Compliance

Participant Fails to Establish Class Status in Prudential Lawsuit

The denial of the class certification motion goes into some detail regarding what it takes to establish class standing under ERISA.

By John Manganaro editors@assetinternational.com | August 09, 2017
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A federal district court judge has denied class action status to an ERISA challenge filed by a retirement plan participant invested in a stable value product offered by Prudential.

The suit, filed against Prudential Retirement Insurance and Annuity Company in the U.S. District Court for the District of Connecticut, alleged that the firm improperly assessed and failed to disclose compensation derived from clients’ investment in a stable value fund.

As laid out in the initial complaint, the plaintiffs alleged that Prudential sets the crediting rate for certain stable value funds “well below its internal rate of return on the invested capital it holds through the SVAs. Thus, the company guarantees a substantial profit for itself … It does not disclose to its retirement plan clients and their respective participants the difference between its internal rate of return and the crediting rate. Thus, the company collects tens of millions of dollars annually in undisclosed compensation from the retirement plans and participants to whom it owes the highest duties known to the law, in violation of the Employee Retirement Income Security Act (ERISA) and statutory disclosure obligations.”

Among other allegations, plaintiffs also charged that Pruential “does not provide reasonable notice of a change in the crediting rate. Accordingly, a plan cannot reasonably terminate [the stable value investment contract] if defendant imposes an unfavorable crediting rate. Further … defendant imposes substantial penalties on the plans should the plans attempt to terminate the [contract] because of an unfavorable rate. Thus, plan fiduciaries are effectively precluded from making determinations concerning the reasonableness of the crediting rate, and from replacing the [contract] with another stable value fund when a crediting rate imposed by defendant is unreasonable.”

In seeking class certification and determining the proposed scope of the class, the suit cites Rule 23 of the Federal Rules of Civil Procedure. The plaintiff's conclusion is bold and the suit seeks to include “all ERISA covered employee pension benefit plans whose plan assets were invested in Prudential Retirement Insurance and Annuity Company’s Group Annuity Contract Stable Value Funds within the six years prior to, on or after December 3, 2015.”

Turning to the decision issued this week by the Connecticut district court, it seems Prudential has successfully convinced the court that certain assertions in the challenge are faulty, leading to the result that class certification is in appropriate. In particular, the court notes, “while the plaintiff has offered evidence that ‘most pools’ used the same crediting rate, defendants counter that plans invested in [the relevant products called out by the suit] benefit from a ‘wide range’ of crediting rates, and that [the products] provide distinct rate changes to at least 20% of the rate pools.”

Strictly speaking, Prudential did not challenge the “numerosity prerequisite” set forth in Rule 23(a), and the court “therefore considered only whether the plaintiff’s proposed class satisfies requirements for commonality, typicality, and adequacy of representation.”

NEXT: Commonality, typicality and adequacy 

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