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Capozzi Adler Captures an Excessive Fee Settlement


In less than a year’s time, plaintiffs in an excessive fee case have wrangled a $2 million settlement.

This suit—filed in December 2020 by four former employees (Christian Harding, Patricia Giramma, Ronald Welch, and Lisa Harbour) of Massachusetts-based Southcoast Hospitals Group in the U.S. District Court for the District of Massachusetts—accused the fiduciaries of their $886 million 403(b) plan for loading it up with overly expensive investment options and charging excessive administrative fees. 

More specifically, they charged the plan fiduciaries with: “(1) failing to objectively and adequately review the Plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost; (2) maintaining certain funds in the Plan despite the availability of identical or similar investment options with lower costs and/or better performance histories; and (3) failing to control the Plan’s recordkeeping costs.” Oh, and as they have in other, similar, cases[i]the plaintiffs’ attorney—Capozzi Adler PC—did, of course, make reference to the fees paid as… “astronomical.”

Now, settlement notwithstanding, that petition acknowledges that, “Defendants strongly dispute Plaintiffs’ allegations, maintain that the Plan has been prudently managed throughout the relevant period, and deny liability for the alleged ERISA violations.”

Settlement Terms

As for that settlement (terms of which involved a “neutral, third-party private mediator with extensive experience mediating ERISA class actions”), was (just) monetary: $2,000,000.00. The settlement also provides for the payment of attorneys’ fees of no more than $666,666.67 (33-1/3% of the Gross Settlement Amount)—and “Case Contribution Awards of no more than $10,000 per Plaintiff”—all of which remain subject to Court approval.

By way of justifying the merits of the settlement terms, the agreement notes that the plaintiffs alleged three main theories of liability: 

  • from 2014 to 2018, several of the funds in the Plan had identical lower-cost share counterparts that were never selected by the Plan’s fiduciaries;
  • the Defendants caused Plan participants to overpay for recordkeeping and administrative services; and 
  • many of the Plan’s funds had expense ratios that were more expensive by multiples of comparable alternative funds in the same investment style.

Comparison Points

On the latter point, the plaintiffs (in the settlement agreement) acknowledge that it “has gained only limited traction in the last few years,” and thus “when compared to the likely potential outcomes in this case, the $2 million Settlement is outstanding at this early stage in the litigation.” Not only that, the plaintiffs also noted that “the settlement represents approximately 45% of the total estimated likely damages of $4.4 million based on Plaintiffs’ allegation of Defendants’ failure to utilize the lowest cost share classes of funds in the Plan as well as failure to pay per participant recordkeeping costs of no more than $35 per participant.” 

Indeed, they state that total potential damages inclusive of all three theories would be $9.8 million, and thus the settlement “represents 20.4% of this “best-case” but unlikely scenario (at least in this district). Any way the Settlement is viewed, it falls squarely within amounts district courts have approved.”

But perhaps most telling is the acknowledgement that the plaintiffs’ attorney—Capozzi Adler—“currently serve as counsel in over two dozen fiduciary breach actions across the country.”

What will the court make of this settlement? Time will tell.

[i] It’s not the first time the Capozzi Adler firm has affixed the “astronomical” label to 401(k) fees—having previously done so in suits involving the $930 million Olin Corporation Contributing Employee Ownership Plan$1.5 billion Baptist Health South Florida, Inc. 403(b) Employee Retirement Plan, the $1.2 billion 401(k) plan of the American Red Cross, the $700 million Pharmaceutical Product Development, LLC Retirement Savings Plan, the $2 billion plan of Cerner Corp and more recently the $6 billion 401(k) plan of KPMG