Hope for greater fee transparency

The settlement in a fiduciary-duty suit against MassMutual Life Insurance Co. appears to open the door to further legal action by plan sponsors in a similar arrangement with other providers.

By Greg Carpenter | November 10, 2014 at 08:17 AM

MassMutual's actions in the lawsuit Golden Star Inc. v. MassMutual Life Insurance Co. were never in dispute. The financial giant oversaw variable annuity investments in the plaintiff's plan and received both direct compensation from plan participants and indirect compensation – in the form of revenue sharing – from other mutual fund companies. These revenue sharing payments were not disclosed to the plan sponsor.

The key issue was whether MassMutual was a "functional fiduciary" as defined by ERISA. If they are not a fiduciary, as MassMutual contended, there is no breach of standards. If deemed a fiduciary, receiving the undisclosed compensation creates a prohibited transaction under ERISA, and potentially large liability.

Under ERISA, plan service providers who exercise discretionary authority over plan assets may be deemed a "functional fiduciary." As a functional fiduciary, the provider is held to a higher standard of conduct to act exclusively in the interests of plan participants, and it is subject to significant liability if those standards are not met.

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