Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 1 of 53 IN THE UNTIED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT HEALTHCARE STRATEGIES, INC., Plan Administrator of the Healthcare Strategies, Inc. 401(k) Plan and the Healthcare Strategies, Inc. CBU 401(k) Plan, On Behalf of Itself and All Others Similarly Situated, and THE DEROSA CORPORATION, Plan Administrator of The DeRosa Corporation 401k PS Plan, On Behalf of Itself and All Others Similarly Situated, and Plaintiffs, ING LIFE INSURANCE AND ANNUITY COMPANY Defendant. : : : : : : : : : : : : : : : : : : : : : : : Civil Action No. 3:11-cv-00282 (JCH) January 10, 2013 ING LIFE INSURANCE AND ANNUITY COMPANY S ANSWER, AFFIRMATIVE DEFENSES, AND COUNTERCLAIMS TO PLAINTIFFS AMENDED CLASS ACTION COMPLAINT Defendant ING Life Insurance and Annuity Company ( ILIAC or Defendant ) hereby answers 1 the Amended Class Action Complaint ( Amended Complaint ) of Plaintiffs Healthcare Strategies, Inc. ( HSI ), the Plan Administrator of the Healthcare Strategies, Inc. 401(k) Plan and the Healthcare Strategies, Inc. CBU 401(k) Plan, and The DeRosa Corporation ( TDC ), the Plan Administrator of The DeRosa Corporation 401k PS Plan (collectively, Plaintiffs ), as follows: 1 ILIAC addresses the effect of the Court s ruling on its partial motion to dismiss as appropriate herein. DB1/ 72476341.2-1 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 2 of 53 I. INTRODUCTION 2 ANSWER TO PARAGRAPH I: ILIAC admits it has entered into agreements, sometimes titled or internally called Participation Agreements, with some mutual fund companies. The terms of ILIAC s relationship with these mutual fund companies are governed by the agreements, which are documents that speak for themselves. The remaining allegations in Paragraph 1 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the remaining allegations in Paragraph 1. ANSWER TO PARAGRAPH 2: ILIAC denies the allegations in Paragraph 2. ANSWER TO PARAGRAPH 3: ILIAC denies the allegations in Paragraph 3. ANSWER TO PARAGRAPH 4: ILIAC denies the allegations in Paragraph 4. ANSWER TO PARAGRAPH 5: ILIAC lacks information sufficient to form a belief as to how other unidentified service providers describe payments they receive from mutual fund companies or the bases for such payments and therefore denies any allegations regarding the same. ILIAC denies the remaining allegations in Paragraph 5. ANSWER TO PARAGRAPH 6: ILIAC denies the allegations in Paragraph 6. ANSWER TO PARAGRAPH 7: ILIAC denies the allegations in Paragraph 7. ANSWER TO PARAGRAPH 8: ILIAC denies the allegations in Paragraph 8. ANSWER TO PARAGRAPH 9: ILIAC admits that Plaintiffs purport to seek the relief described in Paragraph 9, but denies that Plaintiffs are entitled to any such relief; denies that the case may properly be certified as a class action; denies that any member of the putative class is entitled to any relief; and denies all remaining allegations in Paragraph 9. 2 ILIAC restates the headings within the Amended Complaint solely for the convenience of the reader and denies any factual allegations and legal conclusions that may be included or implied in the headings. DB1/ 72476341.2-2 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 3 of 53 ANSWER TO PARAGRAPH 10: ILIAC admits that Plaintiffs purport to seek the relief described in Paragraph 10, but denies that Plaintiffs are entitled to any such relief; denies that the case may properly be certified as a class action; denies that any member of the putative class is entitled to any relief; and denies all remaining allegations in Paragraph 10. II. THE PARTIES ANSWER TO PARAGRAPH 11: Upon information and belief, ILIAC admits the allegations in Paragraph 11. ANSWER TO PARAGRAPH 12: Upon information and belief, ILIAC admits the allegations in Paragraph 12. ANSWER TO PARAGRAPH 13: ILIAC admits that it maintains its principal place of business and headquarters at One Orange Way, Windsor, Connecticut 06095-4774. The remaining allegations in Paragraph 13 are legal conclusions to which no response is necessary. To the extent that a response is required, ILIAC denies the remaining allegations in Paragraph 13. III. JURISDICTION AND VENUE ANSWER TO PARAGRAPH 14: ILIAC admits that Plaintiffs purport to seek the relief described in Paragraph 14, but denies that Plaintiffs are entitled to any such relief; denies that this case may properly be certified as a class action; denies that any member of the putative class is entitled to any relief; and denies the remaining allegations in Paragraph 14. ANSWER TO PARAGRAPH 15: ILIAC states that the allegations in Paragraph 15 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC admits only that this Court has subject matter jurisdiction over Plaintiffs claims. ILIAC denies the remaining allegations in Paragraph 15. DB1/ 72476341.2-3 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 4 of 53 ANSWER TO PARAGRAPH 16: ILIAC admits that it maintains its principal place of business and headquarters in Windsor, Connecticut. The remaining allegations in Paragraph 16 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC admits that venue in this district is proper. ANSWER TO PARAGRAPH 17: ILIAC denies the allegations in Paragraph 17. IV. BACKGROUND FACTS A. The Services That ING Provides ANSWER TO PARAGRAPH 18: The allegations in Paragraph 18 purport to quote the contents of a website that can be found at http://ing.us/employers/retirement-plans. Such website speaks for itself and ILIAC denies any allegations that conflict with or contradict the contents of that website. ILIAC denies the remaining allegations in Paragraph 18. ANSWER TO PARAGRAPH 19: The allegations in Paragraph 19 purport to quote the contents of a website that can be found at http://ing.us/employers/retirement-plans. Such website speaks for itself and ILIAC denies any allegations that conflict with or contradict the contents of that website. ILIAC denies the remaining allegations in Paragraph 19. ANSWER TO PARAGRAPH 20: The allegations in Paragraph 20 purport to quote the contents of a website that can be found at http://ing.us/employers/retirement-plans. Such