Just four years after striking an excessive fee settlement, a fund company has been sued again—and settled again—for allegedly not making the changes to its 401(k) lineup the original settlement contemplated.
The defendants in the case are Allianz Asset Management of America (AAM), and the (new) participant-plaintiffs are Chad Rocke and Christopher Collins who, represented by Nichols Kaster PLLP and Kellner Law Group PC, filed suit in the U.S. District Court for the Southern District of New York this past January. The suit contends that, “despite the settlement agreement’s terms and despite having faced an ERISA class action, Defendants continue to employ disloyal and imprudent practices in maintaining the Plan’s investment lineup that existed well before the prior litigation.”
The original suit—as does the current one—contended that the Allianz defendants “maintained an all-proprietary lineup that included expensive, underperforming investments for Defendants’ own benefit and at the expense of Plan participants.” Specifically, that “for years, Defendants employed a 50/50 strategy such that for every Allianz Global Investors (‘Allianz GI’) investment in the Plan, a PIMCO investment was added as well, and vice versa.” But—in the (new) plaintiffs’ eyes, “the opportunity for profits is even greater now, because the Plan currently holds nearly $2 billion in assets, more than twice as much as it held when the original lawsuit was filed.”
The Settlement
Under the proposed settlement’s terms (Chad Rocke et al. v. Allianz Asset Management of America LP et al., case number 8:23-cv-00098, in the U.S. District Court of the Central District of California), AAM will pay a gross settlement amount of $7,500,000[i] into a common fund for the settlement class’s benefit. In promoting the settlement to the presiding judge, the settlement agreement calls this a “significant recovery,” and one that “falls well within the range of negotiated settlements in similar ERISA cases. Indeed, as discussed infra, it compares favorably to the settlement achieved in the previous case against AAM alleging similar conduct.”
However, we’re not just talking about money this time, either. The settlement also provides for “meaningful prospective relief,” such that as for a period of no less than three years, “Defendants will retain an unaffiliated investment consultant to provide:
(1) an evaluation as to the suitability of the Plan’s investment structure, including the number of investments, asset classes, and investment styles (passive vs. active) offered;
(2) an annual evaluation of each of the Plan’s investments, including each investment’s fees and performance compared to a suitable peer group and specific, unaffiliated options in the same asset class; and
(3) an evaluation of the suitability of replacing the Plan’s current capital preservation option with a Stable Value Fund.”
Other Terms
The settlement also requires that class counsel file their motion for attorneys’ fees and costs at least 30 days before the deadline for objections to the proposed settlement—here the focus is on 25% of the settlement amount, or $1,875,000. The settlement agreement explains that the request for 25% of the fund represents the “benchmark for a reasonable fee award, and courts must provide adequate explanation in the record of any ‘special circumstances’ to justify departure from this benchmark”—and there being no special circumstances here, and that the 25% benchmark is not a “disproportionate distribution” of the settlement, particularly given the monetary and nonmonetary relief to the class secured here.
The settlement also provides for recovery of administrative expenses related to the settlement, and for service awards up to $7,500 per class representative.
The agreement also notes that this proposed recovery also represents roughly 28% of plaintiff’s maximum measure of damages (which, the settlement agreement notes, compares favorably to the settlement in Allianz).
[i] Representing roughly $1,459 per participant on a gross basis, and well over $1,000 on a net basis if all requested fees and expenses are approved.
