Insurer the Target of ERISA Lawsuit

Retirement plan participants have brought a class action lawsuit against Mutual of America Life Insurance Company for alleged breach of fiduciary duty under the Employee Retirement Income Security Act.

Plaintiffs have alleged Mutual of America 401(k) plan fiduciaries breached its fiduciary duties of loyalty and prudence to participants by selecting a proprietary, closed architecture recordkeeping platform and for failing to monitor or control the plan’s administrative expenses, the complaint states.

Through the class period “Mutual of America used its own proprietary closed-architecture recordkeeping platform, causing participants to pay annual administrative fees roughly [10] times higher than what participants would have paid for administrative services had Mutual of America diligently investigated the marketplace and hired a third-party recordkeeper to provide either the same set of services or services of superior quality,” according to the court document.  

The plaintiffs brought one count, for breach of fiduciary duties of loyalty and prudence, against Mutual of America.

“Among other things, Mutual of America caused the plan to pay excessive administrative fees and failed to properly monitor and control administrative expenses, retaining a proprietary recordkeeping platform because doing so was in Mutual of America’s financial interest,” the complaint states.

Additionally, plaintiffs have alleged that Mutual of America failed to use a prudent and loyal process for selecting, monitoring and removing from the investment lineup expensive, proprietary Mutual of America funds that underperformed their benchmarks “and gave an improper and unjustified preference to these funds over superior, less expensive alternative available options.”

Plaintiffs claimed that plan fiduciary mismanagement—failure to act in the best of interests of participants, as required by ERISA—was “imprudent and disloyal conduct” and harmed participants by costing millions of dollars over the class period.

“Mutual of America has not acted in participants’ best interest,” the complaint states. “To the contrary, Mutual of America used the plan to promote Mutual of America’s proprietary services and investments and earn profits for Mutual of America.”

The complaint explains that, while plan fiduciaries’ decision to use a proprietary recordkeeping platform, is not “per se imprudent,” Mutual of America’s selection “severely limited the plan’s investment menu and caused plan participants to pay excessive administrative expenses, for proprietary investment funds in the plan.”

In 2016, plaintiffs claim, the plan charged participants $350 per person in average annual administrative and recordkeeping fees. And in 2020, plan participants paid an average of approximately $500 per person, the complaint states.  

“Based on plaintiffs’ investigation, a prudent and loyal fiduciary of a similarly sized plan could have obtained comparable administrative services for approximately $50-80 per participant—or less—at that time,” plaintiffs’ attorneys argued in the complaint. “It was not prudent or in the best interest of participants to allow the plan to be charged up to [10] times more than this amount.”

It is alleged that the Mutual of America plan included 29 proprietary investments, at the end of 2020—comprised of one proprietary fixed-interest account and 28 proprietary mutual funds—in a menu that consisted of 50 total investments.

“As of the end of 2016, the plan’s investment menu consisted of 40 investments, 26 of which were proprietary Mutual of America funds—including a suite of proprietary target-date funds and index funds,” the complaint states. “From 2016 until 2020, Mutual of America did not remove a single one of these 26 proprietary investments from the plan’s menu. In fact, it added [three] additional proprietary investments, as well as some non-proprietary investments.”

The Mutual of America 401(k) plan’s investments are held in a group annuity contract administered by the company, according to the complaint. Nearly all the investments are mutual funds held within a group annuity subaccount vehicle, a separate account, except for the Mutual of America’s proprietary fixed interest account, documents show.  

From 2016 through the end of 2020—the last year for which data is publicly available—the plan had between 1,800 and 2,000 participants and approximately $274 million to $436 million in assets, according to court documents.

Mutual of America is an insurance company headquartered and incorporated in New York. Mutual of America also provides retirement plan services to the small retirement plan market. 

The complaint is before US District Court for the Southern District of New York. Minneapolis-based firm, Nichols Kaster, is counsel for the plaintiffs.  

Plaintiffs asked the court to certify the class period as any time on or after September 14, 2016.

In response, Mutual of America told PLANSADVISER, “Mutual of America Financial Group has a long history and extensive experience in providing a competitive array of retirement savings plan products and services to its clients. As a retirement company, we take pride in helping our own employees save for retirement and prepare for a financially secure future. The company believes these claims lack merit and will defend against these allegations.”