website speaks for itself and ILIAC denies any allegations that conflict with or contradict the contents of that website. ILIAC denies the remaining allegations in Paragraph 20. ANSWER TO PARAGRAPH 21: The allegations in Paragraph 21 purport to quote the contents of a website that can be found at http://ing.us/employers/retirement-plans. Such website speaks for itself and ILIAC denies any allegations that conflict with or contradict the contents of that website. ILIAC denies the remaining allegations in Paragraph 21. DB1/ 72476341.2-4 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 5 of 53 ANSWER TO PARAGRAPH 22: ILIAC admits that ILIAC and ING Institutional Plan Services provide retirement services to their respective retirement plan customers. ILIAC denies that ING Institutional Plan Services provided retirement services to Plaintiffs or Plaintiffs Plans. ILIAC denies the remaining allegations in Paragraph 22. ANSWER TO PARAGRAPH 23: ILIAC admits that certain participant contributions are invested through Separate Accounts (as defined by Plaintiffs) and that ILIAC includes those amounts in its description of its assets under management. ILIAC denies the remaining allegations in Paragraph 23. ANSWER TO PARAGRAPH 24: ILIAC admits that it has products that serve retirement plans across different markets and of all sizes, including the HSI and TDC Plans. The remaining allegations in Paragraph 24 are vague and ambiguous. To the extent that a further response is required, ILIAC denies the remaining allegations in Paragraph 24. ANSWER TO PARAGRAPH 25: The allegations in Paragraph 25 purport to quote the contents of a website that can be found at http://ing.us/employers/retirement-plans/401kinfocenter. Such website speaks for itself and ILIAC denies any allegations that conflict with or contradict the contents of that website. To the extent that a further response is required, ILIAC denies the remaining allegations in Paragraph 25. ANSWER TO PARAGRAPH 26: ILIAC admits that pursuant to agreements between ILIAC and its customers, ILIAC provides a variety of services to those customers, including to the HSI and TDC Plans. ILIAC denies that it performs all of these services in Windsor, Connecticut. The specific services ILIAC provides to its customers are set forth in agreements between ILIAC and its customers. These documents speak for themselves and ILIAC denies any DB1/ 72476341.2-5 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 6 of 53 allegations that contradict or conflict with such documents. ILIAC denies the remaining allegations in Paragraph 26. B. The Agreements Between The Plans and ING And The Retirement Investments Provided Under Those Agreements ANSWER TO PARAGRAPH 27: The allegations in Paragraph 27 apparently quote an unidentified document and appear to modify the contents of that document. Upon information and belief, ILIAC denies that Paragraph 27 provides a complete or accurate characterization of the document s relevant language and states that the document speaks for itself. ILIAC denies the remaining allegations in Paragraph 27. ANSWER TO PARAGRAPH 28: To the extent that Plaintiffs allegations in Paragraph 28 are based on the contents of Group Contracts, which Plaintiffs have neither identified nor attached to this Complaint, those documents speak for themselves. Because Plaintiffs have neither identified nor attached those documents to their Amended Complaint, ILIAC is without sufficient information to admit or deny the allegations in Paragraph 28. To the extent that a response is required, ILIAC denies the allegations in Paragraph 28. ANSWER TO PARAGRAPH 29: ILIAC admits that it entered into group funding agreements with Plaintiffs and pursuant to the terms of these agreements ILIAC provided Plaintiffs with a menu of possible investment options that Plaintiffs could select to offer to the participants of the HSI and TDC plans. This document speaks for itself. ILIAC denies the remaining allegations in Paragraph 29. ANSWER TO PARAGRAPH 30: On January 19, 2012, the Court dismissed Plaintiffs claims related to the Fixed Account and GAA and therefore no response to these allegations is required. (Dkt. 40). The remaining allegations in Paragraph 30 contain legal DB1/ 72476341.2-6 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 7 of 53 conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 30. ANSWER TO PARAGRAPH 31: ILIAC admits that participants who choose to invest through the Separate Accounts neither purchase nor own the shares of the accounts underlying mutual funds. ILIAC further admits that participants in Plaintiffs plans had the ability to invest in ILIAC s Fixed Account. ILIAC denies the remaining allegations in Paragraph 31. ANSWER TO PARAGRAPH 32: ILIAC admits the allegations in Paragraph 32. ANSWER TO PARAGRAPH 33: ILIAC admits that some of its products offer variable fund investment options through Separate Accounts to qualified retirement plans. ILIAC denies the remaining allegations in Paragraph 33. ANSWER TO PARAGRAPH 34: ILIAC admits that, when participant contributions are allocated to a variable fund, shares of that fund are purchased by ILIAC and held in sub-accounts within the Separate Accounts. ILIAC denies the remaining allegations in Paragraph 34. ANSWER TO PARAGRAPH 35: ILIAC denies the allegations in Paragraph 35. ANSWER TO PARAGRAPH 36: ILIAC admits that, when participants allocate contributions to a variable fund, their accounts hold accumulation units in the corresponding separate account. ILIAC denies the remaining allegations in Paragraph 36. ANSWER TO PARAGRAPH 37: ILIAC admits that it owns the separate accounts and the fund shares held by the separate accounts. ILIAC denies the remaining allegations in Paragraph 37. ANSWER TO PARAGRAPH 38: ILIAC denies the allegations in Paragraph 38. DB1/ 72476341.2-7 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 8 of 53 ANSWER TO PARAGRAPH 39: ILIAC denies the allegations in Paragraph 39. ANSWER TO PARAGRAPH 40: ILIAC denies the allegations in Paragraph 40. ANSWER TO PARAGRAPH 41: ILIAC denies the allegations in Paragraph 41. ANSWER TO PARAGRAPH 42: ILIAC