PLANADVISER - January/February 2020 - 7

committees of allowing its recordkeeper
to receive fees from an agreement
with Financial Engines to provide
participants with investment advice.
In February 2018, most counts in
the case were dismissed against the
company, with the court finding that
Northrup Grumman was not a fiduciary
with respect to the acts alleged.
However, it did not escape the " failure
to monitor fiduciaries " count.
 Settlement Agreement Includes
Review of Investments
Defendants in a lawsuit alleging selfdealing
by fiduciaries of the M&T Bank
401(k) plan have reached a settlement
agreement. According to the original
complaint, in 2010, eight of the plan's
23 designated investment alternatives
were M&T Bank proprietary mutual
funds that cost significantly more
than similar funds and performed
worse. Rather than remove these
overpriced and underperforming
funds, the defendants expanded their
proprietary fund offerings in 2011,
after M&T purchased Wilmington
Trust and added six of Wilmington's
expensive, poor-performing mutual
fund offerings, the complaint said.
Under the terms of the proposed
settlement, M&T Bank or its insurers
will pay a gross settlement amount of
$20,850,000 into a common fund for
the benefit of class members.
The settlement also includes a
number of non-monetary terms.
M&T Bank has agreed that an independent
investment consultant will
review the proprietary mutual funds
in plan and provide a written opinion
regarding whether those funds should
be retained; the defendants will issue
a request for information to multiple
potential recordkeepers to obtain the
best combination of recordkeeping
pricing and services available to the
plan, plus several other provisions.
 Annuity Transaction Suitability
Rules Advance
The Life Insurance and Annuities
Committee of the National Association
of Insurance Commissioners
(NAIC) voted to advance its revised
Suitability in Annuity Transactions
model regulation for final consideration.
The NAIC is the United States'
standard-setting and regulatory
support organization created and
governed by the chief insurance regulators
from the 50 states, the District
of Columbia and five U.S. territories.
Jason Berkowitz, the Insured Retirement
Institute (IRI)'s chief legal and
regulatory affairs officer, says he is
confident the full NAIC executive
committee and plenary will vote to
adopt
the revised suitability model
regulation early this year.
" This revised model regulation will
advance consumer protection with a
best interest standard for insurance
producers, " says Berkowitz, noting that
the institute advocated for the inclusion
of the Regulation Best Interest (Reg BI)
safe harbor. " Throughout this process,
insurance regulators at NAIC workinggroup
and committee level have worked
in an open, transparent manner to
craft a model that is generally consistent
with Regulation Best Interest and
the right approach to provide strong
consumer protection. " Provisions of Reg
BI take effect on July 1.
 J.P. Morgan Settles Share Class
Upcharge Challenge
J.P. Morgan Securities (JPMS) has
submitted an order of settlement to
the Securities and Exchange Commission
(SEC) to resolve the market regulator's
allegations that it failed to
provide discounts to certain qualified
clients. SEC documents show that the
regulator will accept the settlement
order, in which JPMS neither admits
nor denies the SEC's findings.
According to an SEC investigation,
from at least January 2010 through
December 2015, J.P. Morgan Securities
" disadvantaged
certain
retirement
plan and charitable organization
brokerage customers who maintained
accounts at JPMS by failing to ascertain
that they were eligible for a less
expensive share class, and recommending
and selling them more
expensive share classes in certain
open-end
registered
investment
companies when less expensive share
classes were available. "
In determining to accept the
settlement offer, the SEC considered
remedial acts promptly undertaken
by JPMS and cooperation afforded the
commission staff, including that JPMS
voluntarily identified and converted
eligible customers into a lowerpriced
share class and repaid eligible
customers, including through reimbursement
of transactions outside the
relevant period.
Specifically, the firm had identified
approximately 16,734 eligible
clients that paid a total of $16,283,277
in upfront sales charges and higher
ongoing fees and expenses. The SEC
says JPMS has issued payments-
including interest-to approximately
16,335 accounts, representing approximately
98% of eligible customers,
by crediting the accounts of current
customers
and mailing
reimbursement
checks or otherwise directing
payments as instructed by former
customers. JPMS also has converted all
eligible customers holding Class B and
Class C shares to Class A shares with
the lowest expenses for which they are
eligible, at no cost to the customers.
 Wilmington Trust Settles
ESOP Lawsuit
Financial services firm Wilmington
Trust has agreed to settle a lawsuit
alleging that it caused and engaged
in prohibited transactions under the
Employee Retirement
Income Security
Act (ERISA) related to a sale of
ISCO Industries stock to participants
in its employee stock ownership plan
(ESOP).
According to the complaint, on
December 20, 2012, ISCO and/or its
prior owner(s) sold 4 million shares of
common stock in the company to the
ESOP in exchange for a 25-year note
of $98 million, accruing 2.4% annual
interest. As of December 31, 2012, the
ISCO shares purchased by the ESOP
were revalued by an independent
appraiser at $39 million-a decrease
of more than 60%.
The motion for preliminary
approval of the settlement agreement
says, " Wilmington Trust denies these
allegations; denies any wrongdoing or
liability; and has vigorously defended
itself in this action. Wilmington Trust
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PLANADVISER - January/February 2020

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