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Settlement Struck in Proprietary Fund Suit

The parties in yet another proprietary fund suit have come to terms, rather than go to trial.

The defendants here are Jackson National, sued by an employee/participant (Becky A. Matthews Pease) who had charged that 89% of the $608,784,892 in plan assets were “…invested in high cost and poorly performing Jackson National proprietary funds” – and that most of those options were “virtually identical” to funds that other institutions offered at “a fraction of the cost.”

The parties have proposed to the court a settlement of a $4.5 million cash payment that they say represent a “substantial recovery,” and that that – alongside some “material structural changes to the Plan’s menu of investment choices that was apparently in process at the time of the initiation of this lawsuit will serve to prevent the alleged misconduct in the future.”

This case – as this type of lawsuit generally does – alleges that the firm put its financial interests ahead of the plan’s interests by selecting high-cost proprietary investment products offered and managed by Jackson National and its affiliates on the plan’s menu of investment options. According to the suit, “this allowed Jackson National to maximize company profits at the expense of the Plan by collecting for itself millions of dollars in fees, an amount that greatly exceeds what the Plan would have paid for comparable low-cost non-proprietary investment products that are not offered by Jackson National to the Plan,” and in so doing “…breached its fiduciary duties of loyalty and prudence, and engaged in transactions expressly prohibited by ERISA.”

The proposed deal (Pease v. Jackson Nat’l Life Ins. Co., W.D. Mich., No. 1:17-cv-00284-JTN-ESC, motion for preliminary settlement approval 11/1/18) claims to benefit about 5,000 current and former Jackson National employees who invested retirement assets in the company’s 401(k) plan, according to court papers filed last week.

As is customary in such motions, the plaintiff notes that the proposed Settlement is “fair, reasonable, adequate, and in the best interests of Class members,” that it “provides a substantial and immediate benefit to them in the form of a multi-million dollar cash payment,” and that it is “the product of hard-fought litigation, which included substantial discovery, the exchange and review of key documents, the retention of knowledgeable and qualified experts on both sides who performed critical damage analyses, and arm’s-length negotiations.” And doubtless another consideration of both parties; it notes that the $4.5 million settlement “…is just less than half of Plaintiff’s total estimated damages.”

It also cautions that the settlement “…must be considered in the context of the risk that further protracted litigation might lead to no recovery, or to a smaller recovery for Plaintiff and proposed Class members.” It also acknowledges that the “Defendant mounted a vigorous defense at all stages of the litigation, and Plaintiff expects that it would have continued to do so during protracted discovery and trial and potentially through appeal.”

As noted earlier, since Jackson National has “replaced the investment choices and eliminated the fee structures that were the primary focus of the allegations of the Complaint,” the Settlement “does not provide for any further structural changes to the Plan.”

Under the terms of the agreement, the Settlement Fund will be administered by a Court-approved Settlement Administrator, and that amount – less administration costs, Court-approved fees, expenses, and Case Contribution Awards – will be distributed to Class Members “in accordance with the Plan of Allocation, or such other allocation plan approved by the Court,” though no payment less than $25 will be distributed to any Class Member who is a Former Participant of the Plan. That said, the entire Net Settlement Amount is to be allocated to Plan accounts of all Class Members, with plan accounts re-established for all Former Participants.

The settlement notes that the plaintiff here would receive an award “not to exceed $5,000” in recognition of her service, and that Class Counsel will also petition the Court for an award of attorneys’ fees not to exceed 33% of the $4.5 million Settlement Amount plus reasonable expenses.

All requests, of course, are subject to Court approval.