denies the allegations in Paragraph 42. ANSWER TO PARAGRAPH 43: ILIAC denies the allegations in Paragraph 43. ANSWER TO PARAGRAPH 44: ILIAC denies the allegations in Paragraph 44. ANSWER TO PARAGRAPH 45: ILIAC denies the allegations in Paragraph 45. ANSWER TO PARAGRAPH 46: ILIAC admits that it owns the separate accounts. ILIAC denies the remaining allegations in Paragraph 46. ANSWER TO PARAGRAPH 47: ILIAC denies the allegations in Paragraph 47. ANSWER TO PARAGRAPH 48: To the extent that Plaintiffs allegations in Paragraph 48 are based on the content of a particular Group Contract, which Plaintiffs have neither identified nor attached to the Amended Complaint, that document speaks for itself. Because Plaintiffs have neither identified nor attached this document to the Amended Complaint, ILIAC is without sufficient information to admit or deny the allegations in Paragraph 48. To the extent that a response is required, ILIAC denies the allegations in Paragraph 48. ANSWER TO PARAGRAPH 49: ILIAC s ability to control the menu of available investments offered to its customers is governed by the terms of its contracts with those customers. Those documents speak for themselves. To the extent that a further response is required, ILIAC denies the remaining allegations in Paragraph 49. ANSWER TO PARAGRAPH 50: ILIAC denies the allegations in Paragraph 50. ANSWER TO PARAGRAPH 51: ILIAC denies the allegations in Paragraph 51. DB1/ 72476341.2-8 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 9 of 53 ANSWER TO PARAGRAPH 52: On January 19, 2012, the Court dismissed Plaintiffs claims related to the Fixed Account and GAA and therefore no response to these allegations is required. (Dkt. 40). To the extent that Plaintiffs remaining allegations in Paragraph 53 are based on the content of a particular Group Contract, which Plaintiffs have neither identified nor attached to the Amended Complaint, that document speaks for itself. Because Plaintiffs have neither identified nor attached this document to the Amended Complaint, ILIAC is without sufficient information to admit or deny the allegations in Paragraph 52. To the extent that a response is required, ILIAC denies the allegations in Paragraph 52. ANSWER TO PARAGRAPH 53: To the extent that Plaintiffs allegations in Paragraph 53 are based on the content of a particular Group Contract, which Plaintiffs have neither identified nor attached to the Amended Complaint, that document speaks for itself. Because Plaintiffs have neither identified nor attached this document to the Amended Complaint, ILIAC is without sufficient information to admit or deny the allegations in Paragraph 53. To the extent that a response is required, ILIAC denies the allegations in Paragraph 53. ANSWER TO PARAGRAPH 54: To the extent that Plaintiffs allegations in Paragraph 54 are based on the content of a particular Group Contract, which Plaintiffs have neither identified nor attached to the Amended Complaint, that document speaks for itself. Because Plaintiffs have neither identified nor attached this document to the Amended Complaint, ILIAC is without sufficient information to admit or deny the allegations in Paragraph 54. To the extent that a response is required, ILIAC denies the allegations in Paragraph 54. DB1/ 72476341.2-9 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 10 of 53 C. The Plans ANSWER TO PARAGRAPH 55: On information and belief, ILIAC admits the allegations in Paragraph 55. ANSWER TO PARAGRAPH 56: To the extent that Plaintiffs allegations in Paragraph 56 are based on the contents of particular Group Contracts and other documents, which Plaintiffs have neither identified nor attached to the Amended Complaint, those documents speak for themselves. Because Plaintiffs have neither identified nor attached those documents to the Amended Complaint, ILIAC is without sufficient information to admit or deny the allegations in Paragraph 56. To the extent that a response is required, ILIAC denies the allegations in Paragraph 56. ANSWER TO PARAGRAPH 57: ILIAC states that the services it provides to its customers are governed by its agreements with those customers, which are documents that speak for themselves. ILIAC denies the remaining allegations in Paragraph 57. D. The Relationship Between and Among Class Members, ING and The Mutual Funds ANSWER TO PARAGRAPH 58: ILIAC admits that it provides certain retirement services to its qualified ERISA retirement plan customers. ILIAC further states that the services it provides to its customers are governed by its agreements with those customers, which are documents that speak for themselves. Plaintiffs have failed to define ING agents and these terms are vague and ambiguous, and therefore ILIAC denies any allegations with respect to that term. ILIAC denies the remaining allegations in Paragraph 58. ANSWER TO PARAGRAPH 59: ILIAC admits the allegations in Paragraph 59. DB1/ 72476341.2-10 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 11 of 53 ANSWER TO PARAGRAPH 60: ILIAC admits that it provides services to its clients pursuant to the terms of its agreements with those clients. ILIAC denies the remaining allegations in Paragraph 60. ANSWER TO PARAGRAPH 61: Paragraph 61 contains legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 61. ANSWER TO PARAGRAPH 62: ILIAC denies the allegations in Paragraph 62. ANSWER TO PARAGRAPH 63: ILIAC admits that certain of its products are offered through group annuity contracts or similar agreements and that some of the investments offered in those products have been managed by entities affiliated with ILIAC. ILIAC denies the remaining allegations in Paragraph 63. ANSWER TO PARAGRAPH 64: ILIAC admits that for certain products it creates and maintains menus of investment options from which its clients may choose investment options to offer to plan participants and that ILIAC monitors the options on those menus. ILIAC further states that its ability to change the composition of those menus is governed by its agreements with its customers, which are documents that speak for themselves. ILIAC denies the remaining allegations in Paragraph 64. ANSWER TO PARAGRAPH 65: