Court Sides With Great-West In Fiduciary Breach Lawsuit

A Colorado court recently found in favor of Great-West in a 2016 lawsuit claiming the insurer had charged "excessive fees" to its retirement plan participants.

Judge Christine M. Arguello of the U.S. District Court for the District of Colorado ruled in favor of defendants Great-West Capital Management and Great-West Life & Annuity Insurance Co. In her decision last month, the judge said the plaintiffs, investors in Great-West funds through retirement plans, did not prove that the insurer failed to live up to its fiduciary duties under the Investment Company Act of 1940 by charging excessive fees.

"Defendants presented persuasive and credible evidence that overwhelmingly proved that their fees were reasonable and that they did not breach their fiduciary duties," Arguello wrote.

The case outcome is good news for insurers wary of increasing regulation focused on retirement plans and rollovers. Specifically, the Department of Labor investment advice rule seemingly expands the scope of what can be considered "ongoing advice."

The rule adds a class exemption that would enable certain types of investment advice fiduciaries to receive a wide range of fees and other compensation without engaging in non-exempt prohibited transactions.

Great-West, which does business as Empower Retirement, is the second-largest retirement plan recordkeeper in the country. Empower announced last week that it struck a deal to acquire MassMutual's retirement business.

Retirement Plan Choices

The lawsuit dates to December 2016, when the first of several plaintiffs turned to the courts. Several lawsuits were late consolidated. The plaintiffs had all participated in retirement plans in which investments were made in Great-West mutual funds.

The U.S. Supreme Court’s decision in Jones v. Harris Associates prohibits fees that are “so disproportionately large that [they] bear[] no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining,” the Colorado court noted. “The essence of the test is whether or not under all the circumstances the transaction carries the earmarks of an arm’s length bargain.”

But the plaintiffs' case fell apart once testimony was taken during an 11-day bench trial earlier this year. For instance, Joan Obeslo testified that when she reviewed her retirement account during the relevant period, it “was making money every time. It kept going up, which is what I wanted,” Arguello wrote.

To highlight the arm’s-length nature of the relationship, the court noted that the services provided to and fees paid by the plaintiffs were approved by an independent financial adviser, and that the Great-West funds are overseen by independent directors.

Ultimately, the plaintiffs failed to identify any legitimate damages stemming from Great-West’s alleged breach, Arguello wrote.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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