It’s taken a while for the details to emerge, but we finally know the terms of a proprietary fund settlement—cash and a plan design “twist.”
This suit—filed way back on Valentine’s Day, 2017—involves allegations by a participant in its own plan (and funds), one David G. Feinberg, on behalf of the T. Rowe Price U.S. Retirement Program and all “similarly situated Plan participants and beneficiaries (henceforth, collectively, ‘participants’), and all predecessor plans.” The suit claimed that the T. Rowe Price plan fiduciaries breached their fiduciary duties by only offering T. Rowe Price’s own in-house investment funds in its 401(k) plan, which the plaintiff claims “provided a windfall to T. Rowe Price affiliates T. Rowe Price Associates, Inc. (“TRP Associates”) and T. Rowe Price Trust Company (“TRP Trust”), collectively the ‘TRP Investment Affiliates.’”
The settlement announcement (David G. Feinberg et al. v. T. Rowe Price Group Inc. et al., case number 1:17-cv-00427, in the U.S. District Court for the District of Maryland) was announced way back in July 2021, and came after Chief Judge James K. Bredar of the U.S. District Court for the Maryland rejected T. Rowe Price’s bid for a pre-trial win back earlier last year, even as he evidenced skepticism about the merits of the case—if not the genre of such litigation altogether.
The Terms
That said, the proposed settlement (Feinberg v. T. Rowe Price Grp., Inc., D. Md., No. 1:17-cv-00427, motion for preliminary settlement approval 1/7/22) provides (as they all claim to) “significant relief to the Class,” which in this case means:
- a cash payment of $7,000,000;
- the addition of a brokerage window feature “which will allow Plan participants, for the first time, to invest in funds other than T. Rowe Price Funds” (within 6 months of the settlement date); and
- “a 2019 payment by T. Rowe Price of $6.6 million to many Class members that resulted from this lawsuit.”
By way of lending credibility to the adequacy of the settlement, it’s noted that “the Parties agreed to the settlement only after arms-length negotiations, which were conducted by highly experienced Class Counsel and Defense Counsel who have litigated many similar cases,” and that “the principal settlement negotiations were mediated by U.S. Magistrate Judge A. David Copperthite of this Court; Robert Meyer of JAMS mediated a dispute regarding one issue.”
Special Payment
With regard to that final item, the settlement references a January 2019 payment of $6.6 million to Plan participants who had a balance in their Plan accounts and were T. Rowe Price employees at the end of the years 2011, 2012, or 2013—a special payment that the court previously acknowledged was in response to this lawsuit. “Defendants made this payment in an attempt to mitigate their liability for Plaintiffs’ claims that Defendants violated ERISA’s self-dealing proscriptions by causing Plan assets to be used to pay fees for the use of T. Rowe Price’s own mutual funds in the Plan,” the settlement explains, going on to note that “the payment was intended to put the Plan on an equal footing, for the years 2011-2013, with other plans offering T. Rowe Price funds that received credit for record-keeping fees.”
The settlement goes on to note that “if that payment had been invested in the Plan and earned the overall Plan return, it would have an estimated appreciated value through June 30, 2021 (the latest date for which Defendants have provided Plaintiffs with relevant data) of over $11 million.” The point being, apparently, that this litigation has been successful at obtaining recoveries for the participants beyond the immediate settlement’s terms.
Class Counsel Compensation
Or, perhaps more cynically, that it should be taken into account in establishing the fee for plaintiffs’ counsel (Cohen Milstein Sellers & Toll PLLC and McTigue Law LLP). The settlement contemplates that they might seek as much as $3.5 million—which would be half of the current cash settlement, but (only) “19% of the $18 million total monetary benefit that could accrue to the Class through the proposed settlement (i.e. the sum of the settlement amount—$7 million—and the appreciated value of the Special Payment—$11 million[i]).”
Greasing the wheels of that argument, the settlement reminds that the addition of the brokerage window feature while “…difficult to quantify given the uncertainties of predicting how Class members will use this feature,” leaned on estimates by the plaintiffs’ expert that the plan “…had $58.9 million in losses during the Class Period through January 31, 2020 from using the 39 underperforming T. Rowe Price Challenged Funds compared to widely available Vanguard or Fidelity funds.” And therefore the settlement claims that “the Brokerage Window has the potential to be the most valuable feature of the Settlement for Plan participants since they could conceivably utilize it to mitigate or eliminate the large losses from these funds going forward.”
All of that groundwork doubtless to keep the requested amount to be seen by the court—which must still approve the settlement—as being within the 25% to 33% of settlement amount typical in these class actions. But just in case those points might be overlooked, the settlement takes pains to point out that “…Class Counsel are highly experienced and have exceptional qualifications for this type of litigation,” and that, “moreover, when Class Counsel submit their fee petition, the data will show that there is a negative lodestar[ii] multiplier for their work in this case, indicating that they would be providing their services to the Class at a discount.”
Other Expenses
The settlement also notes an expectation that “Class Counsel will seek reimbursement for the reasonable litigation expenses they have incurred in litigating this action, which include, for example, payments to their three experts”—and that it expects those expenses to be approximately $565,000. Additionally, the settlement says they’ll be asking for “service awards not to exceed $15,000 for each of the eleven Class Representatives, id., who provided valuable assistance to Class Counsel in prosecuting the action.”
Now, that’s a larger group (and a larger amount) than is “normal” in such cases, but the settlement points out that “all the Class Representatives produced discovery in this case pursuant to document requests and interrogatories and followed its progress; six were deposed and several attended court hearings and mediation conferences. All also exposed themselves to the risk of adverse career consequences by being involved in a suit against their former or current employer.” It also references as a point of reasonability the $20,000 awarded to class representatives in the case involving John Hopkins University and its 403(b) plan.
Will the court approve? Well, there are some unusual factors to consider—we’ll just have to wait and see…
[i] And 26% of the settlement amount plus the initial value of the $6.6 million special payment, the settlement acknowledges.
[ii] Basically, the lodestar method involves multiplying the number of hours reasonably devoted to the case by a reasonable hourly rate—the latter may, of course, vary based on the geographical area, the nature of the services provided, and the experience of the attorneys. And, of course what’s deemed “reasonable.” It’s not the first time that has been raised in these cases; it arose in a challenge to a suit involving SEI, and by the judge in a proprietary fund suit involving Franklin Templeton, who reduced the plaintiffs’ counsel fee to 25% of the settlement from 28%, and in a stable value suit (where it was applied to justify the settlement apportionment).
