Ala. Judge to Hear Arguments in Suit Against Nationwide Over Retirement Plan

Copyright 2008 A.M. Best Company, Inc.All Rights Reserved BestWire

August 5, 2008 Tuesday 04:42 PM EST

536 words

Ala. Judge to Hear Arguments in Suit Against Nationwide Over Retirement Plan

Fran Lysiak

BIRMINGHAM, Ala.

An Alabama judge will hear arguments next month in a proposed class-action lawsuit filed by state employees against Nationwide Life Insurance Co. and the Alabama State Employees Association alleging they breached their fiduciary duties under their defined contribution retirement plan.

Judge Howard F. Bryan of Jefferson County Circuit Court will hear arguments Sept. 9 on motions to dismiss the case.

The core allegation in the suit is that the Alabama State Employees Association had a conflict of interest when it negotiated with Nationwide to be the service provider for the defined contribution plan, said James S. Christie Jr., an attorney with Bradley Arant Rose & White in Birmingham. He represents state employees Ruth A. Gwin and Sandra H. Turner, who seek to represent all participants in the retirement plan, estimated at about 12,000 people.

Other defendants are Nationwide Retirement Solutions Inc. and PEBCO Inc., a unit of the association that performs some of the association's fiduciary duties.

Gwin and Turner are participants in the retirement plan, which is maintained by the State of Alabama for state employees, according to court papers. The association is the plan fiduciary.

The suit alleges breach of fiduciary duty and breach of contract under Alabama law.

Erica Lewis, a spokeswoman for Nationwide, said the company strongly disagrees with the allegations and intends to aggressively defend the case.

According to the plaintiffs, Nationwide charges "contract expenses" and benefits by deducting these expenses from plan participants' accounts. Based on the variable annuity contract Nationwide issued to provide services to the plan, the amount of these expenses isn't related to the investment options from which the plan participants can choose, such as mutual funds, they contend.

Nationwide paid the association "millions of dollars" while the association made Nationwide the plan's exclusive service provider, the plaintiffs charge.

The suit seeks an order stopping the payments and seeks damages, including the money that Nationwide paid to the association, Christie said. Payments are reflected on the association's tax returns that look "improper," he said.

The association's federal tax filings for 2004 show that it had $950,000 in unrelated business income, which it described as a "Nationwide commission," the plaintiffs say. The association's federal tax filings show that it had unrelated business income of $1.1 million in 2005 and $1.2 million in 2006, which it described as a "PEBCO endorsement fee." While the association was negotiating with Nationwide on their behalf, Nationwide paid the association and/or PEBCO "at least $3,260,000," they charge.

Lewis said Nationwide was selected to offer retirement products and services in Alabama based on a competitive bidding process that was conducted by Aon, an independent consultant. "There are no claims in this case that any payments were undisclosed or misrepresented,." she said. "In fact, the plaintiffs have expressly admitted that they are not making any such claims."

An attorney for the association couldn't be reached for comment.

(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])

August 6, 2008