Nationwide Settles Revenue Sharing Lawsuit — for $140 Million
After what plaintiff’s attorneys describe as “more than 13 years of vigorously contested litigation,” Nationwide has moved to settle a revenue sharing lawsuit for an enormous $140 million.
Originally filed in August 2001, the lawsuit alleged that Nationwide received undisclosed revenue sharing payments from non-proprietary mutual funds in violation of ERISA. The settlement is split between two different certified classes ($110,000,000 for one and $30,000,000 for the other). Plaintiffs’ will seek up to 35% of the settlement amount in attorney’s fees ($49,000,000), and up to $2,000,000 in costs.
The settlement dwarfs similar settlements with Cigna (see “Settlement of Largest 401(k) Excessive Fee Lawsuit Approved”), ING (see “Excessive Fee Class Action Lawsuit Against ING Settled”) and MassMutual (see “MassMutual Settles ‘Functional Fiduciary’ Case”).
Without admitting fault, Nationwide also agreed to supplement the disclosures for its new group variable annuity customer proposals, its new group variable annuity contracts and its plan sponsor website that relate to mutual fund-related fees and expenses in connection with group variable annuity products. They also agreed to add language in new customer proposals or plan sponsor website(s) informing fiduciaries of plans holding group variable annuity contracts of the opportunity to be transferred to a product where revenue-sharing payments are credited to the plan in the form of reduced asset fees in an amount equivalent to the disclosed reimbursement rate received for each fund option.
Nationwide also agreed to supplement disclosures for its new individual variable annuity customer proposals and its new product prospectuses that relate to mutual fund-related fees and expenses in connection with individual variable annuity products with specific language in these disclosures that, upon written request from plan trustees, provide Nationwide’s best estimate of plan-specific, aggregate data regarding the mutual fund payments received in connection with the plan’s investments for the previous calendar year.
The suit, Haddock v. Nationwide, alleges that Nationwide violated ERISA when it kept fees that it received from nonproprietary mutual funds that it offers through its defined contribution platform. The lead plaintiff was the deferred compensation plan of Flyte Tool & Die, a plastic molding company in Bridgeport, Conn.
Plaintiffs, which included trustees of five qualified retirement plans, alleged that the refunds of management fees that Nationwide received from nonproprietary mutual funds were, in fact, plan assets that should have been returned to the plans. Moreover, by not revealing these "kickbacks," they claimed that Nationwide misrepresented the level of fees it was receiving, and that Nationwide purposefully chose to include outside mutual funds with high management fees in order to maximize the "undisclosed kickbacks.”
The plaintiffs claimed that the revenue payments were subject to ERISA because Nationwide acted as fiduciaries in not only selecting investment options for plan investment menus, but reserving a “unilateral” right to replace investment options.