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Excessive Fee Suit Settlement Involves More Than Money


Another financial services firm has struck a settlement in an excessive fee suit involving proprietary funds.

Under the terms of the proposed settlement, M&T Bank or its insurers will pay a gross settlement amount of $20,850,000 into a common fund for the benefit of Class Members. And, while it amounts to what the plaintiffs described as a “significant recovery,” and one “well within the range of negotiated settlements in similar ERISA cases,” it also provided a “to do” list for the M&T defendants. 

Cash ‘Plus’

Specifically, as part of the settlement (In re M&T Bank Corp. ERISA Litig., W.D.N.Y., No. 1:16-cv-00375, motion for preliminary settlement approval 12/26/19)) M&T Bank has agreed that:

1.  an independent investment consultant will review the proprietary mutual funds in the plan and provide a written opinion regarding whether those funds should be retained; 

2. an independent investment consultant also will provide a written opinion regarding whether any of the existing mutual funds (both proprietary and non-proprietary funds) should be replaced with alternative investment vehicles such as collective investment trusts or separate accounts for the same or equivalent mutual funds; 

3. in the event that any proprietary funds are retained, those mutual funds shall rebate to the plan (or its recordkeeper) the same percentage of investment management fees rebated to other retirement plans (or their recordkeepers) that hold the same share class of such proprietary funds; and 

4. they (the defendants) will issue a request for information to multiple potential recordkeepers to obtain the best combination of recordkeeping pricing and services available to the plan.

Other Monetary Terms

The Settlement Agreement requires that any motion for attorneys’ fees and costs shall be filed at least 30 days before the deadline for objections to the proposed settlement, but acknowledges that under the settlement, attorneys’ fees (the plaintiffs are represented by Nichols Kaster PLLP, Kessler Topaz Meltzer & Check LLP, and Trevett Cristo Salzer & Andolina PC) are subject to Court approval and are capped at no more than one-third of the Gross Settlement Fund ($6,950,000).

The settlement also provides for reimbursement of litigation costs and settlement administration expenses, and service awards up to $10,000 per Class Representative (subject to Court approval).

The suit, pending before Judge Frank P. Geraci Jr. of the U.S. District Court for the Western District of New York, is actually two that have been combined. The first was brought in May 2016 by plaintiffs Sa’ud Habib, Beverly Williams, J. Marlene Smith, Kenneth Sliwinski and Russ Dixon. In September of that year, plaintiff Jacqueline Allen filed a related action asserting similar claims against M&T Bank and many of the same Defendants – and a consolidated complaint was then filed on Aug. 25, 2017.

The suit alleged that M&T Bank had, continuously since 2010, failed to remove proprietary funds as plan investment options despite the fact that these funds charged fees they said were excessive, in contrast to similar or superior alternatives, and that this failure cost participants millions of dollars. The suit took special issue with actions taken following M&T Bank’s acquisition of Wilmington Trust Corp. in May 2011, in that the fiduciaries of M&T Bank’s 401(k) plan doubled down on the problem – immediately after the acquisition adding six of Wilmington’s nine mutual fund offerings to the bank’s plan… despite higher expenses and what was alleged to be poor or nonexistent performance history.

How We Got Here

The settlement cites “extensive discovery,” including the production of more than 250,000 pages of documents by the M&T defendants, while the plaintiffs produced more than 7,500 pages. Five witnesses were deposed by plaintiffs’ counsel, and the defendants deposed all six named Plaintiffs. They plaintiffs also engaged in third-party discovery, through which they obtained more than 3,800 pages of documents from three different entities. Oh, and there were two pre-motion teleconferences with the Court regarding certain discovery disputes ahead of a February 2019 full-day mediation with the Honorable Layn Phillips, a retired U.S. district court judge.

That meeting didn’t result in a settlement, but it did open the door – and the settlement agreement notes that the parties agreed to continue their negotiations with the assistance of Judge Phillips, and that as a result of these continued negotiations, the parties reached a settlement-in-principle on Sept. 26, 2019. 

As for getting their portion of the settlement, the agreement states that current participants (approximately 21,000) will have their plan accounts automatically credited with their share of the Settlement Fund, while former participants will be required to submit a claim form (which allows them to elect to have their distribution rolled over into an individual retirement account or other eligible employer plan, or to receive a direct payment by check). Any checks that are uncashed will revert to the Qualified Settlement Fund and will be paid to the plan for the purpose of defraying administrative fees and expenses of the plan.

To date, a number of firms have reached settlements in cases alleging similar facts, including SEI ($6.8 million), MFS ($6.875 million), Eaton Vance ($3.45 million), Franklin Templeton ($4.3 million), BB&T ($24 million), Jackson National ($4.5 million), Deutsche Bank ($21.9 million), American Airlines Group Inc. ($22 million), Allianz SE ($12 million) TIAA ($5 million), and Invesco (details not yet announced).

Will the judge in the M&T case agree to the settlement terms? We shall see.