10 big settlements in 401(k) excessive-fee lawsuits

July, 2017 | By Greg Iacurci

Lawsuits attacking allegedly excessive 401(k) fees, both for investment management and recordkeeping and administration, have proliferated since roughly the middle of the 2000s, when attorney Jerry Schlichter began bringing them en masse against large U.S. corporations.

Many have settled since then, including a recent self-dealing lawsuit involving American Airlines and an affiliated investment management firm. Parties in that lawsuit recently agreed to a $22 million settlement.

That, though, is small potatoes compared with some of the other paydays in these legal scuffles. Here are some of the largest settlements in excessive-fee cases, from smallest to largest.

10. First Union: $26 million

Case: Franklin et al. v. First Union Corp.
Year settled: 2001
Year filed: 1999
Court: Eastern District of Virginia

9. Ameriprise: $27.5 million

Case: Roger Krueger et al. v. Ameriprise Financial Inc. et al.
Year settled: 2015
Year filed: 2011
Court: District of Minnesota

8. International Paper: $30 million

Case: Beesley et al. v. International Paper Company et al.
Year settled: 2014
Year filed: 2006
Court: Southern District of Illinois

7. MassMutual: $30.9 million

Case: Dennis Gordan et al. v. MassMutual Life Insurance Co. et al.
Year settled: 2016
Year filed: 2013
Court: District of Massachusetts

6. Novant Health: $32 million

Case: Kruger et al. v. Novant Health Inc. et al.
Year settled: 2015
Year filed: 2014
Court: Middle District of North Carolina

5. Cigna: $35 million

Case: Nolte et al. v. CIGNA Corporation et al.
Year settled: 2013
Year filed: 2007
Court: Central District of Illinois

4. Northern Trust: $36 million

Case: Diebold et al. v. Northern Trust Investments N.A. et al.
Year settled: 2015
Year filed: 2009
Court: Northern District of Illinois

3. Boeing: $57 million

Case: Spano et al. v. Boeing Company et al.
Year settled: 2015
Year filed: 2006
Court: Southern District of Illinois

2. Lockheed Martin: $62 million

Case: Abbott et al. v. Lockheed Martin Corporation et al.
Year settled: 2015
Year filed: 2006
Court: Southern District of Illinois

1. Nationwide: $140 million

Case: Haddock et al. v. Nationwide et al.
Year settled: 2014
Year filed: 2001
Court: District of Connecticut

DOL faces tough road in revising or repealing fiduciary rule

Any significant changes would likely spur a lawsuit, and the courts have been tougher on regulators when they reverse course on rules after a new president comes into office

April 13, 2017 | By Investment News


As the Department of Labor begins to review its fiduciary duty regulation, it faces a daunting road ahead to modify or repeal the measure.

If the agency makes changes — as the Feb. 3 directive from President Donald J. Trump seems to foreshadow — it could generate lawsuits from proponents. But the DOL will not get the same benefit of the doubt from the courts in that round of lawsuits that it has in current litigation brought by opponents of the rule.

The DOL has been undefeated so far in court defending the rule in part due to something known as Chevron deference. That principle arose out of a 1984 Supreme Court case, Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., in which the court ruled that the Environmental Protection Agency's interpretation of the Clean Air Act was "entitled to deference." Since then, courts have given agencies the leeway to enforce their own regulations if there's any ambiguity surrounding them.


But the courts have been tougher on regulators when they change their mind on rules after a new presidential administration comes into office.

At the beginning of President Ronald Reagan's administration, the National Highway Transportation Safety Administration tried to scrap a rule from the Jimmy Carter administration requiring passive restraints, such as automatic seat belts or airbags, in vehicles. In Motor Vehicle Manufacturers Association v. State Farm Insurance, the Supreme Court ruled that the action was "arbitrary and capricious." The court held that NHTSA failed to prove that taking the regulation off the books was necessary.

"An agency changing its course by rescinding a rule is obligated to supply a reasoned analysis for the change beyond that which may be required when an agency does not act in the first instance," the court wrote in its opinion.

The next few months could be arduous for the Trump Labor Department.

"It is a difficult exercise to make a substantial change in a rule that an agency has adopted," said Robert Plaze, a partner at Proskauer Rose and a former Securities and Exchange Commission official.

Adding to the DOL burden is its accelerated time line. It says it will reassess in a few months a rule that took six years to finalize — and do so, for the time being, without leadership at the top. Mr. Trump's nominee for DOL secretary, Alexander Acosta, awaits a Senate confirmation vote.

"The deck is really stacked against the DOL," said Erin Sweeney, a member at Miller & Chevalier and a former DOL senior benefits law specialist. "You've got to get [a review] done quicker and to a higher standard and with gaps in leadership. It's a recipe for disaster for them."

