Motion for Attorneys Fees, Reimbursement of Expenses and Case

Transcription

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
Karolyn Kruger, M.D., et al.
Plaintiffs,
v.
Case No. 1:14-cv-208
Judge William Osteen, Jr.
Magistrate Judge Joi Elizabeth Peake
Novant Health, Inc., et al.
Defendants.
PLAINTIFFS’ MOTION FOR ATTORNEYS’ FEES, REIMBURSEMENT OF
EXPENSES, AND CASE CONTRIBUTION AWARDS FOR NAMED
PLAINTIFFS
Pursuant to Rules 23(h) and 54(d)(2), Plaintiffs move that the Court approve a fee
award of $10,666,666 and a cost award of $68,887.43 to Class Counsel, Schlichter,
Bogard & Denton, LLP, as well as case contribution awards of $25,000 to the seven
Named Plaintiffs and Class Representatives: Karolyn Kruger, M.D., Candace Culton,
Frances Baillie, Eileen Schneider, Judy Lewis, Linda Christensen, and Teresa Powell. As
shown in Plaintiffs’ supporting memorandum, in pursuing this case, Class Counsel bore
tremendous risk in order to benefit the Class. In spite of this risk, Class Counsel,
leveraging its hard-earned reputation as the foremost attorneys in 401(k) excessive fee
litigation, achieved an exceptional result for the class by efficiently obtaining a
substantial monetary fund and unprecedented affirmative relief that will continue to
benefit the Class for years to come. The requested percentage of the settlement fund is
comparable to attorney’s fees awards in similar cases. Accordingly, based on all of the
1
Case 1:14-cv-00208-WO-JEP Document 56 Filed 07/25/16 Page 1 of 2
relevant factors, and for the reasons stated in Plaintiffs’ memorandum, the Court should
grant this motion in all respects.
July 25, 2016
Respectfully submitted,
/s/ Jerome J. Schlichter
SCHLICHTER, BOGARD & DENTON LLP
Jerome J. Schlichter (MO Bar No. 32225)
Troy A. Doles (MO Bar No. 47958)
100 South Fourth Street, Ste. 1200
St. Louis, Missouri 63102
Phone: (314) 621-6115
Fax: (314) 621-5934
jschlichter@uselaws.com
tdoles@uselaws.com
/s/ Robert M. Elliot
Robert M. Elliot (NC Bar No. 7709)
Elliot Morgan Parsonage, PLLC
426 Old Salem Road
Winston Salem, North Carolina 27101
Phone: (336) 724-2828
rmelliot@emplawfirm.com
Attorneys for Plaintiffs
CERTIFICATE OF SERVICE
I hereby certify that on July 25, 2016, I electronically filed the foregoing with the
Clerk of the Court using the CM/ECF system, which sent notification of this filing to all
counsel of record.
2
Plaintiffs,
v.
Defendants.
MEMORANDUM IN SUPPORT OF PLAINTIFFS’ MOTION
FOR ATTORNEYS’ FEES, REIMBURSEMENT OF EXPENSES,
AND CASE CONTRIBUTION AWARDS FOR NAMED PLAINTIFFS
TABLE OF CONTENTS
I. Background and Procedural History. ..................................................................... 2 II. Argument. ............................................................................................................... 5 A. Plaintiffs’ attorneys’ fees. ...................................................................................... 5 1. Class Counsel obtained substantial relief benefitting tens of thousands of
class members. ................................................................................................. 7 2. There have been no objections to the settlement or requested fee. ................. 8 3. Class Counsel’s unparalleled skill in 401(k) fiduciary breach class
actions is unparalleled led to an efficient conclusion to this case. .................. 8 4. The legal and factual issues in this case were difficult, complex, and
novel, requiring a substantial expenditure of Class Counsel’s time and
money without any certainty of success. ....................................................... 11 5. Class Counsel incurred risk of nonpayment. ................................................. 12 6. Class counsel expended significant time and resources. ............................... 12 7. Fee awards in similar cases supports Class Counsel’s requested attorney
fee award here. ............................................................................................... 13 8. A lodestar cross-check confirms the fee is appropriate. ................................ 14 B. The Court should also award reimbursement of Class Counsel’s costs. ............. 19 C. The Court should award named plaintiff case contribution awards..................... 20 III. Conclusion. ........................................................................................................... 20 ii
TABLE OF AUTHORITIES
Cases Abbott v. Lockheed Martin Corp.,
No. 06-701, 2015 U.S.Dist.LEXIS 93206 (S.D.Ill. July 17, 2015) ................... 10, 13, 16
Abbott v. Lockheed Martin Corp.,
No. 06-701, Doc. 497 (S.D.Ill. Apr. 14, 2015) ................................................................ 7
Alexander S. v. Boyd,
929 F.Supp. 925 (D.S.C. 1995) ..................................................................................... 15
Archbold v. Wells Fargo Bank, N.A.,
No. 13-24599, 2015 U.S.Dist.LEXIS 92855 (S.D.W.Va. July 14, 2015) ....................... 6
Barber v. Kimbrell’s, Inc.,
577 F.2d 216 (4th Cir. 1978) ........................................................................................... 6
Beesley v. Int’l Paper Co.,
No. 06-703, 2014 U.S.Dist.LEXIS 12037 (S.D.Ill. Jan. 31, 2014) ............... 7, 10, 13, 20
Blanchard v. Bergeron,
489 U.S. 87 (1989) ........................................................................................................... 7
Boeing Co. v. Van Gemert,
444 U.S. 472 (1980) ......................................................................................................... 1
Clark v. Experian Info. Solutions, Inc.,
Nos. 00-1217-22, 00-1218-22, 00-1219-22, 2004 U.S.Dist. LEXIS 32063 (D.S.C.