To the extent that Plaintiffs allegations in Paragraph 65 are based on the content of particular Group Contracts, which Plaintiffs have neither identified nor attached to the Amended Complaint, those documents speaks for themselves. Because Plaintiffs have neither identified nor attached those documents to the Amended Complaint, ILIAC is without sufficient information to admit or deny the DB1/ 72476341.2-11 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 12 of 53 allegations in Paragraph 65. To the extent that a response is required, ILIAC denies the allegations in Paragraph 65. ANSWER TO PARAGRAPH 66: To the extent that Plaintiffs allegations in Paragraph 66 are based on the content of particular Group Contracts, which Plaintiffs have neither identified nor attached to the Amended Complaint, those documents speaks for themselves. Because Plaintiffs have neither identified nor attached those documents to the Amended Complaint, ILIAC is without sufficient information to admit or deny the allegations in Paragraph 66. To the extent that a response is required, ILIAC denies the allegations in Paragraph 66. ANSWER TO PARAGRAPH 67: ILIAC s authority to change the composition of the investment menus is governed by its agreements with its customers, which are documents that speak for themselves. To the extent that a response is required, ILIAC denies the allegations in Paragraph 67. ANSWER TO PARAGRAPH 68: ILIAC s fee arrangements with its customers are governed by its agreements with those customers, which are documents that speak for themselves. To the extent that a response is required, ILIAC denies the allegations in Paragraph 68. ANSWER TO PARAGRAPH 69: ILIAC admits that it offers products with a wide array of investment options from which Plan sponsors can choose. ILIAC denies the remaining allegations in Paragraph 69. ANSWER TO PARAGRAPH 70: ILIAC admits that mutual funds establish the expense ratios associated with their investment offerings. ILIAC denies the remaining allegations in Paragraph 70. DB1/ 72476341.2-12 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 13 of 53 ANSWER TO PARAGRAPH 71: To the extent that Plaintiffs allegations in Paragraph 71 are based on the content of particular agreements between ILIAC and the mutual funds, which Plaintiffs have neither identified nor attached to the Amended Complaint, those documents speak for themselves. Because Plaintiffs have neither identified nor attached those documents to the Amended Complaint, ILIAC is without sufficient information to admit or deny the allegations in Paragraph 71. To the extent that a response is required, ILIAC denies the allegations in Paragraph 71. ANSWER TO PARAGRAPH 72: ILIAC denies the allegations in Paragraph 72. ANSWER TO PARAGRAPH 73: ILIAC denies the allegations in Paragraph 73. ANSWER TO PARAGRAPH 74: ILIAC denies the allegations in Paragraph 74. ANSWER TO PARAGRAPH 75: ILIAC denies the allegations in Paragraph 75. ANSWER TO PARAGRAPH 76: ILIAC denies the allegations in Paragraph 76. E. The Revenue Sharing Scheme ANSWER TO PARAGRAPH 77: ILIAC admits that it offers various products to employee pension benefit plans. ILIAC denies the remaining allegations in Paragraph 77. ANSWER TO PARAGRAPH 78: ILIAC denies the allegations in Paragraph 78 ANSWER TO PARAGRAPH 79: ILIAC denies the allegations in Paragraph 79. ANSWER TO PARAGRAPH 80: ILIAC admits that agreements with mutual fund providers are memorialized in written agreements the terms of which speak for themselves. ILIAC denies the remaining allegations in Paragraph 80. ANSWER TO PARAGRAPH 81: ILIAC admits that it may receive compensation in the form of 12b-1 fees, service fees or sub-transfer fees pursuant to its agreements with some mutual fund providers. ILIAC denies the remaining allegations in Paragraph 81. DB1/ 72476341.2-13 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 14 of 53 ANSWER TO PARAGRAPH 82: ILIAC denies the allegations in Paragraph 82. ANSWER TO PARAGRAPH 83: ILIAC denies the allegations in Paragraph 83. ANSWER TO PARAGRAPH 84: ILIAC denies the allegations in Paragraph 84. ANSWER TO PARAGRAPH 85: The allegations in Paragraph 85 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 85. V. CLASS ACTION ALLEGATIONS ANSWER TO PARAGRAPH 86: ILIAC admits that Plaintiffs purport to bring a class action on behalf of the class described in Paragraph 86, but denies that Plaintiffs and the proposed class satisfy the requirements for class certification. ILIAC denies the remaining allegations in Paragraph 86. ANSWER TO PARAGRAPH 87: The allegations in Paragraph 87 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 87. ANSWER TO PARAGRAPH 88: The allegations in Paragraph 88 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 88. ANSWER TO PARAGRAPH 89: The allegations in Paragraph 89 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 89. ANSWER TO PARAGRAPH 90: The allegations in Paragraph 90 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 90. DB1/ 72476341.2-14 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 15 of 53 ANSWER TO PARAGRAPH 91: The allegations in Paragraph 91 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 91. ANSWER TO PARAGRAPH 92: The allegations in Paragraph 92 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 92. ANSWER TO PARAGRAPH 93: The allegations in Paragraph 93 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 93. ANSWER TO PARAGRAPH 94: The allegations in Paragraph 94 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 94. ANSWER TO PARAGRAPH 95: The allegations in Paragraph 95 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 95. COUNT 1 (For Breach of Fiduciary Duty) ANSWER TO PARAGRAPH 96: ILIAC incorporates by reference its answers to Paragraphs 1 through 95. ANSWER TO PARAGRAPH 97: The allegations contained in Paragraph 97 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 97. ANSWER TO PARAGRAPH 98: ILIAC denies the allegations in Paragraph 98. DB1/ 72476341.2-15 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 16 of 53 ANSWER TO PARAGRAPH 99: The allegations in Paragraph 99 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 