Hartford Agrees to $13.8M Revenue Sharing Case Settlement

February 17, 2010 (PLANSPONSOR.com) – A proposed out-of-court settlement of a four-year-old fiduciary breach suit against Hartford Life Insurance Co. over revenue sharing payments from mutual fund companies calls for Hartford to pay $13.8 million and make a variety of business practices changes.

Lawyers for Phones Plus Inc. have asked U.S. District Judge Alfred V. Covello of the U.S. District Court for the District of Connecticut to approve the settlement.

Phones Plus Inc. sued Hartford and investment firm Neuberger Berman Management Inc. in 2006, alleging that Hartford’s receipt of revenue sharing payments from mutual funds based on a percentage of plan assets invested in those funds violated the Employee Retirement Income Security Act (ERISA). Neuberger committed an ERISA breach by not properly informing the plan of the revenue sharing arrangement, alleged Phones Plus, which filed the case on behalf of its 401(k) plan.  

The request submitted to Covello said if the settlement pact is approved, all 401(k) plans using Hartford as a service provider between November 2003 and the date of the settlement approval would share in the settlement proceeds.

According to the request, the business practice changes to which Hartford has agreed include:

  • taking provisions out of plan documents limiting a plan’s selection of investment options;
  • not enforcing provisions allowing it to invest plan assets in short-term money market instruments, cash, or cash equivalents;
  • asking state insurance regulators for the okay to change parts of its group annuity contract dealing with mutual fund availability to clarify that Hartford will not take out or substitute an investment option chosen by a plan, unless the option is no longer available;
  • adding language to its plan disclosures to make clear that the fund options offered in the plan submit revenue sharing payments to Hartford or its affiliates; and
  • giving plans a list of investment options with revenue sharing amounts paid by each.

The settlement document is available here

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