Apr. 22, 2004) .............................................................................................................. 6, 7
Conley v. Sears, Roebuck & Co.,
222 B.R. 181 (D.Mass. 1998) ........................................................................................ 18
Cosgrove v. Sullivan,
759 F.Supp. 166 (S.D.N.Y. 1991) ................................................................................. 18
Decohen v. Abbasi, LLC,
299 F.R.D. 469 (D.Md. 2014) ............................................................................. 7, 14, 17
Deem v. Ames True Temper, Inc.,
No. 10-1339, 2013 U.S.Dist.LEXIS 72981 (S.D.W.Va. May 23, 2013) .................. 6, 14
DeLoach v. Lorillard Tobacco Co.,
391 F.3d 551 (4th Cir. 2004) ......................................................................................... 18
DeLoach v. Philip Morris Cos.,
No. 00-1235, 2003 U.S.Dist. LEXIS 23240 (M.S.N.C. Dec. 19, 2003) ....................... 18
iii
DeWitt v. Darlington Co.,
No. 11-740, 2013 U.S.Dist.LEXIS 172624 (D.S.C. Dec. 6, 2013) ......................... 14, 15
Domonosoke v. Bank of Am., N.A.,
790 F. Supp. 2d 466 (W.D.Va. 2011) .............................................................................. 6
George v. Kraft Foods Global, Inc.,
Nos. 08-3899, 07-1713, 2012 U.S.Dist.LEXIS 166816, at *8–9, *11 (N.D.Ill. June
26, 2012) ........................................................................................................................ 14
Hecker v. Deere & Co.,
556 F.3d 575 (7th Cir. 2009) ........................................................................... 2, 9, 12, 17
Helmick v. Columbia Gas Transmission,
No. 07-743, 2010 U.S.Dist.LEXIS 65808 (S.D.W.Va. July 1, 2010) ........................... 14
In re AremisSoft Corp. Sec. Litig.,
210 F.R.D. 109 (D.N.J. 2002)........................................................................................ 18
In re Cardinal Health Inc. Sec. Litigs.,
528 F.Supp.2d 752 (S.D. Ohio 2007) ............................................................................ 18
In re Cendant Corp. Litig.,
264 F.3d 201 (3d Cir. 2001) ............................................................................................ 6
In re Rite Aid Corp. Sec. Litig.,
362 F.Supp.2d 587 (E.D.Pa. 2005) ................................................................................ 18
In re RJR Nabisco Sec. Litig.,
No. 88-905, 1992 U.S.Dist.LEXIS 12702 (S.D.N.Y. Aug. 24, 1992) .......................... 18
Ingram v. Coca-Cola Co.,
200 F.R.D. 685 (N.D.Ga. 2001) .................................................................................... 18
Jones v. Dominion Res. Servs.,
601 F. Supp. 2d 756 (S.D.W.Va. 2009) ..................................................................... 5, 18
Krueger v. Ameriprise Fin., Inc.,
No. 11-2781, 2015 U.S.Dist.LEXIS 91385 (D.Minn. July 13, 2015) ........................... 13
Maley v. Del Global Techs. Corp.,
186 F.Supp.2d 358 (S.D.N.Y. 2002) ............................................................................. 18
Marks Constr. Co. v. Huntington Nat’l Bank,
No. 05-73, 2010 U.S.Dist.LEXIS 89186 (S.D.W.Va. Aug. 27, 2010) .......................... 15
Martin v. Caterpillar, Inc.,
No. 07-1009, 2010 U.S.Dist.LEXIS 82350 (C.D.Ill. Aug. 12, 2010) ..................... 12, 14
Muhammad v. Nat’l City Mortg., Inc.,
No. 07-423, 2008 U.S.Dist.LEXIS 103534 (S.D.W.Va. Dec. 19, 2008) ........................ 6
iv
New Eng. Carpenters Health Ben. Fund v. First Databank,
No. 05-11148, 2009 U.S.Dist.LEXIS 68419 (D.Mass. Aug. 3, 2009) .......................... 18
Newby v. Enron Corp.,
586 F.Supp.2d 732 (S.D.Tex. 2008) .............................................................................. 18
Nieman v. Duke Energy Corp.,
No. 12-456, 2015 U.S.Dist.LEXIS 148260 (W.D.N.C. Nov. 2, 2015) ......................... 18
Nolte v. Cigna Corp.,
No. 07-2046, 2013 U.S.Dist.LEXIS 184622 (C.D.Ill Oct. 15, 2013) ........................... 11
Phillips v. Triad Guar., Inc.,
No. 09-71, 2016 U.S.Dist.LEXIS 60960 (M.D.N.C. May 9, 2016) .............................. 15
Renfro v. Unisys Corp.,
671 F.3d 314 (3d Cir. 2011) .................................................................................. 3, 9, 12
Roberts v. Texaco, Inc.,
979 F.Supp. 185 (S.D.N.Y. 1997) ................................................................................. 18
