Suit accuses MassMutual of self-serving investments

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By Pat Murphy, BridgeTower Media Newswires

BOSTON — Massachusetts Mutual Life Insurance Co. violated its fiduciary duties under the Employee Retirement Income Security Act by steering investments from a retirement plan into assets that would benefit the company to the detriment of the best interests of plan participants, according to a putative class action filed in U.S. District Court in Springfield, Massachusetts.

Filed Nov. 9 by lead plaintiff Judy Lalonde on behalf of other participants and beneficiaries in the MassMutual Thrift Plan, Lalonde v. Massachusetts Mutual Life Insurance Co. alleges that the company and certain related entities and individuals “violated ERISA’s fiduciary duties under 29 U.S.C. §1104 and its prohibitions on self-dealing under 29 U.S.C. §1106 by managing the Plan and its assets through a process that favored the economic interests of Massachusetts Mutual Life Insurance Company over those of Plan participants and beneficiaries.”

According to the complaint, the “flawed” process resulted in a “series of outcomes that caused the Plan and its participants and beneficiaries to sacrifice retirement savings to poor performance and swollen costs which inured to the benefit of MassMutual’s bottom line.”

The complaint outlines four specific breaches of fiduciary duty by MassMutual and its co-defendants. First, the plaintiff alleges that the defendants “retained a series of excessively expensive and poorly performing proprietary mutual funds that are rarely, if ever, selected by objective and non-conflicted fiduciaries of large retirement plans like the MassMutual Plan.”

Second, the plaintiff alleges the defendants failed to ensure “that the Plan held the least expensive share class and/or investment vehicle for the investment strategies Defendants selected for the MassMutual Plan.”

Third, the plaintiff alleges that the defendants “caused the MassMutual Plan to transfer a substantial portion of its assets into MassMutual’s general account in connection with the Plan’s stable value investment, granting the Company a bounty to use for its business, without adequately compensating the Plan for the risk this imposed on the Plan or considering alternative stable value products with better terms.”

Finally, the plaintiff complains the defendants caused the retirement plan to pay MassMutual “unreasonable” recordkeeping fees at a time at a time when it was trying to “off-load” its retirement product business line to another company, Empower Retirement.

“This conduct ultimately resulted in the Plan and its participants and beneficiaries sacrificing tens of millions of dollars in retirement savings through poor performance and above-average expenses (for which MassMutual was usually the benefactor),” the complaint states.

“Notably, in the past few years, the Company brought in well over $50 million in compensation directly from the Plan’s investment in its proprietary products, all while using the Plan as an anchor client to support its marketability and corporate initiatives, like the sale of the Company’s retirement business to Empower for $2.35 billion.”

The lawsuit alleges that the defendants are jointly and severally liable for all losses to the plan resulting from a series of transactions enumerated in the complaint.

“MassMutual must restore all profits that it made (directly or through its affiliates) through use of the Plan’s assets or on account of these prohibited transactions,” the lawsuit states.

In addition, the plaintiff seeks certain equitable relief, including an order appointing an independent fiduciary to manage the assets of the Plan.

The plaintiff is represented by Michelle C. Yau and Daniel R. Sutter, of Cohen Milstein Sellers & Toll in Washington, D.C. Co-counsel include Kai H. Richter and Eleanor Frisch of the firm’s Minneapolis office.

Defense counsel had not entered an appearance as of press time.