A $1.6 billion 403(b) plan has settled an excessive fee suit for $6 million.
The suit — brought by participants Susan McNeilly and Carla Martz of the Spectrum Health System 403(b) plan and represented in that action by the law firm Capozzi Adler[i] — had made the “usual” assortment of allegations. More specifically, that the fiduciaries hadn’t leveraged the plan’s large size to negotiate better fees, that the funds chosen were (a) more expensive share classes, and (b) active, rather than passively managed (and thus, more expensive) — not to mention recordkeeping and administrative costs higher than that of comparable-sized plans.
Following that, the fiduciary defendants had their attempt to dismiss the suit rebuffed by a three-judge panel in the Sixth Circuit last June by a judge that determined that discovery in preparation for trial was necessary in order to determine if the allegations made were, in fact, plausible.
But then, in the wake of decisions in CommonSpirit and Forman, they had filed to have that decision reconsidered. Those cases, as you may recall, found that a simple fee comparison with allegedly comparable plans (in size and participant count) did not constitute a “plausible” inference of fiduciary misconduct — and said the same was true with regard to active versus passive fund comparisons. But, despite those rulings, Judge Jane Beckering denied that request last December — concluding that the allegations made here were more substantive than in those other cases.
Which brings us to the settlement — six million dollars ($6,000,000.00) worth — which, is said to be “fair, reasonable, and adequate, taking into account the costs, risks, and delay of litigation, trial, and appeal.” Judge Beckering further concluded that the method of distributing the Net Settlement Amount is “efficient, relying substantially on Defendants’ and the Plan Recordkeeper’s records, requiring no filing of claims for Current Participants, Beneficiaries or Alternate Payees with Active Accounts, and requiring only a modest Former Participant Claim Form for Former Participants, Beneficiaries and Alternate Payees without Active Accounts.”
It (McNeilly v. Spectrum Health Sys., W.D. Mich., No. 1:20-cv-00870, 3/10/23) also makes allowance for:
- the plan participants’ lawyers to seek more than $2 million in attorneys’ fees and $50,000 in litigation costs; and
- the two named plaintiffs to receive incentive awards of $10,000 each.
[i] Capozzi Adler PC has been one of the more active litigants of late. It had a busy 2020, in addition to the suit against LinkedIn (settled this week for $6.75 million), there have been actions filed against Universal Health Services, Inc., and before that Aegis Media Americas Inc., as well as the $2 billion health technology firm Cerner Corp., Pharmaceutical Product Development, LLC Retirement Savings Plan, Gerken v. ManTech Int’l Corp — and the appeal of losses at the district court in a case involving Salesforce. In May 2021, they also filed suit against the $5.3 billion Humana Retirement Savings Plan, in June against the $2.3 billion Wake Forest University Baptist Medical Center, and in August against the $1.5 billion Baptist Health South Florida, Inc. 403(b) Employee Retirement Plan.