Seeking to extend the delay would be a challenge because the DOL used the same cost study in the delay rule as it did in the final rule last year, according to Joshua Lichtenstein, an associate at Ropes & Gray.

In the rule seeking a 60-day delay, the DOL said pushing back the implementation date would cost investors $147 million over one year and $890 million over 10 years.

"It would be difficult to get another delay," Mr. Lichtenstein said. "A 180-day delay would have gotten into billions of dollars."

In the end, the rule may come out less scathed than anticipated — something advisory firms should keep in mind.

"Use this extra time to make sure you're ready to comply," Mr. Lichtenstein said.

5 regulatory issues every financial adviser should be watching

April 9, 2017 | By Mark Schoeff Jr. Investment News

Sure, the delay of the DOL's fiduciary rule is big news. But there are other important matters going on in Washington.

Although the epic battle over the Department of Labor's fiduciary rule will continue for at least several more months, if not years, and dominate the regulatory agenda for investment advice, other critical issues are bubbling to the surface. Several may even have a chance of advancing in this cold political climate, as industry groups, consumer advocates and regulators sound a note of consensus on areas such as reforming adviser titles, cracking down on elder financial abuse and protecting retirement tax incentives, according to a panel of experts assembled by InvestmentNews.

The Regulatory Roundtable, which occurred just days before the April 10 implementation date of the DOL fiduciary rule was officially delayed, focused initially on that regulation and how the disagreement over it illustrates the widening chasm between Republicans and Democrats.

"This difference I've seen that predates President [Donald J.] Trump is this hyperpartisanship now on issues related to investor protection, retirement security, issues that we just don't think are partisan issues," Maureen Thompson, vice president for public policy at the Certified Financial Planner Board of Standards Inc., said at the event, held at the National Press Club in Washington.

The Consumer Federation of America has been a stalwart supporter of the DOL rule, which advocates say will protect investors from conflicted advice that leads to sales of high-fee products that erode retirement savings. But its defense of the measure has drawn only Democratic support.

"Unfortunately, all Republicans have been quite antagonistic to the fiduciary rule, and it has become a partisan issue," said Micah Hauptman, financial services counsel at the Consumer Federation of America.

But Ira Hammerman, executive vice president and general counsel at the Securities Industry and Financial Markets Association, said there are Democratic senators who agree with his group that the DOL rule is flawed.

"We would look to them to continue to be supportive of finding an appropriate solution and an appropriate way forward on this very important issue," he said.

When Mr. Hammerman said SIFMA supports a standard of acting in a client's best interests, he drew criticism from Mr. Hauptman, who said that "it's really best-interest in name only."

Mr. Hammerman responded: "This DOL rule is not all chocolate and roses. This rule actually hurts the people that the DOL is trying to help." POLITICS GET IN THE WAY

Kevin Mayeux, CEO of the National Association of Insurance and Financial Advisors, said politics could be causing more of a divide than actually exists. "When I would talk to different lawmakers, they would say, 'I'm with you and I'll write a letter, but at the end of the day, I can't afford to oppose the president because I have to go up for re-election, and he has made this his top priority,'" he said.

These exchanges encapsulate the ongoing debate, as DOL reviews — and possibly modifies or repeals — the rule, as directed by Mr. Trump.

"It's like you go back in time a year and a half, and everyone will be weighing in again with a lot of letters," Mr. Mayeux said. The process will be jarring, said David Tittsworth, counsel at Ropes & Gray.

"It ain't pretty at all," Mr. Tittsworth said. "To call this inartful rulemaking would be a gross exaggeration. It's ugly. You're going to see this thing delayed several [times] before you get to the end of the rainbow."

But there are other issues on the horizon where more of a consensus could be reached, according to the group of nine analysts and officials from adviser and consumer organizations. Five of the biggest are detailed here.


Another big issue Washington will try to tackle this year also has repercussions for financial advisers and their clients: comprehensive tax reform.

It's unclear where the Trump administration and Congress are headed with legislation, but if they want to reduce tax rates across the board, as both sides have said, they will have to come up with revenue to pay for it if they don't want the federal deficit to grow.

One of the so-called "pay-fors" that is often mentioned is curbing tax deferrals for retirement savings, the tax breaks provided for contributions to 401(k)s and individual retirement accounts.

"If there is truly a bipartisan issue in Congress, it is that America is undersaved," said Cathy Weatherford, president and CEO of the Insured Retirement Institute. "So I think that, end of day, we all have a lot of shoe leather to wear down on the Hill to make sure that balancing our federal budget and taking care of our issues with regard to tax is not done on the backs of American savers."