99. ANSWER TO PARAGRAPH 100: The allegations in Paragraph 100 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 100. ANSWER TO PARAGRAPH 101: The allegations in Paragraph 101 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 101. ANSWER TO PARAGRAPH 102: The allegations in Paragraph 102 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 102. ANSWER TO PARAGRAPH 103: The allegations in Paragraph 103 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 103. ANSWER TO PARAGRAPH 104: ILIAC denies the allegations in Paragraph 104. ANSWER TO PARAGRAPH 105: The allegations in Paragraph 105 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 105. COUNT II (For Breach Of Fiduciary And Violation Of ERISA s Prohibited Transaction Rules) ANSWER TO PARAGRAPH 106: ILIAC incorporates by reference its answers to Paragraphs 1 through 105. DB1/ 72476341.2-16 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 17 of 53 ANSWER TO PARAGRAPH 107: The allegations in Paragraph 107 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 107. ANSWER TO PARAGRAPH 108: The allegations in Paragraph 108 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 108. ANSWER TO PARAGRAPH 109: The allegations in Paragraph 109 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 109. ANSWER TO PARAGRAPH 110: The allegations in Paragraph 110 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies that Plaintiffs and the purported class are entitled to any relief whatsoever. ANSWER TO PARAGRAPH 111: ILIAC admits that the putative class seeks the relief described in Paragraph 111, but denies that Plaintiffs and the purported class are entitled to the relief requested. ILIAC denies the remaining allegations in Paragraph 111. COUNT III (For Co-Fiduciary Breach And Liability For Knowing Breach Of Trust) ANSWER TO PARAGRAPH 112: ILIAC incorporates by reference its answers to Paragraphs 1 through 111. ANSWER TO PARAGRAPH 113: The allegations in Paragraph 113 are legal conclusions to which no response is necessary. To the extent a response is required, ILIAC denies the allegations in Paragraph 113. RELIEF SOUGHT DB1/ 72476341.2-17 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 18 of 53 With respect to Plaintiffs prayer for relief (beginning with the WHEREFORE clause on page 30), ILIAC denies that Plaintiffs or any other member of the putative class are entitled to any relief from ILIAC. REQUEST FOR JURY TRIAL ILIAC denies that Plaintiffs are entitled to a jury trial on any of its claims. GENERAL DENIAL ILIAC denies each and every allegation in the Amended Complaint not specifically admitted herein. ILIAC denies that it is liable to Plaintiffs or any member of the putative class for any of the relief sought in the Amended Complaint. AFFIRMATIVE AND OTHER DEFENSES 3 First Affirmative Defense The Amended Complaint fails to state a claim against ILIAC upon which relief can be granted. Second Affirmative Defense Plaintiffs failed to mitigate their damages, if any, by among other things continuing to engage ILIAC as their service provider for years after Plaintiffs knew or should have known of ILIAC s receipt of what Plaintiffs characterize as revenue sharing payments. Any recovery by Plaintiffs must be reduced by the amount of damages that Plaintiffs failed to mitigate. Third Affirmative Defense Plaintiffs causes of action are barred by the applicable statute of limitation or statute of repose. Fourth Affirmative Defense 3 By listing a defense as an affirmative or other defense, ILIAC does not concede or admit that it bears the burden of proof with regard to such defense. DB1/ 72476341.2-18 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 19 of 53 Plaintiffs claims are barred by the doctrines of unclean hands, waiver, estoppel, laches, consent, ratification, or release. Fifth Affirmative Defense Plaintiffs consented to the payments at issue after they knew or should have known of their existence; therefore, Plaintiffs cannot obtain any relief on account of those payment. Sixth Affirmative Defense Plaintiffs lack standing to sue on behalf of other putative class members. Seventh Affirmative Defense Count III is barred in whole or in part because it is preempted by ERISA or SLUSA (the Securities Litigation Uniform Standards Act of 1998). Eighth Affirmative Defense Count II is barred in whole or in part by ERISA 408(b)(2), 29 U.S.C. 1108(b)(2) and ERISA 408(c)(2), 29 U.S.C. 1108(c)(2). Ninth Affirmative Defense The claims asserted in the Amended Complaint are barred in whole or in part or are subject to offset to the extent that the conduct complained of conferred a benefit upon Plaintiffs or (to the extent a class is certified) any member of the class. Tenth Affirmative Defense Some or all of Plaintiffs claims are barred under ERISA 404(c), 29 U.S.C. 1104(A)(1), which establishes a safe harbor where a plan permits the participant to exercise control over assets. See Hecker v. Deere & Co., 556 F.3d 575, 578 (7th Cir. 2009). Plaintiffs claims that ILIAC breached its alleged fiduciary duties are barred by the safe harbor defense of Section 404(c). First, individual participants have control over the investments DB1/ 72476341.2-19 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 20 of 53 in their individual accounts. (Am. Compl. 36.) Second, participants (and plans) enjoy a broad range of investment alternatives. Third, ILIAC and mutual fund providers provide sufficient information about available investments. Eleventh Affirmative Defense To the extent that the harm allegedly suffered by Plaintiffs was caused by Plaintiffs or any third party, recovery should be barred in whole or in part. Twelfth Affirmative Defense To the extent that Plaintiffs or any third party benefited from the conduct alleged in the Amended Complaint, Plaintiffs recovery should be offset or reduced by such benefit. DEFENDANT S COUNTERCLAIMS AGAINST PLAINTIFF HSI ING Life Insurance and Annuity Company ( ILIAC or Defendant ) hereby counterclaims against Plaintiff Health Strategies, Inc. ( HSI ), Plan Administrator of the Healthcare Strategies, Inc. 401(k) Plan and the Healthcare Strategies, Inc. CBU 401(k) Plan (the Plans ). 