Savani v. URS Prof’l Solutions LLC,
121 F.Supp.3d 564 (D.S.C. 2015) ................................................................... 2, 5, 17, 20
Silverman v. Motoral Solutions, Inc.,
739 F.3d 956 (7th Cir. 2013) ......................................................................................... 11
Smith v. Krispy Kreme Doughnut Corp.,
No. 05-187, 2007 U.S.Dist.LEXIS 2392 (M.D.N.C. Jan. 10, 2007) ............. 6, 15, 17, 20
Smith v. Res-Care, Inc.,
No. 13-5211, 2015 U.S.Dist.LEXIS 145266 (S.D.W.Va. Oct. 27, 2015) ....................... 6
Spano v. Boeing Co.,
No. 06-743, Doc. 587 (S.D.Ill. Mar. 31, 2016) ............................................. 9, 15, 16, 19
Temp. Servs. v. Am. Int’l Grp., Inc.,
No. 08-271, 2012 U.S.Dist. LEXIS 86474 (D.S.C. June 22, 2012) .............................. 14
Tibble v. Edison Int’l,
135 S.Ct. 1823 (2015) ...................................................................................................... 5
Tussey v. ABB Inc.,
No. 06-cv-4305 (W.D.Mo.) ............................................................................................. 5
Tussey v. ABB, Inc.,
746 F.3d 327 (8th Cir. 2014), cert. denied, 135 S.Ct. 477 (2014)................................... 9
Wal-Mart Stores, Inc. v. Visa U.S.A. Inc.,
396 F.3d 96 (2d Cir. 2005) ............................................................................................ 18
v
Will v. Gen. Dynamics Corp.,
No. 06-698, 2010 U.S.Dist.LEXIS 123349 (S.D.Ill. Nov. 22, 2010)...................... 10, 14
Rules Fed.R.Civ.P. 23(h) ............................................................................................................... 1
Other Authorities Floyd Norris, What a 401(k) Plan Really Owes Employees, New York Times (Oct.
16, 2014) .......................................................................................................................... 9
Linda Stern, Stern Advice – How 401(k) Lawsuits Are Bolstering Your Retirement
Plan, REUTERS (Nov. 5, 2013) .................................................................................... 10
MANUAL FOR COMPLEX LITIGATION (Fourth) (2004)......................................................... 7
Martha Neil, Top Partner Billing Rates at BigLaw Firms Approach $1,500 per
Hour,” ABA Journal (Feb. 8, 2016) .............................................................................. 16
Natalie Rodriguez, Meet the $2,000 an Hour Attorney, Law360 (June 11, 2015) ........... 16
Peter Brady, Marginal Tax Rates and the Benefits of Tax Deferral, Investment
Company Institute, Sept. 17, 2013................................................................................... 7
Theodore Eisenberg and Geoffery P. Miller, Attorney Fees in Class Action
Settlements: An Empirical Study, 1 J. EMPIRICAL LEGAL STUD. 27 (2004) .................. 14
vi
The settlement in this case is an exceptional result for the class. The $32 million
settlement fund is very substantial monetary compensation to employees and retirees of
Novant Health, Inc. The settlement’s unprecedented affirmative relief – valued at nearly
$70 million – also ensures that class members will have a high-quality, state of the art
401(k) plan for years to come. All told, the benefit to the class is $101 million. In
achieving this extraordinary result, Class Counsel leveraged its unparalleled, decade-long
experience starting with initiating 401(k) fee litigation, took on immense risk, and
litigated this case for over two years without compensation or any guarantee of payment.
This outstanding settlement did not arise from luck or happenstance. Rather, it was
reached because of Class Counsel’s hard-earned reputation as the foremost attorneys in
401(k) excessive fee litigation – a field Class Counsel created – and its diligent and effective work in this case. Had it not been for Class Counsel’s efforts in this case and the
many other cases it has brought before, the class very likely would not have obtained a
settlement anywhere near as valuable. And whatever settlement it did get would have almost certainly come after many more years of costly litigation, which would have driven
up expenses and eaten into the class’s recovery. In short, no other law firm could have
achieved this remarkable result for the class, and certainly not as quickly. See Declaration
of Karen Ferguson (“Ferguson Decl.”) ¶26.
