After over four years of hard-fought litigation, the parties in a suit involving fund menu construction have come to a partial settlement.
By partial, we mean that plaintiffs Wendy Berry, Lorri Hulings, and Kathleen Sammons have come to terms with Aon Hewitt Investment Consulting, Inc. as part of a suit relating to the FirstGroup America, Inc. Retirement Savings Plan and the Aon Hewitt Funds. The claims those plaintiffs lodged against FirstGroup America, Inc. and the FirstGroup America, Inc. Employee Benefits Committee “remain to be tried and are not released,” according to the plaintiffs, who nonetheless characterized the partial settlement as “a significant recovery to a portion of the losses that Plaintiffs allege the Plan sustained due to the selection and retention of the Aon Hewitt Funds for the Plan.” The settlement itself was announced earlier this month.
For those who have forgotten (or simply lost track of this among all the various excessive fee suits), this suit was filed in mid-2018, claiming that the defendants “…breached their fiduciary duties under ERISA by engaging in a radical redesign of the Plan’s investment menu that was designed to benefit Hewitt (the Plan’s fiduciary investment consultant) rather than the participants and beneficiaries of the Plan, and have stubbornly adhered to this imprudent menu design in spite of evidence that it has caused significant and ongoing damage to the Plan.”
More specifically, the plaintiffs argued that the defendants removed “a large number of established funds in the Plan that were performing well (allegedly at Hewitt’s self-interested urging), and “replaced them with an unproven set of newly-launched funds from Hewitt that were inappropriate for the Plan and had not been adopted by the fiduciaries of any other retirement plans.” As part of this process, they alleged that the defendants transferred over a quarter billion dollars in Plan assets (more than 90% of the Plan’s total assets) into these “new and untested” funds, and “left participants with no other meaningful investment options.”
As for that proposed settlement (it must be approved by the court), Aon Hewitt will pay a Gross Settlement Amount of $4.5 million[i] into a common fund for the benefit of the Settlement Class. It also includes a Bar Order to block any contribution or indemnification claims between Aon Hewitt and the FirstGroup defendants.
As part of establishing that the settlement (Berry et al. v. FirstGroup America Inc. et al., case number 1:18-cv-00326, in the U.S. District Court for the Southern District of Ohio) was the result of a process that included “extensive fact and expert discovery,” the settlement notes that the defendants produced more than 312,000 pages of documents, and the Class Representatives produced over 7,000 pages of documents, that the plaintiffs subpoenaed several third parties—and received over 300 documents as a result of the subpoenas. Additionally, they noted that plaintiffs’ attorneys took 14 fact witness depositions, and that the Defendants deposed each of the Class Representatives. Oh, and following fact discovery, “the Parties completed expert discovery, which entailed exchanging expert reports and rebuttal reports and conducting depositions of eight expert witnesses.”
The Settlement Agreement requires that the plaintiffs’ attorneys[ii] file their motion for attorneys’ fees and expenses at least 14 days before the deadline for objections to the proposed Settlement—noting that they will seek no more than one-third of the Gross Settlement Amount ($1.5 million) in attorneys’ fees. Additionally, the agreement provides for recovery of out-of-pocket litigation costs, Administrative Expenses, and Class Representative Service Awards of up to $5,000 to each Named Plaintiff, “subject to Court approval and Independent Fiduciary review.”
Now we wait and see what the court makes of it.
[i] During the expert discovery phase, Plaintiffs’ damages expert, Dr. Brian C. Becker, calculated damages to the Plan under two scenarios, which resulted in between $25.2 million and $42.4 million from Oct. 1, 2013 to Feb. 28, 2022. The settlement proposal notes that this partial settlement with Aon Hewitt represents approximately 10.6% to 17.8% of the Plan’s total damages, which aligns with settlements in class action cases that provide a full release of all claims.”
[ii] The plaintiffs are represented by Freking Myers & Reul and Nichols Kaster PLLP.