1. HSI alleges that ILIAC acted as an ERISA fiduciary to the Plans, breached its alleged fiduciary duties and engaged in transactions prohibited by ERISA by using its purported possession, control, or influence over the Plans assets to generate revenue sharing payments from mutual funds in exchange for offering those funds as investment options to the Plans. 2. HSI also alleges that even if the Court finds that ILIAC did not act as an ERISA fiduciary, it is nonetheless liable to the Plans for knowingly participating in a breach of trust with respect to the Plans. 3. Defendant denies that it acted as a fiduciary in any way material to HSI s claims and denies that it breached any fiduciary duties or committed any prohibited transactions. ILIAC DB1/ 72476341.2-20 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 21 of 53 asserts these counterclaims without prejudice to the positions it takes in its Answer to Plaintiff s Amended Class Action Complaint, and only if the Court finds that ILIAC is liable to the Plans. Jurisdiction and Venue 4. This Court has subject matter jurisdiction over these Counterclaims pursuant to 28 U.S.C. 1331 and ERISA 502(e)(1) & (f), 29 U.S.C. 1132 (e)(1) & (f), and Rule 13(a) of the Federal Rules of Civil Procedure. 5. HSI has consented to personal jurisdiction by commencing this action in this Court. 6. Venue is proper under 28 U.S.C. 1391 because HSI is subject to personal jurisdiction at the time that this action was commenced and under 502(e)(2) of ERISA, 29 U.S.C. 1132(e)(2), because HSI can be found in this District. Facts 7. The Plans are 401(k) retirement plans governed by ERISA. 8. HSI is the administrator of the Plans. Regina Reardon ( Reardon ) is the named fiduciary of the Plans. 9. Reardon retained Steve Eyer, an independent advisor to HSI employed by Valley Forge Enterprises ( Valley Forge ), to advise her with respect to HSI s selection of a service provider. Reardon selected ILIAC as the service provider to the Plans, and purchased ILIAC s MAP V product on Mr. Eyer s recommendation. In doing so, she acted in a fiduciary capacity with regard to the Plans. Mr. Eyer recommended ILIAC as the best choice among available providers based on the services provided and the cost of such services. 10. HSI and the Plans contracted with ILIAC through a group funding agreement (the Agreement ) executed in 1997. Pursuant to the Agreement, ILIAC provided the Plans with DB1/ 72476341.2-21 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 22 of 53 certain services. Such services included making available a large menu of variable investment options (primarily mutual funds) from which Reardon selected specific funds to offer to the Plans participants. ILIAC also provided recordkeeping services such as fund trades, tracked account information and investment selections, calculated daily returns, and provided daily account and other information to participants through account statements, over the phone, or online. 11. ILIAC establishes its fund menus before it contracts with a plan and designs and sells its products to plan sponsors in arm s-length transactions in a competitive marketplace. 12. ILIAC sets a pricing target for each plan market segment to cover its costs and earn a reasonable return. ILIAC tries to meet this target through revenue from three primary sources: (1) compensation from plan sponsors and participants, generally in the form of DACs; (2) revenue sharing; and (3) margin on ILIAC s guaranteed return products. The more ILIAC is able to earn from revenue sharing, the less it asses the Plans in DACs. 13. ILIAC provided HSI with a menu of investment options from which to choose for inclusion in the Plans, and it was Reardon who selected the funds from that menu that would be available for investment by the Plans participants. Reardon possessed sole authority and control over the selection of investment options for the Plans, and she did so with the assistance of Mr. Eyer. In 1997, Reardon selected ten investment options for the Plans from a list of twenty-eight funds. The Plans participants then selected the investment options in which to direct their account investments. ILIAC did not mandate that HSI offer any particular mutual fund or that any of the Plans participants invest in any particular mutual fund. HSI, through the Plans fiduciary Reardon, had the ultimate authority and responsibility to decide the investment options that were appropriate for and offered to the Plans participants. DB1/ 72476341.2-22 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 23 of 53 14. ILIAC did not provide any investment advice to HSI regarding such decisions. ILIAC never unilaterally substituted or deleted any mutual fund from the Plans investment options. 15. Reardon periodically changed the investment options offered to the Plans participants. In 2009, Reardon added thirteen investment options for the Plans, deleted eight options, and directed ILIAC to transfer assets from the deleted funds to the newly selected funds. 16. Some of the mutual funds selected by Reardon for the Plans participants made revenue sharing payments to ILIAC in exchange for services ILIAC provided to the mutual funds. These revenue sharing payments were in recognition of the numerous services ILIAC provides that the funds would otherwise have to perform. Mutual fund managers recognize that they will receive substantial savings by virtue of the services ILIAC provides. 17. ILIAC also receives compensation for the services it performs for 401(k) plans, and for the Plans, via revenue sharing, the margin on ILIAC s fixed account products, and/or a daily asset charge as modified by fund fee adjustments. Revenue sharing payments reduce or offset in whole or part other charges that the Plans or the Plans participants would otherwise pay. Revenue sharing payments reduce or offset, among other things, the amount of the Plans daily asset charges as modified by fund fee adjustments. 18. Not all of the mutual funds ILIAC offered to its clients during the class period made revenue sharing payments to ILIAC. For example, ILIAC contracted with and offered mutual funds that did not pay revenue sharing, such as Vanguard. ILIAC disclosed to HSI the expense ratios of the mutual funds offered as investment options for the Plans. 