Under the “common fund” doctrine, Class Counsel is entitled to an award of reasonable attorneys’ fees from the settlement proceeds for obtaining recovery for the benefit of
the class. Fed.R.Civ.P. 23(h); Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980). Indeed, in this Circuit, “the percentage-of-recovery approach is not only permitted, but is
1
the preferred approach to determine attorney’s fees.” Savani v. URS Prof’l Solutions
LLC, 121 F.Supp.3d 564, 568 (D.S.C. 2015). One-third of the monetary relief alone is an
appropriate award in light of Class Counsel’s substantial work in securing a large recovery for the class and its well-documented, pioneering role in this area of litigation. It is
also consistent with fee orders of numerous other federal courts who have witnessed
Class Counsel’s singular efforts and the staggering risk of such unique cases. And importantly, it is the amount agreed to by each of the named plaintiffs. Declaration of Jerome Schlichter (“Schlichter Decl.”) ¶21. Because the non-monetary relief has real and
substantial economic value to class members, the requested fee actually represents much
less than one-third of the total value of the settlement. Indeed, it is approximately just
10% of the settlement’s total value.
Accordingly, the Court should award Class Counsel a fee of $10,666,666 (one-third
of the monetary recovery). The Court should also award reimbursement of costs and expenses Class Counsel incurred in litigating this matter in the amount of $68,887.43, and a
case contribution award to each named Plaintiff of $25,000 for their service in this case.
I.
Background and Procedural History.
As detailed in the declaration of Troy A. Doles (“Doles Decl.”), Class Counsel’s work
on this case began months before the complaint was actually filed. Class Counsel spent
hundreds of hours investigating publicly-filed documents and documents obtained and
provided by the Plaintiffs. Doles Decl. ¶8. Plaintiffs filed this action on March 12, 2014,
and Defendant moved to dismiss the complaint, raising arguments based on the decisions
in Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009) and Renfro v. Unisys Corp., 671
2
F.3d 314 (3d Cir. 2011), cases Class Counsel litigated previously. Doles Decl. ¶9. The
Court ultimately denied Defendants’ motion to dismiss, but noted it was a “close call”
and that many of Defendant’s arguments would be considered (and may prevail) at summary judgment. Doc. 39 at 14, 18 n.8.
While the motion to dismiss was still under advisement, the parties entered into settlement discussions. Doles Decl. ¶10. Prior to mediation, Class Counsel spent hundreds
of hours examining nearly twenty thousand pages of documents produced by Defendant,
and an additional ten thousand pages of public documents Class Counsel obtained by inperson visits to local and regional state and county offices. Id. ¶¶10–11. This material
was used to develop Plaintiffs’ case, which was then outlined in an all-day mediation that
ended without a settlement. The parties then spent four more months in lengthy additional
negotiations. Finally, on November 9, 2015, the parties reached a settlement. Id. ¶12.
The settlement Class Counsel obtained confers extraordinary and encompassing relief
for the class. In addition to the $32 million settlement amount, Class Counsel secured for
the class affirmative relief unprecedented in the decade it has been litigating these cases.
Defendant has agreed to:
1)
conclude a comprehensive request for proposal (“RFP”) competitive bid-
ding process, conducted and led by an outside consultant, for recordkeeping, investment
consulting and participant education services for the Plans;
2)
engage a mutually agreed upon Independent Consultant to assess the RFP
process and Defendants’ anticipated selection of service providers for the Plans;
3
3)
ensure that the Plans’ administrative service providers are not reimbursed
for their services based on a percentage-of-plan-assets basis;
4)
review all current investment options in the Plans and revise the investment
options, as needed, ensuring that those options are selected or retained for the exclusive
best interests of the Plans’ participants;
5)
have the Independent Consultant review the investment option selection
process and provide recommendations, if necessary;
6)
have the Independent Consultant conduct an annual review of Novant’s
management of the Plans for four years;
7)
remove Davis and related entities from any involvement with the Plans;
8)
remove Davis and related entities from Novant employee benefit plans;
9)
not enter into any new real estate or business relationships with Davis and
related entities;
10)
not offer any Mass Mutual investments in the Plans or any other investment
that provides compensation to Davis and related entities;
11)
provide accurate communications to participants in the Plans;
12)
not offer any brokerage services to the Plans; and,
13)
adopt a new investment policy statement to ensure that the Plans are oper-
ated for the exclusive best interests of the Plans’ participants.
The value of the reduction in administrative and investment management fees alone
is conservatively estimated at close to $70 million. Declaration of Dr. Stewart Brown
(“Brown Decl.”) ¶11. Thus, the settlement’s true value to the class exceeds $101 million.
4
II.
Argument.
Class Counsel is entitled to a reasonable fee award from the common fund, and onethird of the monetary portion of the recovery is reasonable in this case. And considering
the value of the affirmative relief, as is required, Class Counsel’s fee request is actually
much less than one-third of the value of the settlement. Indeed, based on a total value of
$101 million, Class Counsel’s fee request of $10,666,666 is just over 10% of the recovery. The reasonableness of the fee request is further shown by the enormous risk of nonpayment and excellent result for the class. Class Counsel, when no other firm in the country had pursued excessive 401(k) fee claims, pioneered and pursued these untested legal
theories through years of litigation dating back to 2006. And Class Counsel litigated the
only full case to go to trial on excessive 401(k) fees.1 It pushed other cases to the brink of
trial against formidable opponents with substantial defenses in order to obtain substantial
settlements for class members throughout the country. It also litigated the landmark case
of Tibble v. Edison Int’l, 135 S.Ct. 1823 (2015) – the first and only 401(k) fee case to be
heard by the Supreme Court – where it won a unanimous 9-0 verdict.
