On September 26, 2012, Judge Hall of the U.S. District Court for the District of Connecticut certified a class in an ERISA case alleging breach of fiduciary duty and prohibited transactions against an insurance company in connection with revenue sharing practices under group annuity contracts issued to administrators of defined contribution retirement plans. The case is Healthcare Strategies, Inc. v. ING Life Ins. & Annuity Co., No. 11-282 (D. Conn.).
The suit was brought by a plan administrator who purchased a group annuity contract issued by ING Life Insurance & Annuity Company (the "Insurer"). Under the contract, the Insurer offers administrative services and makes available to the plan a platform of investment options. The Insurer's investment platform is made up of sub-accounts that in turn invest in underlying mutual funds. The Insurer selects the funds in which the sub-accounts invest, and retains authority to change the funds available on the platform, including by removing funds. The Insurer also receives revenue sharing from certain of the funds in which the sub-accounts invest.
The plaintiff alleges that the Insurer is an ERISA fiduciary because of its control over the selection of investment options for the platform and that it breached its fiduciary duties and engaged in prohibited transactions by using that control to obtain revenue sharing payments for its own benefit. The plaintiff further alleges that revenue sharing payments received from investment options are plan assets. The plaintiff moved to certify a class consisting of all plan administrators who hold group annuity contracts issued by the Insurer in connection with which contracts the Insurer has received revenue sharing payments.
In opposing class certification, the Insurer argued that factual and legal issues concerning whether the Insurer was an ERISA fiduciary and whether revenue sharing payments were plan assets were not amenable to common proof and required plan-by-plan examination. The Insurer also argued that it could not be an ERISA fiduciary with respect to the selection of investment options for plans because it merely creates a menu of options that the contractholder (i.e., the plan administrator or other relevant plan fiduciary) can choose or reject for its plan.
The court rejected these arguments. The court was not persuaded that, because the Insurer provided contractholders notice of fund changes, ultimate decision-making authority was reserved to the contractholders. The court concluded that contractholders did not have the ability to reject fund changes and keep their current investment options. Accordingly, the court held that, for class certification purposes, the Insurer was an ERISA fiduciary because it had a contractual right to delete or substitute mutual funds from its menu, which gave it discretion over the administration of the plan sufficient to render it a fiduciary with respect to its receipt of revenue sharing in exchange for inclusion of certain funds on its platform. The court further held that the plaintiff had identified a common issue as to whether the Insurer had used plans assets in its own interest or for its own account by accepting revenue sharing payments.
Finding that these issues predominate across the class as required under Rule 23(b)(3), and that the plaintiff had otherwise met the Rule 23(a) requirements, the court granted the motion to certify.
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