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Wednesday, May 31, 2000 A 401k Class Action? Word of a threatened class action lawsuit by employees of New York Life is circulating, and the insurer may not be alone in its exposure to this type of suit. Last year, employees of First Union filed a lawsuit against the bank over the use of its own funds in its retirement program. The New York Life case sounds similar. Pensions & Investmentments has reported that the insurer may be the target of a class action lawsuit over the use of its MainStay Funds in its retirement plans. The suit, according to the story, may be filed as early as next week. As of today, there is no suit filed.
Sprenger & Lang did not offer comment for this story. In its backgounder, New York Life says that there are four likely issues of contention that are likely to be presented in a lawsuit. The issues cover the insurer's two defined benefit and two 401(k) plans. The insurer is basing these conjectures on conversations it has had with Sprenger & Lang. The dispute appears to resolve around the contention that New York Life benefited by using its own MainStay family of funds in the plan rather than separate account products. By using the funds New York Life could presumbly received higher fees than in a separate account. The use of fund products also meant that the plan -- not New York Life -- paid the investment management fees for the investments. These issues echo those brought in the First Union case. What are the issues likely to appear in a suit? New York Life says they are:
Even without a lawsuit filed, the threat of this type of action is a harbringer of change roiling the retirement industry. The 401(k) business has, until recently, suffered relatively few lawsuits in proportion to the amount of assets involved. More importantly for vendors, that they follow the law may not be a guarantee that they avoid this type of litigation. "People are saying 'hey that isn't good enough - there is a higher standard," says Ward Harris, principal at McHenry Consulting. "It is not the fact pattern, the law, or the appeals panel that sets the standard. It is going to be the appearance of fairness, and that people feel empowered. It is perceived as being "my money." Harris points out that the speed that these issues move at is increasing as information moves more quickly through society. For example, both the individuals covered in the current cash balance litigation and those in the First Union litigation have created Web sites to track the progress of the cases and to get the word out. Printed from: MFWire.com/story.asp?s=25783 Copyright 2000, InvestmentWires, Inc. All Rights Reserved |