In what was described as “an excellent result and in Class members’ best interests,” the parties in an excessive fee suit involving both a 401(k) and 403(b) plan have come to terms.
The suit involved the 401(k) and 403(b) plans of Allina Health System, which have nearly $2.3 billion in assets and 47,500 participants, according to the complaint. The suit, filed just over two years ago by participants Judy Larson, Janelle Mausolf and Karen Reese, claimed that the fiduciary-defendants “did not try to reduce the Plans’ expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the Plans to ensure it was prudent.” More succinctly, the suit had alleged that plan fiduciaries “abdicated” their responsibilities, allowing the plans’ trustee to “…to lard the Plans with high-cost mutual funds.”
Reasoned ‘Able’
The $2.425 million settlement, which the parties’ say “represents more than 30% of the Class’s potential damages and eliminates the numerous, substantial risks, expenses and potential delays that would lay ahead if they continued to prosecute this case.”
In fact, the settlement agreement notes that, “following dismissal of several of the Complaint’s claims, Class Counsel determined maximum potential damages to the Plan of $8 million,” and thus, concludes that the Settlement Amount totaling approximately 30.3% of the Class’s maximum potential damages was reasonable. Particularly since, as the settlement also explains, “the $8 million figure is based in large part in alleged kickbacks on investment fees that FTMC received from non-affiliated investment managers,” and that as the defendants claimed that these monies actually offset recordkeeping and other charges to the Plans, that “would reduce the potential full damages figure by at least $4 million.” Fidelity served as the 401(k) plan trustee and custodian of the 403(b) plan, as well as the recordkeeper for both plans.
Previously the court had determined that the plaintiffs had failed to state a claim as to the breaches of fiduciary duty except regarding the decision to allow their provider to select higher cost affiliated funds over identical, but lower cost K-asset class funds, failing to obtain less expensive recordkeeping fees, including failing to attempt to renegotiate the fees for a number of years, and allowing Fidelity Management Trust Company (FTMC) to accept alleged “'kickbacks'” in the form of 'revenue sharing' with non-FTMC mutual funds in the plan’s core options and mutual fund window.'” The court also allowed to stand a claim regarding the failure to monitor other fiduciaries – “to the extent Plaintiffs had plausibly alleged that Defendants breached their fiduciary duties” – as well as a claim regarding disclosures regarding those fees “to the extent Defendants simply described charges to participants’ account as ‘fees.’”
Settlement Terms
The settlement fund will cover the costs of an independent fiduciary to review the Settlement, up to $25,000 (defendants will be responsible for any fees of the independent fiduciary in excess of that sum).
As for the plaintiffs’ counsel – well, they will be seeking approval for compensation of up to one-third of the Settlement Amount ($808,252.50), plus reimbursement of expenses up to a maximum of $50,000.00.