A. Plaintiffs’ attorneys’ fees.
As noted above, in this Circuit, “the percentage-of-recovery approach is not only
permitted, but is the preferred approach to determine attorney’s fees.” Savani, 121
F.Supp.3d at 568.2 This Court has recognized that “in a[n] [ERISA] common fund case
1
Tussey v. ABB Inc., No. 06-cv-4305 (W.D.Mo.).
See also Jones v. Dominion Res. Servs., 601 F. Supp. 2d 756 (S.D.W.Va. 2009)(“The
percentage method has overwhelmingly become the preferred method for calculating attorneys’ fees in common fund cases.”).
2
5
such as this, a reasonable fee is normally a percentage of the Class recovery.” Smith v.
Krispy Kreme Doughnut Corp., No. 05-187, 2007 U.S.Dist.LEXIS 2392, at *3
(M.D.N.C. Jan. 10, 2007). In determining the reasonableness of class counsel’s fee
award, courts in this Circuit follow the factors identified in the Third Circuit’s decision In
re Cendant Corp. Litig., 264 F.3d 201, 283 (3d Cir. 2001):3 (1) the size of the fund created and the number of persons benefitted; (2) the presence or absence of substantial objections by members of the class to the settlement terms and/or fees requested by counsel;
(3) the skill and efficiency of the attorneys involved; (4) the complexity and duration of
the litigation; (5) the risk of nonpayment; (6) the amount of time devoted to the case by
plaintiffs' counsel; and (7) the awards in similar cases. Id. Applying these factors to this
3
See, e.g., Smith v. Res-Care, Inc., No. 13-5211, 2015 U.S.Dist.LEXIS 145266, at *25
(S.D.W.Va. Oct. 27, 2015); Archbold v. Wells Fargo Bank, N.A., No. 13-24599, 2015
U.S.Dist.LEXIS 92855, at *11-12 (S.D.W.Va. July 14, 2015); Deem v. Ames True Temper, Inc., No. 10-1339, 2013 U.S.Dist.LEXIS 72981, at *15 (S.D.W.Va. May 23, 2013);
Muhammad v. Nat’l City Mortg., Inc., No. 07-423, 2008 U.S.Dist.LEXIS 103534, at *2122 (S.D.W.Va. Dec. 19, 2008).
While courts in this circuit have also applied the twelve factors noted in Barber v. Kimbrell’s, Inc., 577 F.2d 216, 226 & n.28 (4th Cir. 1978), “there is some question as to
whether the factors from Barber … also apply to the determination of attorney’s fees under the percentage method.” Domonosoke v. Bank of Am., N.A., 790 F. Supp. 2d 466, 475
n.11 (W.D.Va. 2011). The Barber factors primarily “relate to the assessment of fees under a fee-shifting statute, not under a common fund framework,” Clark v. Experian Info.
Solutions, Inc., Nos. 00-1217-22, 00-1218-22, 00-1219-22, 2004 U.S.Dist. LEXIS 32063,
at *59 (D.S.C. Apr. 22, 2004), and thus can be inapposite when evaluating the fee award
in a class action. Courts also recognize that Barber “can result in double counting of the
same factor” and has “led to abuses, including, inter alia, encouraging counsel to expend
excessive time, to delay settlement, and to inflate their hours and rates.” Id. at *59, *60.
But, “[u]nder either set of factors, the court’s determination . . . is the same.” Domonoske,
790 F. Supp. 2d at 475 n.11; Clark, 2004 U.S.Dist.LEXIS 32063, at *61 (noting that the
factors of Barber and Cendant “are overlapping”).
6
case demonstrates that the requested award is fair, reasonable, and clearly warranted.
1. Class Counsel obtained substantial relief benefitting tens of thousands of class members.
The $32 million in monetary compensation is an excellent result for the class (estimated at 70,683 members) and for this novel area of litigation. Adding more value, the
settlement provides for current participants to receive their distributions directly into their
accounts tax deferred and gives former participants the right to direct their distribution
into a tax-deferred vehicle, such as an IRA. The Investment Company Institute estimates
that the benefit of tax deferral for 20 years is an additional 18.6%,4 so the actual value to
the class of the monetary portion of the settlement is $37,952,000.
The court also must consider both the “valuable non-monetary and monetary relief
obtained,” particularly where the “non-monetary relief would not have been available
outside the settlement.” Decohen v. Abbasi, LLC, 299 F.R.D. 469, 481 (D.Md. 2014).5
Here, the affirmative relief is not only extraordinary; it is more extensive relief than Class
Counsel has obtained in any case in the decade it has been litigating these cases.
4
Abbott v. Lockheed Martin Corp., No. 06-701, Doc. 497 at 37 (S.D.Ill. Apr. 14,
2015)(citing Peter Brady, Marginal Tax Rates and the Benefits of Tax Deferral, Investment Company Institute, Sept. 17, 2013, available at
http://www.ici.org/viewpoints/view_13_marginal_tax_and_deferral).
