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Transamerica Settles 401(k) Suit, Including Procedural Changes


Transamerica has now settled another suit brought by participants who had alleged a breach of fiduciary duty in retaining proprietary funds in its own 401(k).

Specifically, in a suit filed by participant-plaintiffs Jeremy Karg, Matthew R. LaMarche and Shirley Rhodes (individually and as representatives of a class of similarly situated persons) in Transamerica Corporation’s $1.9 billion, 17,000 participant 401(k) Plan in the U.S. District Court for the Northern District of Iowa, in the waning hours of 2018, it was alleged that the defendants “improperly selected, retained, and monitored six funds offered to Plan participants.” The plaintiffs alleged that these investments resulted in total damages of at least approximately $15 million.

The deal comes five years after the company negotiated a $3.8 million settlement in a lawsuit raising similar allegations—although this suit distinguished its issues from this one. That suit, Dennard, et al. v. Transamerica Corp, et al (No. C15-0030, N.D. Iowa) wound up in a settlement that also required Transamerica to make structural changes to its plan, including capping fees associated with certain in-house investments, adding a non-Transamerica managed low-fee bond fund, and providing record-keeping services to the plan at no cost. However, the plaintiffs in this case had noted that “Dennard’s limited release does not encompass the claims alleged herein under 29 U.S.C. § 1104(a)(1)(B) for Transamerica’s failure to monitor the Plan and remove imprudent, poorly performing investments.”

Settlement Terms

That said, the settlement (Karg v. Transamerica Corp., N.D. Iowa, No. 1:18-cv-00134, motion for preliminary settlement approval 6/23/21), at least in monetary damages, is for $5,400,000, along with non-monetary relief which requires, during a three-year compliance period, that “Defendants continue to provide fiduciary training to the Trustees of the Plan and continue to retain an unaffiliated investment consultant to provide independent investment consulting services to the Trustees.”

The agreement states that the fiduciary training will be conducted by outside legal counsel or by the Plan’s unaffiliated investment consultant, and all new Trustees shall be provided with a copy of the most recent fiduciary training materials as part of their onboarding. Moreover, the unaffiliated investment consultant[i] will provide independent investment consulting services to the Trustees “on approximately a quarterly basis.” And while such additional conditions are not without precedent (though they remain relatively rare) this time the plaintiffs’ counsel put a price tag on it—estimating that “the future monetary value of the annual fiduciary training is $30,000 and the value of the independent investment consultant is $420,000.”

Other Fees

The settlement agreement[ii] notes that Plaintiff’s Counsel[iii] (Sanford Heisler Sharp LLP and Shindler, Anderson, Goplerud & Weese PC) will apply for “reasonable attorneys’ fees of $1,950,000 million, or one-third of the $5,850,000 million value of the Monetary and Non-Monetary Relief”—as well as reimbursement of their out-of-pocket costs, which total $457,283.66. All of that to be paid from the Settlement Fund prior to distribution to Class Members.[iv]

The agreement also notes their intention to petition the court for an incentive award not to exceed $15,000 each “in recognition of their service as Class Representatives.” The settlement explains that “such awards compensate plaintiffs for the efforts and risks they have undertaken, without which no settlement would be possible”—and that “they provide an incentive for other employees to bring cases that vindicate the public’s interest in having retirement funds prudently managed.”

It’s worth noting that the settlement agreement also states that “defendants deny the allegations in full and contend that their process for selecting, overseeing, and retaining the Challenged Funds complied with the fiduciary standards under ERISA. Defendants also contend that each of the Challenged Funds was a reasonable investment option during the Class Period and that they committed no fiduciary breaches of any kind in their administration of the Plan. Defendants and their experts further challenge Plaintiffs’ expert’s damage calculations and deny that Plaintiffs are entitled to any damages whatsoever.”

[i] The settlement states that the training will be conducted on a yearly basis by outside legal counsel or by the Plan’s unaffiliated investment consultant, at Transamerica’s election. 

[ii] “During fact discovery, Plaintiffs reviewed tens of thousands of documents, engaged in extensive written discovery, and took and defended thirteen depositions. Plaintiffs served over 60 Request for Productions and diligently reviewed many documents, including Plan Documents, Investment Policy Statements, minutes and reports for the quarterly and special meetings of the Trustees of the Plan from 2008 until 2020, service agreements with Plan consultants, Summary Plan Descriptions, disclosure documents, and documents relating to the Challenged Funds. Plaintiffs further served over 270 Requests for Admissions and 20 interrogatories. Plaintiffs deposed individuals engaged in each facet of the administration and monitoring of the Plan and its investment options, including Plan Trustees, Plan consultants, Plan administrators, the portfolio managers of the Six Challenged Funds, and legal counsel of the Plan. Plaintiffs also issued and served third-party subpoenas on the consultants for the Plan and the Transamerica Pension Plan and filed a motion to compel in the District of Massachusetts to enforce compliance with one of the subpoenas.”

[iii] The settlement—perhaps seeking to justify their fee request, took pains to outline work they had undertaken “even before filing the original complaint.” Not that it speaks to anything terribly unusual, but it offers a bit of a checklist, including “Interviewing over 60 current and former Plan participants to assess their claims and explore the impact of fund underperformance on Plan participants,” as well as “a) Examining and evaluating the Transamerica Plan disclosure documents sent to Plan participants detailing the fees and investment performance of each Plan investment option; b) Reviewing Department of Labor filings from the Plan to identify fiduciaries and quantify assets under the Plan’s management; c) Assessing the investment structure and investment objectives of each Plan option based upon filings made with the Securities and Exchange Commission (“SEC”); d) Reviewing SEC filings entered on Form ADV by Transamerica and its affiliated investment advisers; e) Interviewing over 60 current and former Plan participants to assess their claims and explore the impact of fund underperformance on Plan participants; f) Identifying appropriate benchmarks and comparator funds; g) Calculating the 10-year performance of each of the Plan’s investment options relative to the selected benchmarks and comparator funds using financial data and performance calculations derived from Morningstar, a leading financial services organization in the United States; h) Ascertaining potential injury to the Plan; and i) Conducting legal research.”

[iv] Which, the agreement notes, “will be deposited directly into their 401(k) account. Former participants will receive a direct payment by check, but can otherwise elect to have their distribution rolled over into an eligible retirement account or plan. This is consistent with other settlements and will minimize the portion of the Settlement Fund paid as taxes and also minimize waste due to uncashed checks.”