An analysis by Bloomberg Law finds that class settlements in employee benefit disputes hit $449 million in 2019 – a figure that they noted was up significantly from 2018’s $291 million, but well short of the $559 million in settlements recorded in 2017.
That said, “only” about half of the 2019 “tab” – some $193 million – came from excessive fee suits, according to the report. The average of such settlements? $12 million.
In March, the parties in Tussey v. ABB, one of the oldest (2005) excessive fee suits, came to terms for $55 million. Other settlements announced included:
- Northrop Grumman ($16.5 million);
- a 2017 stable value suit settlement finally approved;
- the settlement terms of two fiduciary breach suits involving Safeway’s 401(k) plan, its investment structure, plan consultant, and selection of target-date funds have been submitted for court approval;
- another suit involving the $2.3 billion 401(k) and 403(b) plans of the Allina Health System (which was for $2.425 million); and
- a $1.2 million settlement with the $96.5 million 401(k) plan of Gucci America Inc. This settlement pales in comparison to the normal multi-billion dollar plans that normally draw the attention of the plaintiffs’ bar, but even here the plaintiff cited the plan’s “substantial assets” and said that the plan fiduciaries “…have significant bargaining power and the ability to demand low-cost administrative and investment management services within the marketplace for administration of 401(k) plans and the investment of 401(k) assets.”
Another grouping came with the so-called excessive fee suits involving university 403(b) plans. The year saw five of those settled, the largest – and in many ways the most bizarre (allegations of a quid pro quo between the University and recordkeeper Fidelity, whose CEO Abigail Johnson sits on the university’s Board of Trustees) – was with MIT, which settled with plaintiffs represented by Schlichter Bogard & Denton for $18.1 million – and, what seems to be emerging as a trend in these cases, a series of non-monetary commitments for RFPs, changes in revenue-sharing practices, and even training for plan fiduciaries.
The largest settlements prior to MIT were with Vanderbilt University, which in April 2019 announced a $14,500,000 cash settlement, as well as a long list of process/procedural changes that were also to be monitored over a three-year period, and Johns Hopkins, which settled for $14,000,000, also alongside a number of plan design/procedural changes. In March, Brown University settled for $3.5 million, as well as “other, structural relief” – and a $10.65 million settlement, also alongside a series of changes in plan administration was approved in February.
However, on that “score,” it’s worth noting that St. Louis-based Washington University, New York University and Northwestern University have thus far prevailed in making their cases in court. The University of Pennsylvania, which in 2017 won at the district court level, in 2019 had that decision partially overturned by an appellate court. The plan fiduciaries’ motion for an en banc review of that decision was rebuffed earlier this year, but just ahead of the holidays, they petitioned the nation’s highest court to weigh in on the threshold for getting to trial.
Financial services companies that included their own funds in their 401(k)s also found themselves a target of litigation in 2019, among those striking deals were SEI ($6.8 million), MFS ($6.875 million), Eaton Vance ($3.45 million), Franklin Templeton ($4.3 million, announced in 2018) – though the terms in the latter, particularly as regards the attorney fees – were not without controversy.
In November, the parties in a suit involving Invesco announced a settlement, but those terms haven’t yet been announced.
As it turns out, those settlement numbers are lower than those seen in 2018, according to Bloomberg. However, it’s also worth noting that we began the year with a big victory by the American Century plan fiduciaries where many of the allegations that have been widely made in these excessive fee cases were refuted by testimony and documentation that revealed the kind of thoughtful, ongoing, due diligence process that plan fiduciaries are often counseled to undertake.
But if you’re wondering where the “big” money was in ERISA litigation in 2019 – there was $100 million by Dignity Health to end a church plan lawsuit (though that settlement hasn’t yet been approved, pending a resolution on the issue of attorneys’ fees), and SSM Health Care Corp. and St. Anthony Medical Center Inc. settled church plan lawsuits for $60 million and $4 million, respectively, according to the report. These (and a number of 2018 settlements) came in the wake of a 2017 decision by the U.S. Supreme Court regarding these programs at religiously affiliated hospitals that treat their pension plans as ERISA-exempt “church plans.” The lawsuits alleged that the hospitals abused ERISA’s religious exemption to significantly underfund their pensions.
It seems likely that proprietary fund suits will continue to emerge (as a couple did in Q4), and while the American Century case would seem to provide a solid roadmap for defense, settlement – and settlement on the scheduled date of trial – seems to be becoming the order of the day. While the university suits seem likely to continue, that could change if the Supreme Court takes up, and decides in favor of the University of Pennsylvania defendants. As for whether excessive fee litigation will (finally) move down market – there’s evidence (the Gucci case noted above) that such things remain possible, though the contingent fee nature of compensation for the plaintiffs’ bar may serve to hold such things in check for a while longer. And yet, there are smaller law firms just now entering the “fray”…
Advisors? Well, they’ve mostly avoided being drawn into the crosshairs of ERISA litigation – but not always.
If we’ve learned nothing else from this year of litigation, it’s what we’ve always known: a prudent process (eventually) prevails.
But sometimes it’s (apparently) cheaper to just settle.
- Nevin E. Adams, JD