5
See also Clark, 2004 U.S. Dist. LEXIS 32063, at *54 (recognizing that benefits to
class members included “significant monetary and non-monetary value”)(emphasis added); accord Beesley v. Int’l Paper Co., No. 06-703, 2014 U.S.Dist.LEXIS 12037, at *5–6
(S.D.Ill. Jan. 31, 2014)(“A court must also consider the substantial affirmative relief
when evaluating the overall benefit to the class. . . . [T]his Court acknowledges the importance of taking the affirmative relief into account, in addition to the monetary relief,
so as to encourage attorneys to obtain effective affirmative relief.”)(citing MANUAL FOR
COMPLEX LITIGATION (Fourth) §21.71 (2004)); cf. Blanchard v. Bergeron, 489 U.S. 87,
95 (1989) (cautioning against an “undesirable emphasis” on monetary “damages” that
might “short-change efforts to seek effective injunctive or declaratory relief”).
7
Schlichter Decl. ¶19. Moreover, this relief will continue to protect class members for four
years after final approval. The practical impact of this affirmative relief is that class
members are provided a state-of-the-art retirement plan with fiduciary best practices assured. See the Declarations of Roger Levy and the Centre for Fiduciary Excellence.6
This affirmative relief pushes the value of this settlement to $101 million. Dr. Stewart Brown, a nationally recognized economist and authority on investment costs, has provided the Court with an estimate of the value of the fee reductions and costs savings class
members in the Retirement Plus Plan alone can expect to enjoy as a result of Class Counsel’s effort. Based on the reductions in investment management fees and administrative
fees, the benefit to the class is estimated at $69 million. Brown Decl. ¶11. Having committed to these practices for a four-year period, it is highly unlikely Defendant would discontinue them. Thus, the value of the enhanced returns to the Plan actually exceeds the
value as calculated by Dr. Brown because those changes will likely continue indefinitely.
2. There have been no objections to the settlement or requested fee.
Approximately 70,000 notices of the settlement were mailed to class members on July
11, 2016. Since then, Class Counsel has received calls from absent class members inquiring about the settlement, but has not received any complaints about its terms or Class
Counsel’s requested fee. The objection deadline is August 24, 2016. Schlichter Decl. ¶27.
3. Class Counsel’s unparalleled skill in 401(k) fiduciary breach class
actions is unparalleled led to an efficient conclusion to this case.
Before 2006, neither the Department of Labor nor any private firm had ever brought
6
See also Declaration of Mary Ellen Signorille (“Signorille Decl.”) ¶13.
8
a case alleging excessive fees in a 401(k) plan. Spano v. Boeing Co., No. 06-743, Doc.
587, at 4 (S.D.Ill. Mar. 31, 2016). Class Counsel pioneered excessive fee litigation in
401(k) plans,7 and since then has been “at the forefront of 401(k) excessive fee litigation.” Signorille Decl. ¶9. Even in an ordinary ERISA fiduciary breach case, establishing
liability is exceedingly difficult. In 401(k) fee cases, the law was undeveloped, and even
if plaintiffs proved a fiduciary breach, the issues of causation and the proper measure of
damages also were hotly contested. See Tussey v. ABB, Inc., 746 F.3d 327, 339 (8th Cir.
2014), cert. denied, 135 S.Ct. 477 (2014). Defendants won outright in multiple 401(k)
cases brought by Class Counsel. See, e.g., Hecker, 556 F.3d 575; Renfro, 671 F.3d 314.
In the face of this united opposition, Class Counsel persevered and obtained settlements for various classes. Judges in other fiduciary breach cases settled by Class Counsel
have commented on Class Counsel’s success in pursuing claims and obtaining favorable
settlements in this newly-created, complex area of the law. In approving fees of one-third
of the monetary recovery in a similar case, U.S. District Court Judge G. Patrick Murphy
recognized Class Counsel’s exceptional efforts:
Schlichter, Bogard & Denton’s work throughout this litigation illustrates an
exceptional example of a private attorney general risking large sums of money
and investing many thousands of hours for the benefit of employees and retirees. … Class Counsel performed substantial work…, investigating the facts,
examining documents, and consulting and paying experts to determine whether it was viable. … Litigating the case required Class Counsel to be of the
highest caliber and committed to the interests of the participants and beneficiaries of the General Dynamics 401(k) Plans.
7
Floyd Norris, What a 401(k) Plan Really Owes Employees, New York Times (Oct. 16,
2014), http://www.nytimes.com/2014/10/17/business/what-a-401-k-plan-really-owesemployees.html.
9
Will v. Gen. Dynamics Corp., No. 06-698, 2010 U.S.Dist.LEXIS 123349, at *8–9
(S.D.Ill. Nov. 22, 2010). U.S. District Court Judge David R. Herndon echoed those
thoughts in approving fees of one-third of the monetary recovery in a similar settlement,
explaining that Class Counsel “[l]itigat[ed] this case against formidable defendants and
their sophisticated attorneys,” which “required Class Counsel to demonstrate extraordinary skill and determination.” Beesley, 2014 U.S.Dist.LEXIS 12037, at *8. And Chief
Judge Michael J. Reagan of the Southern District of Illinois has likewise noted Class
Counsel’s “exceptional commitment and perseverance in representing employees and retirees seeking to improve their retirement plans.” Abbott v. Lockheed Martin Corp., No.
