The United States District Court for the Western District of Missouri granted preliminary approval earlier this week to a $13.5 million settlement of a putative "excessive fee" class action filed by participants in Wal-Mart Stores Inc.'s Section 401(k). In granting preliminary approval of the settlement, the District Court in Braden v. Wal-Mart Stores Inc., W.D. Mo., No. 6:08-cv-03109-GAF. noted that it was “preliminarily satisfied” that the settlement was “fair, reasonable, and adequate, such that it is appropriate to consider whether to certify a class for settlement purposes, whether the Settlement is sufficient to warrant issuance of notice to Class members, and whether the proposed notices adequately inform Class members of the material terms of the Settlement and their rights relating thereto.”
If the settlement is approved, Wal-Mart and co-defendant Merrill Lynch & Co. will pay $13.5 million to the participants, which will include attorneys' fees and costs. In addition, Wal-Mart's retirement plan committee will be required to: (1) retain an independent fiduciary to provide advice and recommendations on selecting and monitoring plan investment options; (2) review the consultant or independent adviser for conflicts of interest on an annual basis; (3) continue to make available to participants web-based investment education resources, including a retirement planning calculator; (4) remove and preclude the addition of fund investment options that are retail mutual funds; funds that pay Rule 12b-1 fees under federal securities law; and funds that provide revenue sharing, per-position or per-participant subtransfer agent fees, or other fees, to any party-in-interest as defined in Section 3(14) of the Employee Retirement Income Security Act, including the plan's trustee or recordkeeper; and (5) consider adding additional low-cost index funds as plan options.
By way of background, a plan participant filed a lawsuit in 2008 alleging that between January 2002 and the date he filed the lawsuit, the plan paid somewhere between $62 million and $92 million in fees to the plan's service providers. The plan, one of the largest Section 401(k) plans in the United States, offered its participants various investment choices, including 10 mutual funds, a common/collective trust, Wal-Mart common stock, and a stable value fund. All 10 of the mutual funds were retail class shares, which are generally more expensive than institutional class shares available to large retirement plans. The 10 mutual funds were predominantly actively managed rather than passively managed, which resulted in higher expenses, the lawsuit alleged.The Plaintiff further alleged in his lawsuit that the plan's fiduciaries who were responsible for the selection of the plan's investment options failed to prudently and loyally evaluate the investment options for participants and that they instead selected unreasonably expensive mutual funds that substantially diminished the retirement savings of plan participants. The lawsuit also alleged that the fiduciaries engaged in prohibited transactions under ERISA by allowing plan assets to be paid to the plan's trustee, Merrill Lynch, in the form of revenue-sharing payments. In addition, the lawsuit asserted that the fiduciaries breached their duties by failing to completely and accurately inform the plan's participants about the impact the mutual funds' excessive fees had on their retirement savings.
If the settlement is approved, Wal-Mart and co-defendant Merrill Lynch & Co. will pay $13.5 million to the participants, which will include attorneys' fees and costs. In addition, Wal-Mart's retirement plan committee will be required to: (1) retain an independent fiduciary to provide advice and recommendations on selecting and monitoring plan investment options; (2) review the consultant or independent adviser for conflicts of interest on an annual basis; (3) continue to make available to participants web-based investment education resources, including a retirement planning calculator; (4) remove and preclude the addition of fund investment options that are retail mutual funds; funds that pay Rule 12b-1 fees under federal securities law; and funds that provide revenue sharing, per-position or per-participant subtransfer agent fees, or other fees, to any party-in-interest as defined in Section 3(14) of the Employee Retirement Income Security Act, including the plan's trustee or recordkeeper; and (5) consider adding additional low-cost index funds as plan options.
By way of background, a plan participant filed a lawsuit in 2008 alleging that between January 2002 and the date he filed the lawsuit, the plan paid somewhere between $62 million and $92 million in fees to the plan's service providers. The plan, one of the largest Section 401(k) plans in the United States, offered its participants various investment choices, including 10 mutual funds, a common/collective trust, Wal-Mart common stock, and a stable value fund. All 10 of the mutual funds were retail class shares, which are generally more expensive than institutional class shares available to large retirement plans. The 10 mutual funds were predominantly actively managed rather than passively managed, which resulted in higher expenses, the lawsuit alleged.The Plaintiff further alleged in his lawsuit that the plan's fiduciaries who were responsible for the selection of the plan's investment options failed to prudently and loyally evaluate the investment options for participants and that they instead selected unreasonably expensive mutual funds that substantially diminished the retirement savings of plan participants. The lawsuit also alleged that the fiduciaries engaged in prohibited transactions under ERISA by allowing plan assets to be paid to the plan's trustee, Merrill Lynch, in the form of revenue-sharing payments. In addition, the lawsuit asserted that the fiduciaries breached their duties by failing to completely and accurately inform the plan's participants about the impact the mutual funds' excessive fees had on their retirement savings.
