Bloomberg Law
Feb. 7, 2023, 10:00 AM

Allianz, MassMutual Suits Are Warning for In-House 401(k) Funds

Jacklyn Wille
Jacklyn Wille
Legal Reporter

It was déjà vu at Allianz and MassMutual in recent months, when both companies were hit with lawsuits over the affiliated investment funds in their employees’ 401(k) plans.

The allegations—that the companies lined their pockets at the expense of workers by forcing them into pricey, in-house funds—were familiar. Allianz Asset Management of America was accused of similar wrongdoing in 2015, ultimately signing a $12 million class settlement. Massachusetts Mutual Life Insurance Co. settled litigation over its affiliated 401(k) funds for $30.9 million in 2016.

The new lawsuits serve as a warning for the dozens of other financial companies that have signed hefty class settlements over the affiliated funds in their 401(k) plans. These lawsuits, which became more common in 2015, have garnered more than $470 million in settlements, with settling employers including McKinsey & Co., Fidelity, Putnam Investments LLC, and Deutsche Bank.

In the Allianz case, plan participants charge the company with failing to fix its plan after the settlement. The plan still exclusively offers affiliated funds, and the growing size of its asset base—which allegedly more than doubled in the period between the two lawsuits—means the company earns even more money and has “more than recouped” the amount paid to settle the first lawsuit, they argued.

An Allianz spokeswoman said the topic is “not new” and that the company has complied with the terms of its settlement agreement. She declined to comment on the pending case, as did an attorney representing the plan participants who filed suit.

In a court filing, MassMutual called the new case against it an attempt to “effectively relitigate” the prior settlement, which included terms requiring four years’ worth of forward-looking changes to the plan in addition to the cash payment.

Changing Industry

A company with in-house funds in its 401(k) plan may be vulnerable to a lawsuit, but it’s too soon to tell whether a second wave of litigation is coming against companies that have previously signed settlement agreements.

Dozens of lawsuits challenging retirement plan investments have been filed over the past year, but only a small handful of those cases have targeted plans that offer funds affiliated with the sponsoring employer, Rhonda Prussack, senior vice president and head of fiduciary and employment practices liability for Berkshire Hathaway Specialty Insurance, told Bloomberg Law.

In fact, the industry appears to be moving away from these types of plan lineups. Prussack said she’s seeing “fewer and fewer plans” with significant holdings in affiliated funds. Of the ones that do have them, they’re often adding other non-proprietary options and securing services from outside vendors, she said.

Deutsche Bank was sued over the proprietary funds in its 401(k) plan in 2015, ultimately signing a class settlement valued at $21.9 million. The company now uses a third-party vendor to select funds for its 401(k) plan, and only one of the plan’s 25 funds is currently affiliated with the company, a spokesman told Bloomberg Law.

Truist Financial Corp., the bank holding company formed after the 2019 merger of BB&T Corp. and SunTrust Banks Inc., no longer offers affiliated funds in its retirement plans, a spokesman said. Both BB&T and SunTrust were previously sued over this issue, signing settlements valued at $24 million and $29 million, respectively.

There are reasons companies keep affiliated funds in their plans even after settling litigation. Settlements typically reflect business decisions by the plan sponsor and are “almost never” a concession that the challenged investments were imprudent, attorney Joseph C. Faucher told Bloomberg Law.

Faucher, an ERISA litigator and director with Trucker Huss APC in Encino, Calif., added that there’s nothing “per se wrong” with a company offering its own funds in its 401(k) plan.

Continuous Duty

A class settlement resolving allegations related to plan investments provides a certain amount of protection against the same claims being raised in the future, but that protection wanes over time. That’s because a plan participant attempting to challenge the same funds in a subsequent lawsuit could credibly seek relief only as far back as the prior settlement.

The new complaints against Allianz and MassMutual, which specify that they don’t seek relief for losses incurred prior to the earlier settlements, reflect this limitation.

Some settlements include a pledge by the employer to make forward-looking plan changes during a set period, which could affect the viability of a subsequent lawsuit. That’s what MassMutual says happened in its case: The company agreed to hire an outside investment consultant and bolster its monitoring for the next four years. According to MassMutual’s court filing, this pact bars plaintiffs from raising similar claims related to that four-year period.

Even so, a settlement agreement “is only good as of the date of the settlement,” Charles Field, managing partner for Sanford Heisler Sharp LLP’s San Diego office, told Bloomberg Law.

Companies have a duty to continuously monitor their plans and remove imprudent investments, Field said. If they sign a settlement but don’t take steps to correct their processes and how they monitor investments, then there’s “a potential for them being involved in a second round of litigation,” he said.

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editors responsible for this story: Rob Tricchinelli at; Carmen Castro-Pagán at

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