An excessive fee case whose petition to dismiss was still pending has opted to settle instead.
The suit—filed in August 2020—had alleged that defendants here—Mercy Health Corporation Employees’ Retirement Plan, the Rockford Health System Retirement Plan, and the Rockford Health Physicians Retirement Plan[1]—“failed to employ a prudent process for managing the Plans and failed to prudently monitor and control the Plans’ fees. Instead, Defendants allowed the Plans to pay excessive sales commissions on investment products and services. These sales commissions have increased the investment fund fees that the Plans’ participants must pay by as much as 135%. Likewise, an add-on investment service in the Plans that utilizes an outside firm to choose participants’ investments (known as a ‘managed account service’) charges a hefty fee mark-up to generate commissions.”
The suit[2] also alleged that the defendants “…failed to monitor the performance of certain investment funds held by the Plans,” including “…several funds managed by an affiliate of the Plans’ administrative services vendor, Voya,” funds that the plaintiffs here alleged appeared to have “…been promoted by Voya, yet there is no reasonable fiduciary basis for Defendants to retain them.” The suit goes on to allege that those funds “have consistently underperformed their benchmark indexes, and the investment marketplace for similarly-sized plans is replete with lower cost, better performing funds”—and that the plan’s retention of those funds “…illustrates Defendants’ failure to prudently monitor the Plans’ investment performance on behalf of participants.”
Mercy Health had moved to dismiss the suit a year ago—citing the excessive fee suit involving Northwestern University as dealing with similar issues, which was taken up by the U.S. Supreme Court in July. However, the settlement agreement explains that by June 2021, the parties had agreed to put the proceedings on hold and try mediation. Just last month, a federal judge put a half dozen 401(k) excessive fee suits on hold pending a decision by the Supreme Court in a case that ”will likely clarify the pleading requirements for ERISA breach of fiduciary claims in cases such as this…”
The Settlement
Now, as for the settlement (Hill v. Mercy Health Corp., N.D. Ill., No. 3:20-cv-50286, motion for settlement approval 11/5/21), it calls for a Gross Settlement Amount of $3,900,000, which is about a quarter of the estimated losses by the plaintiffs (some $16 million). More than that, the Mercy Health defendants agree that, for three years following the Settlement Effective Date, they “…shall retain one or more independent consultants pursuant to ERISA § 3(21), who is not an existing investment or service provider or affiliated with the Plans, to provide ongoing assistance in reviewing the investment options in the Plans, the fees for those investment options, and any brokerage fees incurred by the Plans.”
As for the attorney’s fees, while the settlement—filed in the U.S. District Court for the Northern District of Illinois—“…does not purport to establish a presumptively reasonable amount.” It notes that those fees will not exceed one-third of the Gross Settlement Fund ($1,300,000.00), and that the requested Class Representative Compensation for the named plaintiffs will not exceed $5,000 each.
The settlement is, of course, subject to the review and approval by Judge Iain D. Johnston.
Footnotes
[1] According to the suit, the plans have around $613 million in combined assets as of the most recently reported year (2018): $492 million in the Mercy Plan, $114 million in the RHS Plan, and $7 million in the RHP Plan. The plans also reported a total of 15,435 active accounts: 11,006 in the Mercy Plan, 3,733 in the RHS Plan, and 696 in the RHP Plan.
[2] The plaintiffs here are represented by Nichols Kaster PLLP and Prinz Law Firm PC.
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