19. ILIAC disclosed its receipt of revenue sharing to HSI in the Agreement, and Reardon, the Plans fiduciary, testified that she has been aware of ILIAC s receipt of revenue DB1/ 72476341.2-23 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 24 of 53 sharing from the mutual funds since 1997, when she executed the Agreement on behalf of HSI. Reardon signed a contract application that included a MAP V Daily Asset Charge and Pricing Disclosure Statement. In a section titled Fees Paid to Aetna, this document stated: Aetna also receives payments from mutual fund investment managers. These payments are made by the mutual fund managers from their revenue or profits they receive from the fees they assess on their funds. They are not extra fees assessed by Aetna. These fees include: Administration and Other Fees: Aetna receives, or may receive, up to.25% of assets from one or more of the applicable funds. These fees, where received, cover the following types of administrative services only and do not constitute payment for investment advisory services or costs of distribution: Accounting; record keeping; prospectus printing and/or delivery/mailing; proxy printing and/or mailing and tabulation; periodic fund reports printing and/or mailing; etc. For information on which funds pay Aetna such fees and at what level, please call [provides 1-800 number]. Written confirmation will be provided upon request. HSI, through Reardon, acknowledged that it received and understood this disclosure. Reardon admitted that she took into account ILIAC s fees when first considering whether to choose it as the Plans service provider. 20. Reardon relied on Mr. Eyer of Valley Forge to explain ILIAC s services and fees to her, and she relied on Mr. Eyer s expertise to advise her about the quality of ILIAC s services and the reasonableness of ILIAC s fees and compensation. Mr. Eyer informed Reardon about ILIAC s receipt of revenue sharing. Mr. Eyer explained to Reardon that you re going to pay a fee for services rendered [by ILIAC] plus it gets subsidized as part of that asset charge against the individual mutual funds. [ILIAC] gets paid out of that. Reardon admitted in her deposition that she understood that ILIAC would receive fees from the mutual funds she selected as investment options for the Plans, stating Steve Eyer told me that that s how [ILIAC] would be paid, out of the asset-based charge which is reflected on the one-page mutual fund summaries that he presented to us for our participants, me included, to evaluate in determining where we would put our money for investment. DB1/ 72476341.2-24 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 25 of 53 21. Mr. Eyer confirmed that he informed Reardon of the fact that ILIAC received revenue sharing. He understood that ILIAC received revenue sharing and that it offset plan expenses, and his standard practice for the last fifteen years has been to explain to his clients that mutual funds pay revenue sharing to service providers like ILIAC and that these payments help defray the costs of plan services. Mr. Eyer acknowledged that, as the Plans third-party administrator, he was responsible, along with HSI, for monitoring the fees and expenses incurred by the Plans, including the fees charged by ILIAC. 22. Reardon knew or should have known that ILIAC received revenue sharing payments from certain mutual funds during the entire period of HSI s relationship with ILIAC, and Reardon selected mutual funds that paid revenue sharing and offered them to the Plans participants, who elected to invest in the mutual funds Reardon selected. 23. ILIAC disclosed its receipt of revenue sharing to Reardon and HSI in several documents and communications. For example, ILIAC disclosed the following in the fourthquarter 2007 account statements: This retirement product is not free. ING and the funds offered in the product charge various fees and expenses. Many fund companies pay ING in connection with their being offered by ING as investment options in its retirement products. These payments compensate ING for the recordkeeping and related services ING provides and, in some cases, for distribution-related expenses ING may incur. We select funds to offer through ING products based on several factors, including the revenue paid to ING and our assessment of the funds quality and cost. Both ING and the mutual fund companies seek to make a profit from the product. Reardon testified that the fourth quarter 2007 account statement disclosure was consistent with her understanding of the way ILIAC was compensated, including the receipt of revenue sharing payments from mutual funds. ILIAC also disclosed receipt of revenue sharing in fund fact sheets. DB1/ 72476341.2-25 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 26 of 53 24. Throughout the class period, HSI willingly accepted the benefits of ILIAC s services under the Agreement, including the use of revenue sharing payments to offset costs that participants in the Plans would have otherwise paid, despite Reardon s actual or constructive knowledge of ILIAC s receipt of the allegedly illegal revenue sharing payments from the mutual funds in whom the Plans participants were invested. The relationship between HSI and ILIAC continued for almost fourteen years. During that time, ILIAC was entitled to receive compensation for the services it provided to the mutual funds, HSI on behalf of the Plans, the Plans, and the Plans participants. 