substitute an investment option chosen by a plan, unless the option is no longer available;
  • adding language to its plan disclosures to make clear that the fund options offered in the plan submit revenue sharing payments to Hartford or its affiliates; and
  • giving plans a list of investment options with revenue sharing amounts paid by each.


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Data & Research February 17, 2010

Participants Paying More Attention to DB Plans

Mercer's outsourcing business saw a 40% increase in participant requests for calculations of their estimated defined benefit (DB) account values in 2009 versus 2008.
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In a news release Mercer said the surge is likely driven by concerns over decreased retirement nest eggs following the recent market downturn. While it could be that the surge indicates participants are already evaluating their total retirement position, Mercer said it underscores the need to encourage employees to do so.

“We are talking to clients and their participants more and more about a ‘total retirement’ perspective, which encompasses defined contribution plans like 401(k)s, DB programs, and outside assets like IRAs, as well as retiree medical benefits—a looming issue for many near retirees and one we don’t feel has been adequately addressed by the retirement industry,” said Andrew Yerre, defined benefit business leader for Mercer’s U.S. outsourcing business, in the news release.

The most recent Mercer Workplace Survey shows that only 39% of employees believe they will have enough money to cover health care expenses in retirement. In addition, according to Mercer’s 2009 National Survey of Employer-Sponsored Health Plans, the number of employers providing retiree medical coverage as a benefit to their pre-Medicare employees fell from 46% in 1993 to only 28% in 2009.

“[I]t ’s incumbent upon providers and employers to encourage employees to consider all their streams of retirement income and benefits, including retiree medical coverage and the health care costs they may incur in retirement,” Yerre said.

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