Cigna settles 401(k) class action for $35M

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A federal judge in Illinois has given final approval to a $35 million settlement in a 401(k) ERISA case on behalf of Cigna employees.

“This has been a long battle for almost seven years,” class counsel Jerome Schlichter, of Schlichter, Bogard & Denton in St. Louis, said in a statement.

The plaintiffs filed their lawsuit in February 2007.

According to information from Schlichter’s office, the settlement is the largest settlement ever of an excessive fee case.

Five plaintiffs sued Cigna Corp., John Arko, The Corporate Benefit Plan Committee of Cigna, Connecticut General Life Ins. Co., TimesSquare Capital Management Inc., Cigna Investments Inc. and Prudential Retirement Insurance and Annuity Co.

On behalf of a class of employees, the plaintiffs alleged the defendants violated the Employee Retirement Income Security Act of 1974 by causing the Cigna 401(k) plan to pay excessive fees, causing the plan to engage in prohibited transactions and receiving improper benefits from the plan as a result of Cigna’s sale of its retirement business to Prudential.

According to the complaint, the Cigna defendants charged plan participants “additional, needless fees” to increase the defendants’ revenue and profit.

Cigna sold its retirement business to PRIAC in 2004. PRIAC provided the same services, but the plan’s investment options had lower fees because Cigna’s “self-interest in adding excessive fees has been reduced,” the plaintiffs alleged. However, those fees were still “unreasonably excessive,” the plaintiffs alleged.

Cigna, headquartered in Bloomfield, Conn., is listed on the New York Stock Exchange. In August the company reported its consolidated revenues in the second quarter of 2013 came to $8 billion, an increase of 8 percent over the second quarter of 2012.

Judge Harold Baker, of the U.S. District Court for the Central District of Illinois, presided over the case. He gave final approval to the settlement on Tuesday.

Baker also granted the class counsel’s request to award $11.7 million in attorneys’ fees, $928,046 for outstanding expenses and $25,000 incentive awards to each of the five named plaintiffs.

The defendants deny liability, all allegations of wrongdoing and that the class, its representatives or the plan suffered any losses.

Schlichter touted the settlement’s benefits to the class, which numbers roughly 202,459.

“In addition to the money, all Cigna employees and retirees in the 401(k) plan will benefit for many years in the future with a greatly improved 401(k) plan, enabling them to build a meaningful retirement for the future,” he said in the statement.

The agreement establishes a point system to apportion the settlement amount among four groups of class members who had active accounts in the plan between the second quarter of 1999 and the end of the second quarter of 2013. Checks that are undelivered or not cashed 120 days after their issue date will revert to the qualified settlement fund and used to defray the plan’s administrative fees and costs.

The settlement also includes affirmative relief, including independent oversight of the plan and competitive bidding for recordkeeping services. In addition, fiduciary or service providers are barred from giving investment advice.

The defendants agreed to dismiss a case pending before the 3rd U.S. Circuit Court of Appeals, in which they argued that a settlement in a federal case in Pennsylvania barred the class members in this case from litigating their claims.

Cigna and the Cigna-related defendants were represented by Morgan, Lewis & Bockius lawyers in Philadelphia and Chicago, and PRIAC was represented by O’Melveny & Myers lawyers in Washington, D.C.

Brian Boyle, one of PRIAC’s lawyers, referred questions to his client. Dawn Kelly, a Prudential spokeswoman, had no comment other than to say, “We are pleased to have resolved this matter.”

Azeez Hayne, one of Cigna’s lawyers, did not respond to an emailed interview request by press time.

The case is Nolte et al. v. Cigna Corp. et al., 2:07-cv-2046.