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On November 6, 2025, participants in the Mitchell International, Inc. 401(k) Savings Plan (Plan) filed suit in the United States District Court for the Southern District of California, claiming that sponsor-fiduciaries had violated ERISA’s fiduciary prudence rule “by selecting and/or maintaining a certain guaranteed investment fund with lower crediting rates when compared to available similar or identical investments with higher crediting rates.”
In this article we provide a brief note on the complaint.
Background
During the relevant period the plan had at least $100 million in assets under management (by the end of 2024 it had $658 million). This – plaintiffs assert – qualifies the plan as a “jumbo plan,” with “substantial bargaining power regarding the fees and expenses that were charged against participants’ investments.”
The plan included as a fund menu investment option a “Guaranteed Income Fund” (GIF) offered (initially) by the Prudential Retirement Insurance and Annuity Company. In 2023, that company “became Empower Annuity Insurance Company.” According to the complaint, the GIF was a “general account” guaranteed investment contract (GIC).
During the period 2021-2024, the plan had at least $90 million invested in the GIF.
Plaintiffs’ allegations
Plaintiffs allege two issues with respect to the GIF. First, they appear to assert that use of a general account guaranteed insurance contract for a plan this size is per se imprudent: “As a general account product, the Prudential GIF … has the following characteristics: single-entity credit risk, plan-level illiquidity, lack of Plan participant ownership and investment control over assets, and lack of transparency as to fees.”
Second, the Prudential/Empower GIF’s crediting rates “were/are well below what Defendants could have obtained for the Plan participants on the open market.”
In support of these claims, plaintiffs allege that:
Prudential/Empower pose a severe risk of becoming insolvent. In support of this claim plaintiffs point to Prudential/Empower’s (allegedly) excessively low surplus to liability ratio, offshore (Bermuda) reinsurance arrangements, and “higher risk, less-liquid investment concentrations” (including commercial mortgage loans and mortgage-backed securities).
We note that these “severe risk of insolvency” issues are similar to those raised in pension risk transfer litigation.
There are GICs in comparable plans providing significantly higher crediting rates. In support of this claim plaintiffs describe thirteen other (allegedly) comparable plans that have (allegedly) comparable GICs providing significantly higher crediting rates.
This sort of “other plans got a better deal” claim (typically the central allegation in 401(k) fee litigation) is very much dependent on whether the relevant investments (in the different comparator plans/funds) – here, a GIC with certain specific features – are actually comparable. We (and the court) will need to know a lot more about the Prudential/Empower GIC and about the GICs in the comparator plans before that question can be answered.
Obviously, this case is at a very early stage – we will getter a better idea of the facts and of plaintiffs’ legal arguments as this litigation proceeds.
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As “smoothed” crediting rates under stable value products generally lag changes in market interest rates, they generally provided lower returns compared to, e.g., market rates on short- and medium-term bonds and money market funds over the period 2021-2024. This “underperformance” (vs. non-GIC alternatives) may in part explain this and possible future GIC-related ERISA prudence litigation.
We will continue to follow this issue.