A (relatively) small plan has settled claims that fiduciaries had “imprudently incorporating funds on its menu that were excessively expensive.”
The defendant plan in question is the (relatively small) $96.5 million 401(k) plan of Gucci America Inc. – and the settlement is for (the not-so-relatively small) $1.2 million. While the plan is much smaller ($96.5 million) than those in the so-called “jumbo” status that have garnered most of the headlines in this type of litigation, the plaintiff cited the plan’s “substantial assets” and said that the plan fiduciaries “…have significant bargaining power and the ability to demand low-cost administrative and investment management services within the marketplace for administration of 401(k) plans and the investment of 401(k) assets.” Needless to say, perhaps plaintiff Heather Janda Hay didn’t believe the plan fiduciaries had leveraged that power to the advantage of the plan participants.
The Allegations
The Complaint and Amended Complaint allege: “(a) a lack of oversight over and undue reliance on the Plan’s service provider/investment manager, including the unreasonable use of the service provider/investment manager’s proprietary funds and the failure to mitigate the service provider/investment manager’s conflicts of interest; (b) the Plan’s selection of expensive investment options, when comparable but less expensive alternatives were and are available; (c) the Plan’s failure to use less expensive share classes for the same investment options without any justifiable reason; (d) the retention of certain of the Plan’s investment options, despite their considerable expense and consistent underperformance; (e) a lack of passively-managed mutual funds in the Plan’s investment options; and (f) misleading and inaccurate disclosures regarding the Plan’s investments and expenses submitted on behalf of the Plan.”
More specifically, the plaintiff here took issue with all of the Transamerica funds that the plan offered being proprietary funds (and manager of manager funds with multiple layers of fees), despite promises on their website that other options were available, that even after some funds were moved to institutional class funds (with lower fees) that the fees still weren’t as low as they might have been, as well as what was alleged to be “substantial revenue sharing” from the third-party mutual funds and one of the Transamerica funds, among other things.
The deal, if approved by the court, leaves about $800,000 for about 8,000 current and former participants in Gucci’s 401(k) plan (you can do the math) – after setting $395,000 in fees for the plaintiff’s counsel (a typical percentage contingency fee in these class actions),1 and another $5,000 to be paid to the named plaintiff as representative of the class. All in all, the gross settlement is about a third of the damages suffered by the plan (as estimated by the plaintiffs – “without taking into account the fact that the investments in the Plan paid revenue sharing to offset recordkeeping expenses and over ninety-four percent (94%) of the actual economic damages suffered by the Plan once revenue sharing is accounted for and assuming that the recordkeeping expenses of the Plan were reasonable, based upon identifiable and available alternative investments selected by Plaintiff to those offered in the Plan in the same asset classes or, in the alternative, less expensive share classes for the investments offered within the Plan” – and was – according to the settlement agreement – “the culmination of intensive arm’s-length negotiations with the assistance of a well-respected mediator Sheryl Mintz Goski, Esq.”
In case you were wondering, Shepherd Finkelman Miller & Shah LLP represented the plan participants.
The case is Hay v. Gucci Am., Inc., D.N.J., No. 2:17-cv-07148-CCC-CLW, motion for preliminary settlement approval 6/21/19.
What This Means
The focus of the coverage here will likely be that (even) a relatively small plan is vulnerable to these excessive fee suits – true enough. Because even a relatively small plan can, depending on the settlement size, produce a decent payday for the plaintiffs’ bar.
1. †he attorney’s fees were described by the settlement agreement as “manifestly reasonable in light of the facts and circumstances of the case, including, among other things, the results achieved, the skill and quality of work, the contingent nature of the fee, and awards made in similar cases.”
