John Hancock Settlement Includes More Than Money

Another proprietary fund suit has been settled—for money, and procedural changes in plan administration. 

The defendant in this case is John Hancock, which was sued by plaintiff Jennifer Baker, a participant in the John Hancock plan from 2014 until 2019. That suit, filed just ahead of the COVID-19 lockdown, alleged a breach of fiduciary duties “to the detriment of the Plan and its participants and beneficiaries, by applying an imprudent and inappropriate preference for John Hancock products within the Plan, despite their poor performance, high costs, and lack of traction among fiduciaries of similarly-sized plans”—a practice the suit claimed “…resulted in tens of millions of dollars in lost investment returns to the Plan and its participants since the start of the class period in 2014.” 

Specifically challenged was that the defendant “used the Plan—one of the largest 401(k) plans in the country—to promote John Hancock’s proprietary financial products and earn profits for John Hancock,” as well as the charges for recordkeeping services.

Settlement Terms

The terms of the settlement[i]—announced just over a month ago—have just come to light. On the monetary side, it (Baker v. John Hancock Life Insurance Co., case number 1:20-cv-10397, in the U.S. District Court for the District of Massachusetts) calls for $14,000,000 to be set aside in a common fund for the benefit of Settlement Class. 

However, it also calls for “prospective relief.” In this case, among other things, John Hancock has agreed to:

• retain an independent investment consultant to provide ongoing monitoring and review of the options in the plan’s investment lineup for at least five years; 
• develop and approve an investment policy statement (IPS) for the plan; and 
• at or before the expiration of the plan’s current recordkeeping contract, to retain an independent consultant to assist with the negotiation of the next recordkeeping agreement.

The settlement agreement states that “these changes are intended to address the issues that Plaintiffs identified in the lawsuit regarding Defendants’ process for managing the Plan’s investment lineup and recordkeeping expenses.”

Attorney Fees

The settlement agreement requires that class counsel file their motion for attorneys’ fees and costs at least 14 days before the deadline for objections to the proposed settlement, though it also states that the “requested fees may not exceed one-third of the Gross Settlement Amount” and (as is typical) are subject to Court approval and Independent fiduciary review. The settlement also provides for recovery of Administrative Expenses related to the Settlement—and for “service awards” up to $10,000 for each of the named plaintiffs in the suit.

Now we’ll see if the court approves…

What This Means

Two things stand out here: the rapidity of the proceeding (from filing to settlement in about 15 months), and the addition of “remedial” actions to the monetary settlement, including one that extends for five years beyond the settlement itself. 

Up until recently, such additional conditions were rare, indeed almost exclusively something that the law firm of Schlichter Bogard & Denton employed. It is, however, the second in recent days where the participant-plaintiffs were represented by Nichols Kaster PLLP (in this case also Block & Leviton LLP)—a firm that has been quite active in these suits (including cases involving Lowe’s, Putnam Investments, Oklahoma’s BOKF NA, M&T Bank, MFS, SEI, Goldman Sachs, Deutsche Bank Americas Holding Corp., BB&T and American Airlines).

Footnote

[i] Though this case has proceeded to settlement more rapidly than most, there was a lot of activity in the past year; the settlement petition notes that defendants produced over 5,000 pages of documents, and plaintiffs produced over 4,000 pages, that the plaintiffs also served interrogatories on defendants (to which defendants responded), and responded to interrogatories served by defendants, and that class counsel noticed the deposition of a witness associated with John Hancock for Feb. 10, 2021, but that deposition was postponed when a necessary participant was diagnosed with COVID-19. There was also a full-day mediation on April 9, 2021 before the Hon. Layn Phillips, a former U.S. District Judge, who the agreement notes “has successfully facilitated the resolution of a number of ERISA class actions similar to this one.”