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Fiduciary Questions in the MassMutual Case, Part Two

Prudent Investment Advisors' Scott Simon takes a closer look at the case's allegations of self-dealing.

W. Scott Simon, 01/02/2014

W. Scott Simon is a principal at Prudent Investor Advisors, a registered investment advisory firm. He also provides services as a consultant and expert witness on fiduciary issues in litigation and arbitrations. Simon is the recipient of the 2012 Tamar Frankel Fiduciary of the Year Award.


In last month's column, I discussed Gordan, et al. v. Massachusetts Mutual Life Insurance Co., et al., a case filed in early November in federal district court in Massachusetts.

To recap the case, some current and former employees of the Massachusetts Mutual Life Insurance Company (MassMutual) sued MassMutual and other defendants for breach of fiduciary duty. MassMutual sponsors a defined contribution plan known as the Thrift Plan, which it offers to its eligible employees. The Thrift Plan has nearly 15,000 participants and holds almost $1.5 billion in assets.

Plaintiffs' complaint sets forth seven counts, including the selection of unreasonably priced and imprudent investment options, entering into prohibited transactions, the failure to administer the plan in accordance with the governing plan documents, and the failure to monitor fiduciaries.

My discussion last month focused on the failure to administer the plan in accordance with the governing plan documents and the selection of unreasonably priced and imprudent investment options.

In this month's column, I thought it might be of interest to discuss certain allegations in some specific paragraphs of the complaint, to wit:

Paragraph "85. The Fixed Interest Account [i.e., the stable value fund (SVF) investment option offered by the Thrift Plan that was discussed in last month's column] not only subjected the Plan and its participants to excessive and undiversified risk, it also benefited Defendants by providing: (1) hundreds of millions of dollars of assets under management against which Defendants could assess fees; (2) Defendants with over $500 million dollars in working capital for their general account from MassMutual employees' retirement savings; and (3) additional revenue through spread or other earnings hidden from participants."

W. Scott Simon is an expert on the Uniform Prudent Investor Act and the Restatement 3rd of Trusts (Prudent Investor Rule). He is the author of two books, one of which, The Prudent Investor Act: A Guide to Understandingis the definitive work on modern prudent fiduciary investing.

Simon provides services as a consultant and expert witness on fiduciary issues in litigation and arbitrations. He is a member of the State Bar of California, a Certified Financial Planner, and an Accredited Investment Fiduciary Analyst. Simon's certification as an AIFA qualifies him to conduct independent fiduciary reviews for those concerned about their responsibilities investing the assets of endowments and foundations, ERISA retirement plans, private family trusts, public employee retirement plans as well as high net worth individuals.

For more information about Simon, please visitPrudent Investor Advisors, or you can e-mail him at wssimon@prudentllc.com

The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar.

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