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would win in the end, there's a long road to get there. So I think
that's why you often see settlements at about that point.
Manganaro: We don't tend to see very many instances of
summary judgment in these lawsuits. Is there a reason why
that might be?
Huss: Most of them do get settled. You don't get to a motion for
summary judgment, usually, until after you've done all of the
discovery work in the case, which is, in many ways, the largest
cost element of a case. But there have been some cases that have
actually gone to trial, a few of them.
You may not win the entire case on summary judgment.
But perhaps you could knock out some of the plaintiffs' claims.
At the time of summary judgment, you normally have had
expert witnesses on both sides testifying as to the performance
of the funds or what is an appropriate recordkeeping charge.
Then you can use some of that evidence that has built up to
perhaps whittle the claims down. After that, you're facing
trial and maybe have been able to back the plaintiffs'
expectations down and get, hopefully, a more
reasonable settlement.
Manganaro: What type of legal weight, if
any, do settlements actually carry? I think the
answer is not much at all. Correct?
Costin: That's right. A decision to settle will have
no legal authority or precedent for other cases
coming up behind it. It simply means that, in that
particular case, under this specific set of facts, and for
those parties that were pulled together, they decided it made
sense to settle instead of litigate.
Engaging in these settlements, there's no admission of
liability. It doesn't necessarily mean anybody did anything wrong.
It certainly doesn't mean a court found that anyone did anything
wrong. It just means two parties made that business decision.
Manganaro: I think people read into these settlements, right?
Costin: People often come to me and say, " What can we draw
from these settlements? What does it mean that this company
decided to settle for $2 million and this company decided to
settle for $5 million? "
There are so many different factors that would lead one
defendant to decide to settle for a specific amount on that particular
day. One of the most important driving factors for me is
what jurisdiction you're in and which judge you have. You could
have a defense-oriented judge who looks like he's leaning in your
direction, and so your appetite for settlement might be much
less than if you have a judge who's really indicating that he'll lean
toward the plaintiffs; that's going to up your settlement value.
Many of us know the judges in our jurisdictions and who will be
friendlier in litigation and who will be tough.
Certain jurisdictions are known to have a very fast track.
That is something that needs to be considered, too. Is this the
kind of thing where we'll be under the gun for discovery and
it will be super burdensome for our client? That might up the
settlement value.
You also have, quite frankly, some reputational issues.
Companies might decide, we'd rather just settle; we don't want
to have the press or the media all over us. And you've got a fiduciary
insurance carrier that is involved too often covering the
defense costs and might have a say and whether or not they'd
rather just settle for less than pay to go to trial.
Obviously, the merits and whether or not you're strong on
the facts will really run whether or not you settle, but there
are so many other variables. So there's not much you can draw
from the number that have done that.
Carswell: Until we get to a point where there's some concrete
law there, it's just one company deciding to get out of a case
and do what they need to do so. What we can take from it is
look at the allegations in the complaint, and then you can think
about ways to mitigate your risk. It's good to pay attention
to these lawsuits in case of some settlement just
to know what your possible risk is. It in no way
applies any new law or sets a standard for other
firms to follow.
Manganaro: To focus on what courts have said,
in the cases alleging excessive recordkeeping
fees, have we seen any legal conclusions drawn
about what kind of fee-asset-based or participant-based-for
recordkeeping is appropriate?
Costin: No, the courts have said it's really about what
the net is that's charged to the person for the services actually
rendered. And there are pros and cons to each. In an asset-based
model, you have folks who have a larger account balance who
pay more and those with smaller account balances paying less,
and many people would say that's more fair to the little guy.
And other people would say that a per participant fee is fairer,
because everyone pays the same amount. One thing, too, to look
at when you're trying to figure out whether the recordkeeping fee
is appropriate is to consider what services are actually rendered.
You know, recordkeeping services are not one size fits all.
Different bells and whistles are offered by different companies.
Make sure you're documenting that you went through that deliberation
and why exactly you made the decision to pay what you're
going to pay for the services rendered.
Manganaro: And what about getting lower fees and passively
managed funds?
Carswell: Courts have pretty consistently taken the position that
there's a place for actively managed funds in retirement plans.
It's not always just cost. You have cases when the committee or
the plan sponsor has a process and decided why there should be
actively managed funds. When committees have clearly stated
their reasons, it's a lot tougher for plaintiffs to succeed on those
type of claims. -PS
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