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$40 Million Excessive Fee Settlement Okayed


One of the largest 401(k) excessive suit settlements—$39.8 million—has been approved.

The settlement arose in a case involving Reliance Trust and its role regarding the Insperity 401(k) Plan, in which the plaintiffs—represented by the law firm of Schlichter Bogard & Denton—were enrolled. The plaintiffs are four participants in this plan for Insperity clients. However, the settlement did not actually involve Insperity, but was an agreement between Reliance Trust and the plaintiffs. 

Moreover, the $39.8 million settlement claimed to include a number of additional procedural changes regarding the plans and the role of Reliance Trust—changes that the settlement agreement acknowledged “have been satisfied (or effectively satisfied) through changes that have occurred with respect to the Plan.” However, as pointed out in the Insperity Defendants’ Response to the motion, “The Insperity Defendants are not making any monetary contribution toward the Settlement Amount, and have not made any changes to the Plan as a result of the Settlement between the Settling Parties.” 

The Suit

The suit alleged that defendants Reliance, Insperity, Inc., Insperity Holdings, Inc., and Insperity Retirement Services, L.P., “breached their fiduciary duties and conducted prohibited transactions under ERISA by: 

  1. selecting untested proprietary funds ( the ‘Horizon Funds’) as investment options for the Plan and retaining those funds despite their poor performance, which benefited Defendants at the expense of participants”; 
  2. paying Retirement Services, the Plan’s recordkeeper, excessive administrative expenses, and failing to monitor and control the amount of those administrative expenses; 
  3. providing to the Plan investment options that contained unreasonable management fees when cheaper versions of the same investments were available to the Plan, as were other high-quality, low-­cost institutional alternatives; 
  4. retaining a minimally returning money market fund; 
  5. failing to properly monitor the Plan’s fiduciaries; 
  6. engaging in prohibited transactions with a party in interest by putting proprietary investments in the Plan, causing the Plan to pay unreasonable compensation to Retirement Services, and providing the Plan unduly expensive investment options; and 
  7. engaging in prohibited fiduciary self-dealing through the use of proprietary investment options in the Plan and the use of Retirement Services as the Plan’s recordkeeper.

The Case

This case was litigated for over four years—as part of the settlement agreement approval (Pledger v. Reliance Tr. Co., N.D. Ga., No. 1:15-cv-04444, approval order docketed 3/9/21), Judge Mark H. Cohen in the U.S. District Court for the Northern District of Georgia commented that:

  • during discovery, Defendants produced approximately 98,000 documents consisting of over 500,000 pages; and
  • plaintiffs took 10 fact depositions of current and former employees of Defendants, and also defended the depositions of the named plaintiffs who were deposed. 

Apart from fact discovery, the parties engaged in extensive expert discovery, with the plaintiffs retaining three experts and the defendants relying on four. 

The Settlement

As for that settlement, Reliance will pay $39,800,000 into an interest-bearing account to compensate Class Members for their alleged losses, attorneys’ fees and expenses, class representatives’ fees, and notice and administration costs—with the gross settlement amounts to be distributed within 120 days. Those still in the plan will have it deposited into their 401(k) accounts; those who have since left the plan will be given the choice of either a cash distribution or of having it rolled over into another tax-deferred account. 

Class counsel will receive a percentage-based attorney’s fee of $13,266,266 (one-third of the monetary recovery), reimbursement of $705,172.30 in litigation expenses, and Class Representative awards of $25,000 for each of the five Class Representatives.

Judge Cohen noted that, “taking into account the complexity of the case and the likelihood of a protracted appeal regardless of the Court’s decision after trial,” the settlement “is one of the largest of its type, and continued litigation would have likely involved additional significant attorneys’ fees and expenses inherent with an appeal with a final resolution potentially years later.”

Ultimately Judge Cohen found that the settlement was “…fair, adequate, and reasonable and is not the product of collusion between the parties,” and as such, approved it. 

What this Means

There’s only so much you can learn from a settlement—where the parties seem to basically agree to disagree, conceding that the outcome—for good or ill (depending on your perspective)—under a full adjudication (much less appeal) is uncertain at best, and as likely to wind up costing twice as much (in time and expense, if not settlement amount) as to be tossed out by a judge (though those time and expense costs remain). 

If nothing else, the settlement details presented above should remind us all of the time and expense of fending off (and pursuing) litigation—and a reminder of the importance of doing everything we can as plan fiduciaries to prevent such suits in the first place.