General Electric will pay $61 Million in ‘Largest Ever’ 401(k) Mismanagement Suit
After 6 years of litigation, GE will settle the lawsuit—the largest-ever ERISA case alleging retirement plan mismanagement—which claimed underperforming funds were the only actively managed options available to participants.
A landmark ERISA case about employer-sponsored retirement plans was settled last week for $61 million, after six years of litigation and more than $1 million in expenses on the part of the plaintiffs. The settlement, which involves General Electric and a large class of plaintiffs, is being called the largest ever in an ERISA (Employee Retirement Income Security Act) case alleging that a retirement plan improperly offered proprietary funds.
The settlement in the case, Haskins, et al. v. General Electric, et al., still must be approved by the United States District Court for the District of Massachusetts and will be heard on October 17. However, the settlement has been agreed to by both sides, with the papers citing the many years that litigation can take and the uncertainty and risk that the plaintiffs face.
The actual damages were calculated at $283 million, but the settlement, which is about 21.4 percent of that amount, is at the higher end of the range for similar ERISA class-action suits, according to court documents.
The lawsuit class could include as many as 250,000 GE employees who participated in the retirement plan through the period in question (January 11, 2011, through June 30, 2016)—a group that is estimated to have invested billions of dollars in the plan annually.
Improperly Managed Funds
The suit alleged that the GE retirement funds were the only options available to plan participants in the 2011 to 2016 time period, and that the fund “substantially underperformed other comparable investment options” during that period. “Plaintiffs further allege Defendants refused to consider replacing those funds or their managers and thereby breached their duties of loyalty and prudence by failing to adequately monitor Plan investment options,” the suit said.
The plaintiffs in the case also said that GE sold its management company GEAM for $485 million to another firm in 2016, while retaining underperforming funds during that time in order to inflate the sale price of GEAM.
The firm representing the plaintiffs, Sanford Heisler Sharp, said the results were a win for its clients: “We are pleased to have achieved an ERISA settlement of this magnitude, the largest ever in an ERISA case alleging a retirement plan improperly offered proprietary funds,” said Charles Field, chair of the financial services litigation group at Sanford Heisler Sharp. “It is a great result for GE employees who had invested in the GE Funds.”
Mediation and Settlement
In May of this year, the two parties entered into mediation with a Robert A. Meyer, who is an experienced lawyer in civil and ERISA cases. A settlement was not reached at that time, but negotiations continued.
On August 3, eight days before oral arguments over a possible summary judgment, the parties reached a settlement agreement. GE, GEAM, and their respective insurers will pay $61 million into an escrow account as a result of the settlement. After attorneys’ fees and other administrative costs, the remaining funds will be distributed to members of the class-action suit.
Officials noted that attorney fees could reach up to one-third of the settlement, with the case documents noting that “courts have found that ‘[a] one-third fee is consistent with the market rate’ in a complex ERISA 401(k) fee case such as this matter.”
All former GE employees who fall into the class represented in the suit will be notified of the settlement if it is approved by the district court. Those who qualify will be mailed a form enabling them to elect to receive their payments from the settlement through a rollover fund into an eligible retirement account. The parties also said they planned to create a website for post-settlement documents and information.
From: BenefitsPRO