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Settlement Struck in Excessive Fee Suit

The parties have come to terms in a suit involving what was claimed to be one of the most expensive plans in America.

The unopposed motion for preliminary approval of a class action settlement agreement (Johnson v. Fujitsu Tech. & Bus. of Am., Inc., N.D. Cal., No. 5:16-cv-03698-NC, motion for preliminary settlement approval 12/6/17) puts forth a deal between Fujitsu and plaintiffs representing participants in the Fujitsu Group Defined Contribution and 401(k) Plan that they say is fair, reasonable, adequate, “falls within the range of possible approval,” and “is the result of lengthy, informed, non-collusive negotiations.”

Settlement Terms

Under the terms of the settlement, $14,000,000 will be paid into a common fund for the benefit of the settlement class – that amounts to about $600 per class member and a 1% of all plan assets as of the end of the most recent calendar year – both of which the plaintiffs say are “meaningful recoveries” for settlements of this nature.

Additionally, under terms of the settlement, Fujitsu agreed to undertake a request for proposal (RFP) process “to reduce the amount of recordkeeping expenses paid by the Plan and already has voluntarily taken steps to reduce the amount of investment management fees paid by the Plan.” The plaintiffs note that as a result, “the alleged problems with the Plan that gave rise to this lawsuit will be addressed going forward.”

Before reaching the settlement, the parties “exchanged thousands of pages of documents in discovery and engaged in extensive arms’-length negotiations, including two separate mediation sessions.” Indeed, according to the settlement agreement, in total, the defendants produced more than 12,000 of pages of documents, including, among other things, meeting minutes; Summary Plan Descriptions; plan disclosures; communications with participants; financial statements; investment policy statements; fund, financial, economic and other analyses; research materials; service agreements; trust agreements and the contract between Fujitsu and the investment manager Shepherd Kaplan. The defendants also served written discovery requests on plaintiffs, and the plaintiffs produced more than 2,500 pages of responsive documents.

The Claims

The suit, filed in July 2016 in the U.S. District Court for the Northern District of California by seven current and former plan participants of the Fujitsu Group Defined Contribution and 401(k) Plan, claims that the defendants’ “failure to prudently evaluate and manage the plan’s recordkeeping and administrative fees, their failure to obtain the least expensive share classes for the plan, their selection and retention of funds with excessively high fees, and their imprudent design and implementation of the plan’s custom target-date funds, constitute breaches of their fiduciary duties of prudence and loyalty.”

The plaintiffs alleged that as of the end of 2013, the plan had approximately $1.3 billion in assets, a size at which the complaint alleges that the average plan has costs equal to 0.33% of the plan’s assets per year. However, plaintiffs claimed that in 2013, total fees amounted to approximately 0.88% of plan assets (about $11,400,000), and that in 2014, total fees amounted to approximately 0.90% of plan assets (about $11,900,000) – fees that they claimed were almost three times higher than the average for plans of similar size – and that the suit alleged made it one of the five most expensive defined contribution plans out of approximately 650 plans with assets of more than $1 billion.

The Case Thus Far

In September 2016, the defendants moved to dismiss the claim, arguing, among other things, that the plaintiffs’ breach of fiduciary claims came up short because: (1) they were impermissibly based on “hindsight,” and (2) the fees for the plan’s investments fell within a range of fees that courts have held to be reasonable as a matter of law (citing the 9th Circuit’s opinion in Tibble v. Edison Int’l), and that plaintiffs had not adequately pled the basis for their recordkeeping allegations. Additionally, Fujitsu argued that ERISA’s statute of limitations barred any claims arising more than three years prior to the filing of the complaint because the information that would have given plaintiffs actual knowledge of the factual basis for their claims was, according to Fujitsu, readily available to them.

On April 11, 2017, the court denied those motions to dismiss, but left open the possibility that the defendants’ arguments could dispose of plaintiffs’ claims at summary judgment or at trial.

Settling Up

As for allocating that settlement, the agreement calls for assigning each eligible class member a “settlement allocation score,” which will be calculated by: (1) determining the total balance of each participant’s 401(k) account at the end of each quarter during the class period; and (2) crediting 10 points for every dollar in the account for those quarters through the third quarter of 2016, and one point for every dollar in the account from the fourth quarter of 2016 through the end of the class period. In other words, class members will receive a share of the net settlement amount proportionate to their weighted level of investment relative to all class members. Current participants will have that amount automatically credited to their 401(k) accounts, while former participants will be required to submit a claim form, a process that “allows them to elect to have their distribution rolled over into an individual retirement account or other eligible employer plan, or to receive a direct payment by check.”

As for attorneys' fees, the settlement agreement provides that class counsel will file a motion for attorneys’ fees, costs and administrative expenses at least 30 days before the deadline for objections to the proposed settlement, and that under the settlement, class counsel will limit their request for attorneys’ fees to no more than 25% of the common fund, plus their litigation costs and expenses. The settlement agreement provides that service awards of up to $7,500 may be sought for the class representatives, subject to court approval, “to compensate them for the time, effort, and risks they assumed in connection with this action.”

By way of establishing the risk that continued litigation might pose to an ultimate recovery, the plaintiffs cited, as other settlements in recent months have invoked, Brotherston v. Putnam Investments, LLC, 2017 WL 2634361 (D. Mass. June 19, 2017) (granting the defendants’ motion for judgment on partial findings), in that, even though the district court in Putnam found that the plan’s fiduciaries were “no paragon of diligence,” it nevertheless entered judgment in favor of the defendants because it found that the plaintiffs “failed to establish a prima facie case of loss” at trial.

“At a minimum,” the plaintiffs conclude, “continuing the litigation would have resulted in complex, costly, and lengthy proceedings before this Court and possibly the Ninth Circuit, which would have significantly delayed any relief to Class Members (at best), and might have resulted in no relief at all.”

Plaintiffs seek an order: (1) preliminarily approving the settlement agreement; (2) certifying the settlement class for settlement purposes; (3) approving the proposed settlement notices for distribution to the settlement class; (4) appointing plaintiffs as class representatives; (5) appointing plaintiffs’ counsel as class counsel; (6) scheduling a final approval hearing; and (7) granting other relief as set forth in plaintiffs’ accompanying proposed preliminary approval order. The defendants do not oppose this motion.

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