Cigna’s $35M Settlement on 401(k) Fees Includes Investment Review

July 17, 2013 – 12:22 pm | By Jane Meacham | Post a Comment

Cigna has agreed to settle for $35 million a class-action lawsuit brought by current and former employee participants in the health insurance company’s 401(k) plan, alleging they were charged excessive fees. As part of the settlement Cigna pledged to hire an independent consultant to monitor and suggest changes for the 401(k)’s stable value fund and its overall investment management.

The lawsuit, Nolte v. Cigna Corp. (No. 07-02046, U.S. District Court for the Central District of Illinois, 4th Amended Complaint, Sept. 2 , 2011), claimed defendants Cigna and a retirement investment unit of Prudential violated ERISA; among the ways they were alleged to have done so was by taking excessive fees from participant accounts and failing to put plan services out for competitive bids. Cigna had sold its retirement division, including the plaintiffs’ 401(k), to Prudential in April 2004 for more than $2 billion. The suit claimed plan participants received none of Cigna’s profit from that sale after providing capital for the company’s retirement business that it sold.

In the settlement document, filed on June 21, defendants denied liability to the plaintiffs, breach of fiduciary duty and all allegations of wrongdoing made in the lawsuit. They further contended they “acted prudently at all times and in all respects with regard to the Plan…” while not engaging in self-dealing or prohibited transactions.

The Cigna suit also took aim at an investment of more than $1 billion in stable value assets in Cigna’s general account, which the plaintiffs called “imprudent and self-serving.” The allegations were similar to other “self-dealing” suits filed against, and settled by, big corporate plan sponsors such as Caterpillar Inc., General Dynamics Corp. and Bechtel Corp. in recent years.

Once the agreement is approved, it includes Cigna’s allowing the outside monitor to review: (1) its stable value fund; (2) a request for proposals for a recordkeeper; and (3) the plan’s investment options. The plan sponsor has agreed to continue to not include in its investment lineup any investment options managed by it or its affiliates, a press release from the plaintiffs’ legal counsel said on June 21.

To read the complete story on Thompson’s HR Compliance Expert, click here.

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