Collective investment trusts (CITs) have often been touted as superior (less expensive) alternatives to mutual funds in excessive fee suits—but a settlement has been struck in a case alleging excessive fees and poor performance of those alternatives.
Just weeks before the case was slated to go to trial in the U.S. District Court for the Northern District of Illinois, the suit by eight former employees of drug maker Astellas US LLC, a $932 million plan of some 3,967 participants, had argued that the plan’s size “gave it substantial bargaining power to command very low investment management fees for its participants.”
Collective Restructuring
The Astellas plan hadn’t always been invested in collective investment trusts. According to the suit, the Astellas Defendants initially hired Aon Hewitt to provide investment advisory services with respect to the plan, and then, effective Aug. 26, 2016, Astellas and the Administrative Committee expanded that responsibility and appointed Aon Hewitt as the discretionary investment manager for the plan with discretion over the selection, retention and removal of Plan investments. And then, “on or about October 3, 2016, Defendants restructured the Plan.”
The suit (Miller v. Astellas US LLC, N.D. Ill., No. 1:20-cv-03882, complaint 7/1/20) claimed that the Astellas Defendants “partnered with Aon Hewitt” to develop a new investment lineup—one that, with a single exception (T. Rowe Price Health Sciences mutual fund), resulted in the removal of all of the plan’s mutual funds (nine in total) and their replacement with six collective investment trusts. Five of those collective investment trusts were Aon Hewitt’s proprietary collective trusts (they also replaced five of the Plan’s BlackRock collective investment trusts with those managed by State Street Global Advisors Trust Company (SSgA)).
The Case Thus Far
Much of our coverage focuses on the initial suit and its conclusion, either a settlement or, in some number of cases, an actual adjudication. But to give you a flavor for all the machinations that go on with these type lawsuits, here’s what this settlement proposal outlined:
- The parties engaged in “extensive merits discovery,” which included 22 depositions and the review of over 50,000 documents produced by Defendants (as well as additional documents compelled from Aon on “central issues” in the case).
- The parties (then) proceeded to “expert discovery,” which included the disclosure of six expert witnesses for all parties.
- Feb. 10, 2022—the Court granted certification of the class action, including three subclasses—an “Investment Loss Class,” “Payment of Plan Assets Class,” and “Equitable Relief Class.”
- Nov. 2 and 9, 2022—the Astellas Defendants and Aon filed motions for summary judgment, and the plaintiffs moved to strike each motion based on the Court’s indication that this case was to proceed to a bench trial without summary judgment motion practice.
- Feb. 13, 2023—the Astellas Defendants filed a notice of supplemental authority and requested that the Court permit the briefing on summary judgment.
- Trial date set for July 17, 2013[i]—and ahead of that the parties “have been engaged in extensive pretrial preparations.”
The Settlement
The settlement (Wachala v. Astellas US LLC, N.D. Ill., No. 1:20-cv-03882, settlement motion 6/23/23) consists of both monetary and non-monetary components. The monetary is a cash settlement of $9,500,000—which will be used to satisfy the Plan participants’ recoveries, Class Counsel’s Attorneys’ Fees and Costs, Administrative Expenses of the Settlement, and the Class Representatives’ Compensation.
As for those other costs, the settlement contemplates:
- $20,000 for the Class Representatives’ Compensation[ii] (the participant-plaintiffs named in the suit)—noting it is only 1.05% of the gross cash settlement amount).
- Attorney’s fees “not to exceed one-third of the Gross Settlement Amount, or $3,166,666,” and reimbursement for reasonable litigation expenses incurred not to exceed $550,000.
As for the non-monetary aspects:
- Within one year of the Settlement Effective Date, and with the assistance of an independent consultant, the Astellas Defendants have agreed to conduct a request for proposal (“RFP”) for the provision of Plan investment advisory services.
- Within 90 days of the Settlement Effective Date, the Astellas Defendants will instruct the Plan’s recordkeeper that, for the three-year period following the Settlement Effective Date, the recordkeeper may not use information received as a result of providing services to the Plan and/or the Plan participants to solicit current Plan participants to purchase non-Plan products and services.
Now we’ll see if the court approves.
[i] In support of their proposed settlement, the parties also estimated two weeks to complete the trial in this matter, commenting that “the trial would have been complex. A voluminous number of exhibits would be admitted, numerous fact witnesses would testify, and six expert witnesses would testify in support of each party’s claims or defenses. Litigating this case through judgment would require the dedication of tremendous resources. Regardless of expending significant resources to take this case through judgment, recovery was uncertain for the reasons previously stated”.
[ii] Here the settlement notes that the amount is commensurate not only with other cases, but their risks “ERISA litigation against an employee’s current or former employer carries unique risks and fortitude, including alienation from employers or peers”, “the Named Plaintiffs took on a substantial risk of non-recovery and alienation from their employers or peers, exposed themselves to personal liability if Defendants are awarded their attorneys’ fees and costs under 29 U.S.C. § 1132(g), and devoted substantial amounts of their own time to benefit absent Class Members.”
