Advertisement
The terms of the settlement in a massive 401(k) excessive fee suit have come to light—and a federal judge has given them preliminary approval.
The settlement involves three separate participant suits that have been joined, two filed in March 2017 (see JPMorgan Served with Third Participant Suit and Provider Served With Second Participant Suit This Year), following close on the heels of the original suit, Beach v. JPMorgan Chase Bank (S.D.N.Y., No. 1:17-cv-00563), which was filed Jan. 25, 2017.
The Settlement
As for that settlement, well, its terms are relatively straightforward; the JPMorgan Chase defendants will pay a gross settlement amount of $9,000,000.00 into a common fund for the benefit of the Certified Class. In presenting the settlement terms for consideration by the court (which preliminarily approved the agreement on May 26, in Beach v. JPMorgan Chase Bank, S.D.N.Y., No. 1:17-cv-00563, preliminary approval of settlement 5/26/20), the parties note that it “is a significant monetary recovery for the Class and falls well within the range of court-approved settlements in similar ERISA cases.” Moreover, they note that “…the issues giving rise to this suit have now been resolved, as the Disputed Investments have been removed from the Plan and replaced with less-costly alternative funds or, in the case of the Target Date Funds, have been subject to significant reduction in fees.”
Plaintiffs’ damages expert, Cynthia L. Jones, calculated maximum damages to be $55.2 million—and so the $9 million recovery is approximately 16% of that total.
Case History
The case(s) alleged that participants in the JPMorgan Chase 401(k) Savings Plan had been ill served by the plan fiduciaries (the listing of the defendants alone consumed a fair amount of the original 60-page filing) failed to “use their expertise and the Plan’s bargaining power” to secure lower fees on the investment options in the plan. Neither that, nor the allegations regarding the reliance on proprietary (or related) funds, much less criticism regarding the use of mutual funds, rather than collective funds or separate accounts, were unique to this litigation, or that $20 billion JPMorgan plan should have been able to strike a better deal for its participants. The settlement was announced in early April.
The settlement agreement calls for incentive awards of up to $10,000 per named plaintiff (there were/are four), but there are no procedural or structural changes imposed in the settlement, as there have been in other actions.
As for the attorney fees—the settlement says that that request (when it comes) will “not …exceed 33% of the $9,000,000.00 settlement amount plus their litigation expenses incurred in the prosecution of the case,” a number that the agreement says is “within the range that courts in this circuit have approved.” Of course, considering the crowded bench that multiple actions bring to the fore,[i] that settlement will be sliced more thinly than normal.
As noted above, Judge Jesse M. Furman has preliminarily approved the settlement, subject to a fairness hearing on Sept. 22.
What This Means
The problem with a settlement, of course, is that, however content the parties to it are, it doesn’t really resolve any of the issues raised. The settlement agreement itself acknowledges a recent decision in which a court (albeit from a different circuit) rejected a nearly identical argument that made here—that defendants breached their fiduciary duties by failing to timely investigate alternatives and consequently replace options with “less costly, yet nearly identical, alternative separate account and commingled fund formats, on the bases of the same arguments and defenses that the Defendants raised in this case.” Also unresolved is the matter of how damages in such a case might be calculated—another issue of contention acknowledged in the settlement.
Ultimately, of course, while the issues raised might be unresolved, the parties involved can at least go about their business—and, as settlements go in this genre, it falls pretty much in the middle—joining SunTrust ($29 million) 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 most recently Invesco.
Those decisions stand somewhat in contrast to the cases involving American Century and, more recently, CenturyLink, in which the defendants chose to go to court—and won.
Advertisement