25. Throughout the class period, Reardon was a fiduciary with the authority to select, substitute and delete mutual funds actually included as investment options for the Plans participants. Reardon also had the authority to select the Plans service provider and could terminate HSI s contract with ILIAC and change providers at any time. In 2011, Reardon terminated the Agreement with ILIAC and moved the Plans to one of ILIAC s competitors. The Plans current service provider receives revenue sharing from the mutual funds selected by Reardon as current investments for the Plans. Under Reardon s theory that revenue sharing payments are per se illegal, which ILIAC denies, Reardon is currently in breach of the fiduciary duties she owes to the Plans and was in breach of those duties throughout the class period. If Reardon has knowingly committed fiduciary breaches and knowingly engaged in prohibited transactions since 1997, and continues to do so, she is not qualified to act as a fiduciary in any capacity for any ERISA-governed plan. 26. It was and is Reardon s responsibility to assess and monitor the fees charged to the Plans. Reardon knew or should have known at the outset of HSI s relationship with ILIAC that ILIAC received and would continue to receive revenue sharing payments. During HSI s DB1/ 72476341.2-26 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 27 of 53 relationship with ILIAC, HSI through Reardon could have taken action to avoid the harm HSI alleges the Plans incurred as a result of ILIAC s receipt of revenue sharing. Instead, HSI took no action and instead facilitated and knowingly participated in ILIAC s receipt of revenue sharing, although it knew (or should have known) for that entire time that ILIAC received revenue sharing payments. 27. As alleged above, HSI knowingly participated in ILIAC s receipt of revenue sharing by retaining ILIAC as the Plans service provider and knowingly selecting for the Plans mutual funds that paid revenue sharing to ILIAC. ILIAC has denied and continues to deny that its receipt of revenue sharing violates ERISA or any other state or federal law. HSI, on the other hand, alleges that for at least the past fourteen years ILIAC has violated ERISA and harmed the Plans by accepting revenue sharing payments from mutual funds, which allegedly resulted in increased costs to the Plans and the Plans participants. HSI failed to take any action or make efforts to deter ILIAC s receipt of revenue sharing payments or prevent the harm the Plans allegedly suffered from ILIAC s receipt of revenue sharing, despite the fact that HSI alleges that ILIAC s receipt of revenue sharing has been illegal since the inception of the relationship between ILIAC and HSI. By causing the Plans to continue to pay allegedly illegal revenue sharing to ILIAC, HSI directly and proximately caused any and all losses incurred by the Plans should any such losses be found. 28. In Count I of its Complaint, HSI seeks to recover losses and damages beyond the amount of the revenue sharing payments ILIAC received. (See Dkt. 102 at 35-36 (explaining that the Court s ruling permitting a jury trial on Count I is based on its understanding that the claim therein sought damages beyond the amount of the revenue sharing payments... ).) HSI has yet to identify what those losses and/or damages might be or how they would be calculated. DB1/ 72476341.2-27 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 28 of 53 Should HSI s recovery exceed any benefit ILIAC received from the revenue sharing payments, ILIAC is entitled to contribution and/or indemnity from HSI with regard to the amount that exceeds ILIAC s benefit from the revenue sharing payments. 29. HSI also seeks disgorgement of all revenue sharing payments received by ILIAC, even though the revenue sharing payments ILIAC received were used to offset costs that would have otherwise been paid by the Plans and their participants. ILIAC contends that disgorgement of all revenue sharing payments is not an available remedy under ERISA in the circumstances presented here. Moreover, because the revenue sharing payments were used for the benefit of the Plans and their participants, not the benefit of ILIAC, disgorgement of all revenue sharing payments would exceed the benefit ILIAC received from the revenue sharing payments. Should the Court order disgorgement of all revenue sharing payments, ILIAC is entitled to contribution and/or indemnity from HSI in the amount of revenue sharing payments that were used for the benefit of the Plans. First Counterclaim Contribution Under ERISA 30. ILIAC re-alleges and incorporates by reference the allegations of paragraphs 1 through 29. 31. HSI, as a fiduciary of the Plans, has a duty: a. to conduct itself with the care, skill, prudence, and diligence under the circumstances that a prudent ERISA fiduciary would in operating and administering the Plans; b. to track and account for all transactions involving the Plans and its assets to ensure that the assets are retained, managed, and disbursed in compliance with the Plans documents and ERISA; DB1/ 72476341.2-28 -
Case 3:11-cv-00282-WGY Document 168 Filed 01/10/13 Page 29 of 53 c. to ensure that the fees and expenses incurred by the Plans are reasonable and incurred for the benefit of participants and beneficiaries of the Plans; d. in operating and administering the Plans, to establish, implement, and follow procedures to properly and prudently determine whether the fees and expenses paid by the Plans were reasonable and incurred for the benefit of participants of the Plans; e. in operating and administering the Plans, on an ongoing basis, to monitor the payments made by the Plans to ILIAC, and by the mutual fund families to ILIAC, to ensure that they are and remain reasonable and are for the benefit of the participants and beneficiaries of the Plans; f. to inform itself of, and understand, the various methods by which vendors in the 401(k) industry collect payments and other revenues relating to 401(k) plans; g. to investigate alternatives in the marketplace; h. to provide accurate and complete information to participants and beneficiaries in the Plans regarding the costs associated with their various investment choices and directions; and i. to appoint fiduciaries who are capable of fulfilling their fiduciary duties, to monitor and oversee those fiduciaries in the performance of their duties, and to remove any fiduciaries who breached their fiduciary duties. 32. HSI was a co-fiduciary under ERISA and was required under ERISA 405, 29 U.S.C. 1105, to refrain from: a. knowingly participating in or concealing any fiduciary breach; DB1/ 72476341.2-29 -