N.Y. Life Mismanaged 401(k), Fired Worker Says

A former money manager for New York Life Insurance Co. on Wednesday sued the company on behalf of participants in the company’s pension and 401(k) plans, alleging that the insurer broke federal laws when it diverted millions of dollars from the plans to jump-start a group of company-owned mutual funds.

The case is likely to add steam to the burgeoning debate between large corporations and their employees over how retirement money should be managed.

Federal rules permit financial services companies such as New York Life to invest workers’ retirement assets in their own mutual funds, legal experts say. But workers’ advocates said the New York Life case raises questions about potential conflicts of interest when companies profit from the management of their workers’ money.

The suit, filed in U.S. District Court in Philadelphia, alleges that many of New York Life’s MainStay Institutional funds, started over the last decade, depend on the captive retirement account assets for their business. That has cost plan participants because the fund fees they’ve paid have been higher than what they could have paid other money managers or mutual funds, the suit says.

The insurer allegedly shifted $385 million in pension plan assets into the new MainStay funds in 1991 and an additional $125 million in 401(k) assets in 1994 and 1995.

Fees on the funds helped compensate New York Life executives, who put their needs ahead of the workers participating in the plans and breached their duty under the Employee Retirement Income Security Act, or ERISA, the suit contends. By using the pension and 401(k) assets to the company’s benefit, the suit alleges, New York Life executives also violated the Racketeer Influenced and Corrupt Organizations Act, or RICO.

New York Life, which has nearly 1,900 agents and employees in California, denied the allegations. “This is nothing more than a transparent attempt to extract money from a deep-pocket defendant,” spokesman William Werfelman said .

The plaintiff, James Mehling, who headed a New York Life investment management unit, seeks unspecified damages. The suit also seeks class-action status for current and former New York Life workers with money in the plans.

George Trapp, a New York Life executive vice president, said there are about 16,000 employees currently in the plans.

Trapp said the company followed federal laws in making its investment decisions. The company’s pension plans have more than enough surplus money to pay retirement benefits, he said. The surplus grew from $25 million in 1990 to $900 million today, executives said, because New York Life switched to the institutional mutual fund structure.

Sprenger & Lang, one of the firms representing Mehling, filed a similar suit against SBC Communications Inc. in April on behalf of employees of its Pacific Bell subsidiary.

Mehling, of Pennsylvania, was fired in March 1999 and sued the company in October over his own retirement benefits. Mehling said in an interview that he was fired over an e-mail memo he sent to top managers questioning some New York Life investment practices. His lawyers amended the suit in Wednesday’s filing, bringing the new allegations relating to the retirement plan investments.

Trapp said Mehling was fired for “performance reasons” and would not elaborate, citing worker privacy rules.

Mehling, who has since joined a New Jersey commodities trading firm, said he received a personal note of congratulations on his job performance just days before his termination.

“It was obvious to me that there was something much deeper than one simple memo” behind the firing, Mehling said.