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Schlichter Strikes a $40 Million Settlement

Fiduciary Rules and Practices

Noting that the settlement agreement is “fair, reasonable, and adequate, and within the range of possible approval,” the parties in an excessive fee suit have come to terms.

More specifically, on Oct. 12, 2020, “after extensive litigation, lengthy discovery,[1] and protracted arm’s-length negotiations,[2] the Settling Parties reached a Settlement that provides meaningful monetary relief to Class Members.” 

The Settlement

The settlement (Pledger v. Reliance Tr. Co., N.D. Ga., No. 1:15-cv-04444, order 9/21/20) comes in a case[3] involving Reliance Trust and its role regarding the Insperity[4] 401(k) Plan, in which the plaintiffs—represented by the law firm of Schlichter Bogard & Denton—are enrolled. The plaintiffs are four participants in this plan for Insperity clients.

The settlement amount—actually $39,800,000—is massive, though it’s “only” about a third of the damages the participants claimed at trial. Moreover, there are some non-cash elements:

  • the removal of Reliance as the Plan’s discretionary trustee; 
  • a competitive bidding process to select Reliance’s replacement;
  • the requirement that if Insperity Holdings, Inc. retains a third party with discretionary authority or control over the approval of expenses submitted by Insperity Retirement Services, that party shall not also have discretion over the Plan’s investments; and 
  • any individual who exercises Insperity Holdings, Inc.’s discretionary authority shall not have responsibility over the financial results of Retirement Services. 

Already ‘Done?’

However, the settlement also notes that these non-monetary terms “have been satisfied (or effectively satisfied) through changes that have occurred with respect to the Plan.” For example, it notes that “Reliance no longer has any relationship with the Plan,” more specifically that Insperity Holdings has replaced Reliance as the 3(38) investment manager with Rocaton Investment Advisors, and that , rather than the Directors of Insperity Holdings exercising discretionary authority or control over the Plan, they modified the Plan and appointed the “Insperity Benefits Plan Committee” as the Plan administrator. The plaintiffs also state that it is their understanding that Insperity Holdings has “hired another independent consultant to assist the Committee in carrying out its fiduciary responsibilities.”

In support of their settlement agreement, the plaintiffs note that these “voluntary changes regarding the fiduciary governance of the Plan provides substantial value to Class members,” by ensuring that plan participants “are provided a retirement plan that is administered loyally and prudently moving forward.”

And, “because the non-monetary relief advocated by Plaintiffs has been effectively satisfied, it was not necessary for Plaintiffs to demand additional non-monetary terms as part of the settlement with Reliance or seek further relief from the Court as to their claims against Holdings.”

Other Elements

As for the other aspects of the settlement, it states that:

  • The amount of attorneys’ fees for Class Counsel shall not exceed $13,266,266 (which shall be recovered from the Gross Settlement Amount). 
  • Class Counsel also will seek reimbursement for all litigation costs and expenses advanced, not to exceed $750,000 (which also shall be recovered from the Gross Settlement Amount).
  • The named plaintiffs (Ronda A. Pledger, Sandra Britt, Jennifer Primm, Alex Brooks, Jr. and Edward Comer Buck) will receive an amount not to exceed $25,000 each (which shall also be paid from the Gross Settlement Amount directly to each Class Representative).

Also drawn from the settlement amount will be the costs of the Settlement Administrator (Analytics LLC) at an estimated cost of $199,507, and Gallagher Fiduciary Advisors, LLC as the Independent Fiduciary to review the terms of the Settlement at a cost of $18,000.

Next Steps

The settlement notes that “after over four years of litigation, a two-week trial and protracted arm’s-length negotiations with the assistance of a national mediator, Plaintiffs and Reliance have reached a proposed Settlement that provides nearly $40 million in monetary relief to Class members,” and that “in light of the litigation risks further prosecution of this action would inevitably entail,

Plaintiffs respectfully request that the Court:

“(1) preliminarily approve the proposed Settlement, 
“(2) approve the proposed form and method of notice to the Class, and 
“(3) schedule a hearing at which the Court will consider final approval of the Settlement.

“The Settling Parties request that a Fairness Hearing not be scheduled before Feb. 8, 2021 (or at least 120 days from the date of the order preliminarily approving the Settlement).”

Footnotes

[1] During discovery, Defendants produced approximately 98,000 documents consisting of over 500,000 pages Plaintiffs retained three experts, while Defendants retained four experts.

[2] According to the settlement agreement, the trial lasted two weeks, and ended on March 13, 2020. Fourteen witnesses testified at trial (10 for Plaintiffs, and 4 for Defendants), and 794 exhibits were admitted into evidence. The trial transcript was 2,392 pages in length. Following trial, the parties submitted their detailed Proposed Findings of Fact and Conclusions of Law on June 15, 2020. Given the volume of the trial record, these submissions were very lengthy, consisting of 936 pages in total.

[3] The complaint, filed in 2015, charged that Insperity failed to adequately monitor its appointee, Reliance Trust. As a consequence of this breach, the plan suffered substantial losses, through excessive fees and underperforming investments. The complaint also alleged that Reliance Trust Co., the discretionary trustee for the plan, breached its fiduciary duties by allegedly making “imprudent” investment decisions, an example of which was said to be a 2003 decision to hire an Insperity subsidiary—Insperity Retirement Services—as record keeper for the 401(k) plan, “rather than obtaining bids.” 

[4] Insperity is a for-profit company that serves as a professional employer organization (PEO) which provides human resources and business solutions to small and medium-sized businesses throughout the United States.