March 02, 2021

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New York Life Insurance Co. was sued by a former employee who says the company engages in self-dealing and earns “windfall profits” from a pair of retirement plans covering tens of thousands of employees and insurance agents, according to a proposed class action filed in federal court in Manhattan.

Stuart Krohnengold’s lawsuit, filed in the U.S. District Court for the Southern District of New York, accuses the insurer of improperly profiting off its workers’ retirement savings by defaulting certain retirement plan participants into an undiversified general account insurance fund. This fund—called the Fixed Dollar Account—isn’t a permissible 401(k) default investment, and it allows New York Life and its affiliates to earn “enormous profits and billions of dollars to be used for its own business purposes while exposing most of the Plans’ assets to New York Life’s credit risk,” he claims.

Krohnengold also accuses New York Life of offering its own affiliated investment products in the plans without properly considering lower cost and better performing alternatives from competitors. These two failures cost plan participants hundreds of millions of dollars in lost retirement savings, he claims.

The two New York Life retirement plans hold a combined $4.3 billion and cover nearly 30,000 people, according to the complaint.

The case is one of dozens of recent lawsuits challenging financial companies that include affiliated investment products in their 401(k) plans. Several companies have signed multimillion-dollar settlements, including Reliance Trust Co. ($39.8 million), McKinsey & Co. ($39.5 million), SunTrust Banks Inc. ($29 million), Fidelity Investments ($28.5 million), BB&T Corp. ($24 million), and Deutsche Bank ($21.9 million).

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Cohen Milstein Sellers & Toll PLLC represents the proposed class.

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