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DOL’s Crypto Comments Raise Questions About SDBA Settlement


A settlement term—and plaintiffs’ attorney fees—in a proprietary fund suit may be undermined by the Labor Department’s recent comments on cryptocurrency—more specifically, concerns about what those comments mean for the role of self-directed brokerage accounts. 

In January, T. Rowe Price settled a suit based on the firm offering only proprietary funds to participants in its own 401(k) plan—with one of the settlement terms being its agreement to add a brokerage window feature “which will allow Plan participants, for the first time, to invest in funds other than T. Rowe Price Funds (within 6 months of the settlement date).”  

But an April 25 letter from counsel for T. Rowe Price to Chief Judge James K. Bredar of the U.S. District Court for the District of Maryland raises “…for the Court’s consideration an issue regarding the value of the brokerage window provided for in the Settlement Agreement that may bear on the Court’s assessment of the reasonableness of Plaintiffs’ request”—specifically fees and expenses requested for the plaintiffs’ attorneys which add up to more than half of the $7 million cash settlement.

Settlement Terms

That settlement acknowledges that that’s a high percentage based on the cash settlement (not to mention that these type fees generally fall in the 25%-30% range), though they claim that it amounted to (only) “19% of the $18 million total monetary benefit that could accrue to the Class through the proposed settlement (i.e. the sum of the settlement amount—$7 million—and the appreciated value of the Special Payment—$11 million).” Specifically called out was the value of the addition of the brokerage window option, which they said at the time “…has the potential to be the most valuable feature of the Settlement for Plan participants since they could conceivably utilize it to mitigate or eliminate the large losses from these funds going forward.” 

The T. Rowe Price counsel explains that “…under the terms of the Settlement Agreement, Defendants may remove the brokerage window from the Plan before the end of the ten-year period otherwise provided for if Defendants reasonably conclude that there has been a change in law or regulation relating to fiduciary monitoring or reporting requirements for investment offerings available through a Brokerage Window that makes such monitoring or reporting materially more burdensome or costly than it is today.”

Crypto Concerns

And that, the letter states, may have occurred on March 10 when the DOL published its Compliance Assistance Release No. 2022-01, after which the letter notes, “a number of commentators have suggested that recent guidance from the Department of Labor (DOL) raises questions about possible changes to the regulatory environment that, if they ultimately come to pass, could lead Defendants to conclude that there has been the type of change contemplated under section 7.4 of the Settlement Agreement.”

The letter goes on to explain that “the DOL has not previously alluded to the possibility that there may be fiduciary selection and monitoring obligations with respect to individual investment options—of any kind—that are offered in a brokerage window. And although the DOL guidance focuses on cryptocurrencies, industry commentators have observed that it may be difficult to limit a potential duty to select and monitor individual investments offered through a brokerage window to investments in cryptocurrencies only. 

“If the DOL were to require fiduciary oversight of individual investment options offered through brokerage windows, the monitoring obligations associated with maintaining such an offering in the Plan would become materially more burdensome and costly than they were at the time the Settlement Agreement was entered,” the letter notes.

The letter concludes by explaining: “As things currently stand, Defendants do not believe that plan fiduciaries have a legal obligation to select and monitor individual investment options offered through brokerage windows. However, in light of the questions that have been raised based on the DOL’s recent cryptocurrency guidance, Defendants are continuing to evaluate DOL statements and enforcement activity for any indications that the DOL has changed its policy in a way that would affect Defendants’ fiduciary obligations with respect to offering a brokerage window in the Plan.”

Stay tuned.