Judge OKs Settlement in New York Life ERISA

By Staff Report

Mar. 12, 2008

After nearly eight years of litigation, a federal judge granted final approval of a $14 million class-action settlement in an ERISA lawsuit against New York Life Insurance Co. that was filed by employees alleging that the insurer mismanaged its pension funds by exclusively investing in its own mutual funds.

U.S. District Judge Bruce W. Kauffman affirmed the settlement in Mehling et al. v. New York Life Insurance Co. last week in U.S. District Court for the Eastern District of Pennsylvania.

The judge awarded $4.2 million of the settlement as attorney fees and administrative costs for the plaintiff party. The remaining amount will be deposited in the New York-based New York Life retirement plans to directly benefit the plans’ participants who were involved in the settlement class. In addition to the monetary settlement, New York Life also agreed to receive independent advice on their investments through May 31, 2010.

The suit stems from allegations that New York Life improperly invested billions of dollars in assets of various New York Life-sponsored employee benefit plans into New York Life mutual funds in a scheme to boost profits and help the funds appear more attractive to investors, according to the original complaint filed in November 1999.

Further, the suit alleges that New York Life’s actions drained millions of dollars in “excessive and easily avoidable” fees and expenses as the insurer’s trustees continued to invest in “inappropriate and over-priced New York Life proprietary vehicles” when better-performing options were available from investment managers unaffiliated with New York Life.

The plaintiffs argued that New York Life’s investment advisor also was president of the insurer’s mutual funds and that trustees who approved the pension investments were not made aware of options that would have been less expensive to maintain.

New York Life denied the allegations and “asserted that the plans’ investments, or menu of investment options in the case of the 401(k) plans, have at all times been prudently selected,” according to a statement by the insurer. The company further contended that ERISA does not prohibit the investment of a retirement plan’s assets in proprietary mutual funds offered by the plan’s sponsor, provided that the investments and fees are appropriate.

“The company’s receptivity to a settlement centered on the fact that the bulk of the settlement monies would go to work for the affected employee and agent participants in the plans,” said a spokesman for New York Life in a statement. “The result is a reaffirmation of New York Life’s commitment to its employees and agents through the company’s highly competitive benefit and pension plans.”

Filed by Jeff Casale of Business Insurance, a sister publication of Workforce Management. To comment, e-mail

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