Following the assessment of an independent fiduciary that the settlement terms were reasonable, the parties in a 401(k) excessive fee suit have moved for approval by a federal judge.
The suit was filed back on Aug. 11, 2021—with plaintiffs Chris Carrigan, Michael Venti, and Sylvain Yelle (represented by Nichols Kaster PLLP[i] and Garrison, Levin-Epstein, Fitzgerald & Pirrotti PC) alleging that the Xerox defendants breached their ERISA fiduciary duties by hiring themselves (and affiliated companies) to provide recordkeeping services to the Plan at a cost of up to four times more than what other recordkeepers would have.
The (mere) 22-page suit claimed that shortly after Xerox entered the retirement plan recordkeeping business in the early 2010s, the defendants hired Xerox as the Plan’s recordkeeper, and passed Xerox’s fees, “which were well above reasonable market rates,” according to the suit. “As a result, participants paid millions of dollars per year in excessive fees from 2015 through 2021.”
Settlement Steps
The $4.1 million settlement was announced between the parties late in December 2022. Prior to that, the parties “engaged in significant discovery efforts,” with the defendants producing over 7,200 pages of documents in response to Plaintiffs’ document requests, while the Xerox defendants also responded to Interrogatories propounded by Plaintiffs. They engaged in mediation—a full-day, in-person mediation before a Mr. Geronemus, who was described as “an experienced and well-respected mediator, who has successfully resolved numerous ERISA cases and other complex actions.”
The court issued a preliminary approval of that agreement on Sept. 27, 2023[i]—and in December 2023, the plaintiffs indicated they planned to seek reimbursement for attorney fees of up to a third of the settlement ($1,366,666), as well as $48,980.72 in litigation expenses and $106,895.23 in settlement administration costs—all yet to be approved by the court. They also asked for $5,000 in service awards to compensate each of the class representatives named in the suit.
With regard to the reasonableness of the settlement, the agreement notes that at the time of the mediation, Plaintiffs’ damages models estimated that the total losses were approximately $14 million—and that, based on this estimate, the $4.1 million recovery represents approximately 29% of the total estimated losses.
The Settlement also provides for what it describes as “meaningful prospective relief”—specifically, no later than five years from the effective date of the settlement agreement, the Xerox defendants agree to utilize the services of an independent consultant to assist with a request for proposal, fee benchmarking study, or other comparative analysis to ensure that the Plan’s recordkeeping fees remain competitive. This “relief directly addresses the core issue that Plaintiffs raised in the lawsuit and is designed to ensure that the Plan’s expenses are reasonable going forward,” according to the settlement.
Now we’ll see what the court has to say on the matter(s).
[i] Of the more than 36,000 potential class members, two raised objections; the first objector, Joseph Paoli, is a Class Member who provided written notice of his objection by way of letter to Plaintiffs’ counsel on November 17, 2023. Mr. Paoli objects to the settlement because he believes the total settlement value is too low (apparently HIS estimate suggested that the more appropriate settlement would have been $1,800,000,000—something the settlement agreement characterized as “well outside any reasonable valuation of damages in this case”). Mr. Paoli supports his objection with rough valuation calculations based on the number of Plan Participants as well as an account of what he experienced as a Plan Participant. The second objector, Darylann Mott, is a Class Member who filed her objection on Jan. 2, 2024. Ms. Mott makes two objections. First, Ms. Mott asserts that the attorneys’ fees and expenses are too high, and suggests unsupported alternatives by which the Court should calculate fees. Ms. Mott objects to the named Plaintiffs receiving any service award because it would “unduly enrich” them.
