Lowe’s Settles for $12.5 Million—and Change

The terms of an excessive fee settlement have come to light—and there’s a (relatively) unique twist.

The suit was filed nearly two years ago against the plan fiduciaries of the $5.2 billion Lowe’s 401(k) plan and Aon Hewitt Investment Consulting, Inc. (which served as the plan’s fiduciary investment consultant) for breach of their fiduciary duties under ERISA for what participant-plaintiff Benjamin Reetz alleged was an imprudent selection and retention of the Hewitt Growth Fund for the plan. 

The suit charged that the fund was retained though it was a new and largely untested fund at the time it was added to the plan, that it underperformed its benchmark, that it was not utilized by fiduciaries of any similarly sized plans and was “generally unpopular” in the marketplace. The suit claimed the move of some $1 billion in assets to that fund cost participants $100 million.

The Terms 

All that said, “After three years of hard-fought litigation,”[1] two of the parties—Plaintiff Benjamin Reetz and Lowe’s Companies, Inc.—have come to terms. The “partial” settlement, announced in late April, calls for a cash settlement of $12.5 million (“a fair and reasonable settlement amount considering the nature of Plaintiff’s claims, which focus on Aon’s self-interested conduct, and Aon’s ultimate role as a “delegated” investment manager with unilateral decision-making authority over Plan investments”)—and “one thing Aon can’t provide: prospective relief.”

Specifically, under terms of the settlement (Reetz v. Lowe’s Cos., W.D.N.C., No. 5:18-cv-00075, motion for settlement approval 5/28/21), the Lowe’s Defendants[2] have agreed to issue a request for proposal (RFP) for a delegated fiduciary investment manager for the Plan within 12 months of the Effective Date of the Settlement. As part of that RFP process, the plan’s Administrative Committee will: 

1. engage an outside consulting firm with experience conducting similar RFPs; 
2. invite candidates in the RFP process to freely propose alternative investment options, investment strategies, and/or investment lineup structures to the Committee; and 
3. consider all options presented. 

“This,” the settlement petition states, “is effectively what Plaintiffs allege should have happened years ago, before Aon recommended restructuring the Plan lineup and was selected as delegated fiduciary without an RFP process.” Essentially, the settlement concludes, “the Administrative Committee has agreed to reevaluate through an RFP process all of the relevant decisions (regarding investment lineup structure, the delegated investment manager, and specific investment strategies and investment options) that led to the selection of the Aon Growth Fund for the Plan”—relief that, the plaintiff argues “addresses the core issues[3] raised by the lawsuit, and strongly supports approval of the Settlement.”[4]

Attorney Fees

The Settlement Agreement states that the plaintiff’s attorneys[5] “will seek no more than one-third of the Gross Settlement Amount ($4,166,666.67) in attorneys’ fees,” along with “recovery of litigation costs and Administrative Expenses, and a Service Award of up to $10,000 to the Named Plaintiff as the class representative, subject to Court approval and Independent Fiduciary review.”   

What’s (Still) Ahead

The settlement here notes that “the claims against Aon have always been the strongest claims in this case,” and that “when Plaintiff filed the action, only the Lowe’s Defendants—not Aon—filed a motion to dismiss. Once discovery was complete, the record reflected significant evidence of disloyalty by Aon but did not support a breach of loyalty claim against the Lowe’s Defendants.” Moreover, the plaintiff here claims that their “summary judgment briefing makes clear that his case was focused on Aon, with the claims against Aon always addressed first and the Lowe’s Defendants presented as secondary defendants who Plaintiff alleged simply did not take adequate precautions to protect the Plan from Aon (the entity that the Lowe’s Defendants believed to be their trusted investment advisor and delegated investment manager).”

All this by way of affirming that “the Settlement with the Lowe’s Defendants is reasonable in relation to the Defendants’ alleged relative fault and preserves the primary class claims for trial (i.e., those asserted against Aon),” and that “the $12.5 million partial settlement amount is a meaningful recovery that represents approximately 5% to 18% of the total estimated damages calculated by Plaintiff’s expert (depending on loss model).” This, the settlement petition comments, is “on par with settlements in many class action cases that provide a full release of all claims.”

Will the court agree? And what about the claims remaining against Aon Hewitt? We shall see. 

Footnotes

[1] During which, according to the settlement, the parties “produced more than 400,000 pages of documents: the Lowe’s Defendants produced more than 169,000 pages, Aon produced more than 244,000 pages, and Plaintiff produced more than 2,400 pages.” The plaintiff also subpoenaed six third parties and received nearly 25,000 pages of documents in response, the parties took 17 depositions and “have served expert reports (and/or rebuttal reports) from nine expert witnesses, including five experts retained by Plaintiff.”

[2] An element worth mentioning here for the benefit of plan committee members—after the original suit was filed, the plaintiff amended their suit adding as defendants the individual members of the Administrative Committee (this frequently happens as soon as the names of the committee members are known). However (as part of a stipulation regarding the certification of the class bringing suit), the parties subsequently agreed to dismiss the individual members of the Administrative Committee as defendants, while Lowe’s agreed that it “will be responsible” for any judgment based on their acts or omissions.

[3] The vast majority of these settlements call only for cash. Indeed, up till now to my recollection, only the law firm of Schlichter, Bogard & Denton have, and have consistently, included terms of remedial action(s) to be taken as part of the settlement, increasingly for changes in approach/practices extending as much as three years beyond the settlement date. This settlement—calling for changes, albeit to occur within a 12-month window—is therefore (still) somewhat unique.  

[4] Interestingly enough, as a basis for comparison on the reasonableness of the settlement (and perhaps to plant a seed of consideration for the remaining litigation involving Aon Hewitt), the plaintiffs here said it might be “useful to consider the settlement that was reached in another recent case involving the Insperity 401(k) Plan”—a case that did not involve this law firm, or these defendants, but did involve (roughly) similar allegations, and one in which the plan sponsor fiduciaries contributed nothing to the massive $39.8 million settlement. So, why bring it in here? Well, apparently to support the reasonableness of the settlement, noting that the “class in this case is already $12.5 million ahead of the class in Pledger, as Plaintiff has negotiated a $12.5 million settlement payment from the plan sponsor while preserving all claims against the investment manager (which have yet to be tried).”

[5] The settlement explains that, “based on their experience, the firm’s attorneys have been interviewed by several media outlets in connection with their ERISA work, and the firm’s undersigned counsel has spoken at multiple national forums on ERISA litigation.” Accordingly, “it is entirely warranted for this Court to pay heed to their judgment in approving, negotiating, and entering into a putative settlement.” For our purposes, it is worth noting that the plaintiffs in this case are represented by Nichols Kaster PLLP (and Tharrington Smith LLP), the former having brought a number of similar suits in recent years, including against John Hancock, where a settlement was also announced in April as well as in cases involving Putnam Investments, Oklahoma’s BOKF NA, M&T Bank, MFS, SEI, Goldman Sachs, Deutsche Bank Americas Holding Corp., BB&T and American Airlines.