Landmark 401(k) settlement gets final approval from judge

A federal judge has approved a $55 million class-action settlement in a pioneering lawsuit involving fees charged by a St. Louis company’s retirement plan.

The law firm of Schlichter Bogard & Denton originally announced the agreement March 28 against ABB Inc., a subsidiary of The ABB Group in Zurich, Switzerland. Judge Nanette K. Laughrey, who has overseen the case during its 12 years of litigation and preliminarily approved the agreement in April, gave final approval at a hearing on Aug. 13 in federal court in Jefferson City.

“This is a historic case which has had a profound effect on not only on ABB employees and retirees, but on America’s retirement system — the 401(k) Plan,” lead attorney Jerry Schlichter wrote in a court filing.

The class-action suit, originally filed in late 2006, alleged ABB had breached its fiduciary duty to participants of its retirement plans by allowing excessive recordkeeping fees to be charged and including costly and poorly performing investment options in the plan. The claims were made under provisions of the Employee Retirement Income Security Act that weren’t well enforced at the time but have become a significant area of litigation following Schlichter Bogard & Denton’s example.

The case went to trial in January 2010. It was the first such case in the nation to go to a full trial, though it was marred by tragedy. On the third day of trial, Timothy G. Hendron, a named plaintiff in the suit, fatally shot three people and himself at ABB’s transformer-manufacturing facility in St. Louis.

More than two years after trial, Laughrey issued a $36.9 million judgment against ABB and two Fidelity entities. It was the fifth-largest plaintiffs’ win of 2012, as tracked by Missouri Lawyers Media.

On appeal in 2014, however, the 8th U.S. Circuit Court of Appeals threw out the $1.7 million award against Fidelity and found the damages against ABB were “speculative” and had to be recalculated. Part of the plaintiffs’ argument involved a claim that ABB had dropped a particular fund and replaced it with another one that was allegedly less beneficial to plan participants. The damages were calculated by comparing the performance of the original fund to the one that replaced it by default.

The 8th Circuit suggested the damages might be better calculated by looking at the returns of the worst-performing fund that ABB could have chosen and still fulfilled its fiduciary duties. But when Laughrey took that suggestion as mandatory and found that the plaintiffs had suffered no damages, the 8th Circuit said in 2017 that Laughrey had given the suggestion “too much weight” and sent the case back for yet another damage calculation.

ABB did not admit to any wrongdoing in the settlement. In a court filing, Schlichter said that if the plaintiffs’ remaining claims had been successful, “there would certainly be a third appeal risking many more years of delay.”

“Without question, this vigorous defense would continue if there was no Settlement,” he wrote.

The agreement called for more than $18.3 million in attorneys’ fees and up to $2.5 million in costs. The suit’s three class representatives were paid $25,000 each. The judge’s order approving the fees had not been issued as of press time.

The firm said it put in some 28,000 hours of time that would have garnered $20.3 million had it been billed at hourly rates. Although the filing didn’t include rates for individual lawyers, the firm said its rates ranged from $1,060 per hour for attorneys “with at least 25 years of experience” to $490 per hour for those with two to four years of experience.

Schlichter said the value of the settlement went well beyond the dollar figure in the agreement. Laughrey’s original judgment had ordered ABB to undertake several reforms of its 401(k) plan to make sure it was run for participants’ benefit, which the law firm said would result in savings of more than $83 million for a 15-year period.

In addition, the settlement allows class members who remain in ABB’s plan to receive their distributions directly into their accounts, while former participants can direct their distribution into a tax-deferred vehicle such as an IRA. An expert for the firm calculated the benefit of that tax deferral for 20 years at $64.9 million, according to the filing.

Notice of the settlement was mailed to 24,261 individuals. None filed objections or protested at the final approval hearing, and none of the attorneys general of the states where settlement class members reside opposed the agreement.

“The lack of any objection is a telling, and virtually unheard-of sign of overwhelming support for the Settlement,” Schlichter wrote in a July 30 motion urging the court to approve the settlement.