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Excessive Fee Parties Strike a Quick $2.9 Million Settlement

Litigation

“…after meaningful motion practice, discovery, and arm's-length negotiations by experienced counsel, including a private mediation with an experienced neutral mediator,” the parties in an excessive fee suit have come to terms—in less than a year.

The parties here—plaintiffs Trudy Clark, Donna Nesmith, Jessica Smith, and Shelly Stack, on behalf of the proposed Settlement Class of the Beth Israel Deaconess Medical Center 401(k) Savings and Investment Plan and the Beth Israel Deaconess Medical Center Voluntary 403(b) Plan—and the fiduciaries of those plans, as well as the Board of Directors of Beth Israel Deaconess Medical Center, and the Pension Committee of Beth Israel Deaconess Medical Center—have come to terms, and have laid out the terms of a proposed settlement for the court to review, and perhaps approve.

The suit had only been filed in January 2022 against the $1.3 billion 403(b) plan, alleging excessive recordkeeping fees and questionable decision to choose Fidelity Freedom Funds as the plan’s default investment—alleging that they were more expensive and underperforming relative to alternatives. Miller Shah LLP—the same Miller Shah LLP[i] that has recently launched a series of suits challenging the selection of BlackRock’s Lifepath target-date funds—represents the plaintiffs in this case, as does Capozzi Adler, P.C., which has also been active of late in the excessive fee litigation field—and which has been able to strike a series of excessive fee settlements in (relatively) quick order.

Settlement Terms

The Settlement (Clark et al v. Beth Israel Deaconess Medical Center et al, case number 1:22-cv-10068 in the U.S. District Court for the District of Massachusetts) provides that, in exchange for dismissal of the Class Action and a release of claims, Defendants will pay $2.9 million into a Qualified Settlement Fund—from which those funds will be allocated to Current Participants, Former Participants, Beneficiaries, and Alternate Payees of the Plan pursuant to the Plan of Allocation.

Beyond that, the settlement agreement also provides that Defendants will:

  • initiate a request for proposal for RK&A (recordkeeping and administration) services obtained by the Plan within three years of the Settlement becoming effective; and
  • review the investment monitoring and watchlist procedures applicable to the Plan in consultation with the Plan’s investment advisor.

Although the Settlement Agreement permits Class Counsel to seek an award of attorneys’ fees and expenses of up to 33% of the Gross Settlement Amount (a maximum amount of $965,700) plus litigation expenses (not to exceed $30,000), the agreement notes that Class Counsel “anticipates seeking an award of attorneys’ fees of up to 25% of the common fund established by the Settlement, inclusive of all expenses advanced by Class Counsel during the litigation. Class Counsel prosecuted the Class Action on a contingent basis and advanced all associated costs with no expectation of recovery in the event the litigation did not result in a recovery for the Settlement Class.”

Additionally, the “Class Representatives’ Case Contribution Awards” (compensation for the participant-plaintiffs named in the suit) “not to exceed $7,500 for each Class Representative.”

Reason ‘Able’

The agreement comments that “the range of realistic and supportable damages ranged from $5,214,384 to $8,413,941 (depending on the damages methodology employed), and the recovery, therefore, amounts to over 42.5% of the mid-point of potentially recoverable damages in this case—an excellent recovery under the circumstances.”

In sum, the Settlement is the product of vigorous litigation and arm’s-length negotiation by experienced and well-informed counsel, and it provides significant relief to the Settlement Class. Accordingly, the Court should find the Settlement is fair, reasonable, and adequate, and merits preliminary approval.

Now we’ll see if the court agrees…

 

[i] Including Genworth Financial Inc., MicrosoftCisco Systems Inc., Booz Allen Hamilton Inc., Stanley Black & Decker Inc., Wintrust Financial Corp., and Marsh & McLennan Cos.

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