06-701, 2015 U.S.Dist.LEXIS 93206, at *4 (S.D.Ill. July 17, 2015).8
Class Counsel’s efforts have also lowered costs for workers and retirees throughout
the United States. See, e.g., Linda Stern, Stern Advice – How 401(k) Lawsuits Are Bolstering Your Retirement Plan, REUTERS (Nov. 5, 2013)(fee litigation brought by Class
Counsel has had a “humongous” impact, according to CEO of 401(k) plan analysis firm
Brightscope, Inc.).9 The AARP similarly notes that “[t]his case and other similar cases
brought by [Class Counsel] have contributed to measurable reductions in fees paid by
401(k) plan participants throughout the United States, through heightened awareness and
scrutiny of fees, self-dealing, and imprudent investment options in 401(k) plans.” Signo8
See also Spano, Doc. 587, at 5 (Rosenstengel, D.J.)(“Schlichter, Bogard & Denton
added great value to the Class throughout the litigation through the persistence and skill
of their attorneys.”); Nolte v. Cigna Corp., No. 07-2046, 2013 U.S.Dist.LEXIS 184622,
at *8 (C.D.Ill Oct. 15, 2013)(describing Class Counsel as the “preeminent firm in 401(k)
fee litigation,” and noting that it has “invested such massive resources and persevered in
the face of the enormous risks of representing employees and retirees in this area”).
9
http://www.reuters.com/article/us-column-stern-advice-idUSBRE9A40S320131105.
10
rille Decl. ¶12. And in Nolte v. Cigna, a similar case, U.S. District Court Judge Harold A.
Baker observed of Class Counsel herein (while approving a one-third fee award):
Class Counsel’s enforcement of ERISA’s fiduciary obligations has contributed to rapid reductions in the level of 401(k) recordkeeping fees paid across the
country. The law firm Schlichter, Bogard & Denton is the leader in 401(k) fee
litigation. One independent investment advisory company, NEPC, has found
that 401(k) recordkeeping fees have dropped $38 per account per year since
Class counsel filed their first 401(k) fee cases in 2006. They attribute the fee
reductions to improved fee disclosure requirements from the Department of
Labor and attention brought by 401(k) fee litigation. The Department of Labor
reports an estimated 73 million accounts in the United States. Accordingly,
the fee reduction attributed to Schlichter, Bogard & Denton’s fee litigation
and the Department of Labor’s fee disclosure regulations approach $2.8 billion in annual savings for American workers and retirees.
2013 U.S.Dist.LEXIS 184622, at*5–6 (emphasis added)(internal citations omitted).
4. The legal and factual issues in this case were difficult, complex, and
novel, requiring a substantial expenditure of Class Counsel’s time
and money without any certainty of success.
ERISA 401(k) fiduciary breach class actions are extremely complex, uncertain,
sharply contested, and often protracted. They require a willingness by counsel to risk
very significant amounts of time and money. Declaration of Thomas Theado (“Theado
Decl.”) ¶12. The fact that Class Counsel has been virtually alone in handling ERISA fiduciary breach cases of this scope further weighs in favor of the requested award. Signorille Decl. ¶9. “Lack of competition not only implies a higher fee but also suggests that
most members of the ... bar saw this litigation as too risky for their practices.” Silverman
v. Motoral Solutions, Inc., 739 F.3d 956, 958 (7th Cir. 2013). “The greater the risk of
walking away empty-handed, the higher the award must be to attract competent and energetic counsel.” Id.
11
In awarding Class Counsel one-third of the monetary portion of the settlement in a
similar case, the Honorable U.S. District Judge Joe Billy McDade observed that this litigation is “not only dependent on the statute but also on various regulations that implement ERISA,” and thus is “relatively unique with limited case authority in support.”
Martin v. Caterpillar, Inc., No. 07-1009, 2010 U.S.Dist.LEXIS 82350 at *7 (C.D.Ill.
Aug. 12, 2010). As in Martin, the class settlement here “represents a significant boon to
class members in light of the complexity of this litigation, the potential for protracted litigation, and the strength of the available defenses recognized in Hecker.” Id.
5. Class Counsel incurred risk of nonpayment.
The fact that Class Counsel “pioneered” this area of litigation nearly a decade ago
and remains the leading authority on 401(k) fee cases is a testament to the staggering risk
in bringing such cases. Here, Novant asserted substantial defenses to each of Plaintiffs’
claims. Doc. 20. This includes Defendants’ argument, based on Hecker, 556 F.3d at 586
and Renfro, 671 F.3d at 327, that there could be no breach of fiduciary duty because it
offered a mix of retail and non-retail funds in the Plan. Doc. 39 at 10–14. While the Court
ultimately denied the argument at the pleadings stage, it made clear that the decision was
a “close call” and that evidence obtained through discovery may lead to a different result.
Id. at 14. Even if liability had been established, Defendants had viable arguments that the
damages should be limited. Thus, recovery at trial was far from certain.
