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Franklin Templeton Settlement Terms Revealed

Litigation

Terms of an excessive fee settlement announced late last year have been submitted for court approval.

The terms, struck after “more than two years of litigation, multiple dispositive and discovery motions, a contested class certification motion, complete document, deposition, and expert discovery” just a month before the issue was set to go to trial, is for $13.85 million, plus an additional plan benefit consisting of an increased match from 75% to 85% for a period of three years, which the parties say is anticipated to add $4.3 million annually to the plan through higher payments by Franklin, based on 2017 plan data.

The Suit

The suit was actually two separate suits brought by participants in Franklin Templeton’s 401(k) plan that were combined earlier this year. Lead plaintiffs Nelly Fernandez and Marlon H. Cryer had alleged similar fiduciary breach claims (and claims similar to those common to the recent wave of proprietary fund suits), including claims that the plan invested in funds offered and managed by Franklin Templeton, when “better-performing and lower-cost funds were available,” motivated to do so by the benefits to Franklin Templeton’s investment management business.

The suits had also alleged that the plan fiduciaries decided to replace allocation funds of the plan with target date funds shortly before or during 2014, at which time they chose the “untested, expensive Proprietary Target Date Funds” and criticized the plan for offering a proprietary money market fund rather than a stable value fund.

Other Terms

The terms also include the addition of a nonproprietary target date fund to the plan, alongside the plan’s existing target date fund (which serves as the plan’s qualified default investment alternative). All in all, the financial terms add up to “just under one-third of the Class’s potential damages,” according to the agreement.

The settlement notes that some change has occurred ahead of the litigation and the settlement; before this litigation commenced, “Defendants had already removed the Large Cap Value Fund from the Plan,” and since the commencement of this litigation, “Defendants removed the Franklin Money Market Fund and replaced it with a non-proprietary capital preservation fund.” Consequently, “in addition to compensation directed to current and former plan participants, Plaintiffs’ primary concerns regarding the Plan have been addressed,” they note.

Compensation ‘Claims’

Other financial terms include:

  • $25,000 for Plaintiff Cryer, and $15,000 for Plaintiff Fernandez, which the agreement says are “consistent with awards in other cases.”
  • $7,490,000 for plaintiffs’ counsel, described as “reasonable and significantly less than awards in other ERISA cases” (in that it is “28% of the $13.85 million payment plus the estimated value of the Increased Match, without accounting for the value of the new Target Date Funds”), with reimbursement of expenses at a later date.

Speaking of expenses, the settlement notes that Class Counsel have incurred costs and expenses of approximately $430,000 to date – with approximately two-thirds of that sum being fees paid to Plaintiffs’ testifying experts.

“The Settlement, negotiated at arm’s length by experienced counsel on both sides and with the help of an experienced mediator, is an excellent result and in the Class Members’ best interests,” the plaintiffs conclude.

Now we’ll see if the court agrees.

Franklin Templeton is the latest financial company to agree to settle such claims, joining BB&T ($24 million), Deutsche Bank ($21.9 million), American Airlines Group Inc. ($22 million), Allianz SE ($12 million) and TIAA ($5 million).

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