Self-Dealing Suit Settlement Reached by Aegon and Transamerica

The settlement comes out of class-action litigation filed early last year in which fiduciaries at Transamerica’s parent company, Aegon, were accused of self-dealing via the company’s retirement plan offered to its own employees. A participant sued Aegon USA, some of its subsidiaries and trustees of the plan, alleging they violated the Employee Retirement Income Security Act’s (ERISA’s) requirement to act for the best interest of plan participants.

The original complaint suggested that the defendants burdened the plan with layers of superfluous fees; that the plan pays fees higher than its peers; and that the fees go mostly to Aegon, which serves as recordkeeper and investment manager for the plan through its Transamerica affiliates.

According to court documents, Aegon had placed many of its investment products in the plan, including at least 16 Aegon-managed investments in collective trusts or pooled separate accounts. These trusts and accounts charge investment management and portfolio administration fees for managing the securities in the portfolio. However, the lawsuit alleges, the manager of each of the collective trusts and pooled separate accounts does not manage a portfolio. Instead, each such commingled fund simply reinvests in an Aegon mutual fund of the same asset class and strategy, which, the complaint says, has the effect of layering a superfluous and excessive investment management fee on top of the fees charged to the mutual fund.

Aegon continues to deny any allegations of wrongdoing in the settlement, which has, according to court filings, been preliminarily accepted by both sides in the dispute. The company asserts the investment and administrative fees of the plan “were reasonable and that the practice of offering Transamerica’s own products as investment options for the plan is both common and lawful.”

According to court documents, the settlement will bring about structural changes in the way the company runs its retirement savings plan—and how it calculates fees. Payments will also be made to compensate class members.

“Plaintiffs place the value of structural changes to the plan over the next three years at $3 million,” case documents show. “In addition, Transamerica will pay a cash settlement of $3.8 million. From that amount, costs will be deducted, including a cash contribution award to each of the named plaintiffs (up to $6,000), attorney fees (up to one-third of the cash award) , administrative fees to the settlement administrator, any taxes attributable to the settlement fund, and payment to an independent fiduciary.”

The settlement still requires a final “fairness hearing” to be formally implemented, but this appears likely given the approval of both sides and the preliminary opinion of the judge presiding over the case. Following the results of the fairness hearing, the court “expects the plan as changed to have fees as low as and other measures as pro-member as the midpoint of the range of its peers, or better (more pro-member), or show good cause why not.”

NEXT: Transamerica denies any wrongdoing

Transamerica spokesperson Greg Tucker, senior vice president and head of public affairs, shared the following statement with PLANADVISER:

“Regarding the lawsuit alleging excessive investment management and administrative fees associated with the Transamerica 401(k) Retirement Savings Plan, we take these allegations very seriously given our strong commitment to fair and transparent communications regarding fees and expenses associated with participants’ retirement plans, including those relating to our own employees.

“Although we have maintained that these allegations are unfounded, we have agreed in principle to settle the case in order to avoid the time and expense of litigation.  The bulk of the settlement proceeds will be distributed to Transamerica’s current and former employees who were participants in the Plan. The parties’ settlement agreement was preliminarily approved by the court overseeing the lawsuit on June 24.  In July, class members will receive information about the proposed settlement from the court-appointed settlement administrator, who is also establishing a website and a dedicated toll-free number to answer questions regarding the settlement.  Class members will also have an opportunity to provide comments on the settlement to the Court, prior to final approval.

“As a reflection of the fact that the Plan has been well-managed, the principal structural relief in the settlement is to continue most of the Plan’s current investments, including the Plan’s investments in low-cost pooled accounts offered by Transamerica.   We remain committed to providing a competitive 401(k) retirement plan to all employees, which includes matching contributions to help make possible a secure and confident retirement.”

The proposed settlement agreement is here.