6. Class counsel expended significant time and resources.
To date, Class Counsel has spent over 3,200 hours of attorney time and almost 300
hours of legal assistant time litigating this case. A breakdown of these hours by attorney
12
experience is attached. See Declaration of Sheri O’Gorman (“O’Gorman Decl.”) ¶2. In
addition, Class Counsel expects to spend another 200 hours over the next several months
administering the settlement, along with approximately 200 hours in the next four years –
50 hours per year – to monitor Section 10 of the Settlement Agreement with no expectation of, or request for, additional fees. Class Counsel has also undertaken the risk of paying half of the settlement’s costs incurred, including the notice, if the settlement fails for
any reason. Further, if there is a dispute regarding Defendant’s compliance with the terms
of the settlement, Class Counsel reasonably expects its additional time to bring an enforcement action (which it would do without compensation) to total over 1,000 hours.
7. Fee awards in similar cases supports Class Counsel’s requested attorney fee award here.
Courts have consistently awarded Class Counsel a fee of 33 1/3 % in numerous other
401(k) excessive fee settlements:10
Case
Fee %
Spano v. Boeing Co., No. 06-cv-743, Doc. 587, at 4 (S.D.Ill. Mar. 31, 2016)
33.3%
Krueger v. Ameriprise Fin., Inc., No. 11-2781, 2015 U.S.Dist.LEXIS 91385, at 33.3%
*8 (D.Minn. July 13, 2015)
Abbott v Lockheed Martin Corp., No. 06-701, 2015 U.S.Dist.LEXIS 93206, at 33.3%
*7 (S.D.Ill. July 17, 2015)
Beesley v. Int’l Paper Co., No. 06-703, 2014 U.S.Dist.LEXIS 12037, at *7
33.33%
(S.D.Ill. Jan. 31, 2014)
Nolte v. Cigna Corp., No. 07-2046, 2013 U.S.Dist.LEXIS 184622, at *8–9
(C.D.Ill. Oct. 15, 2013)
33.33%
10
Each of the named plaintiffs in this case agreed to a one-third contingency fee.
Schlichter Decl. ¶21. Contingency fee arrangements are consistent with this area of practice. Theado Decl. ¶16.
13
Case
Fee %
George v. Kraft Foods Global, Inc., Nos. 08-3899, 07-1713, 2012
U.S.Dist.LEXIS 166816, at *8–9, *11 (N.D.Ill. June 26, 2012)
33.33%
Will v. Gen. Dynamics Corp., No. 06-698, 2010 U.S.Dist.LEXIS 123349, at *9 33.33%
(S.D.Ill. Nov. 22, 2010)
Martin v. Caterpillar Inc., No. 07-1009, 2010 U.S.Dist.LEXIS 145111, at *9–
11 (C.D.Ill. Sept. 10, 2010)
33.33%
And in this Circuit, courts have frequently awarded 33 1/3% of the settlement common fund in cases that were nowhere near as cutting edge as this one. See, e.g., Decohen,
299 F.R.D. at 481-83 (approving award of one-third of common fund); DeWitt v. Darlington Co., No. 11-740, 2013 U.S.Dist.LEXIS 172624, at *25 (D.S.C. Dec. 6, 2013)
(“One-third of the recovery appears to be a fairly common percentage in contingency
cases[.]”).11 A one-third fee is not merely permissible in this case, it is appropriate.
8. A lodestar cross-check confirms the fee is appropriate.
a.
The lodestar multiplier is appropriate to compensate
Class Counsel for its efforts and the risk it undertook.
Because courts in the Fourth Circuit generally favor the percentage-of-fund method
for awarding fees in common fund cases, “[i]t is not necessary for the Court to conduct a
11
See also Deem, 2013 U.S.Dist.LEXIS 72981, at *9 (“The requested award of onethird of the common fund, plus costs, is reasonable[.]”); Temp. Servs. v. Am. Int’l Grp.,
Inc., No. 08-271, 2012 U.S.Dist. LEXIS 86474, at *22-23 (D.S.C. June 22, 2012)(onethird fee was “well within the range of what is customarily awarded in settlement class
actions”); Helmick v. Columbia Gas Transmission, No. 07-743, 2010 U.S.Dist.LEXIS
65808, at *15 (S.D.W.Va. July 1, 2010)(one-third award was “a reasonable fee for Class
Counsels’ work”); cf. Theodore Eisenberg and Geoffery P. Miller, Attorney Fees in Class
Action Settlements: An Empirical Study, 1 J. EMPIRICAL LEGAL STUD. 27, 35 (2004)
(“Substantial empirical evidence indicates that a one-third fee is a common benchmark in
private contingency fee cases.”).
14
lodestar analysis[.]” Smith, 2007 U.S.Dist.LEXIS 2392, at *9. Courts in this Circuit use
the lodestar method, if at all, simply as a “‘cross-check’ to ensure that the percentage
award is fair and reasonable.” DeWitt, U.S.Dist.LEXIS 172624, at *20. In this case, a
lodestar cross-check demonstrates that Class Counsel’s requested fee is appropriate.
A lodestar is calculated by “determin[ing] the hours reasonably expended by counsel,” and then “multiply[ing] that figure by a reasonable hourly rate.” Phillips v. Triad
Guar., Inc., No. 09-71, 2016 U.S.Dist.LEXIS 60960, at *6 (M.D.N.C. May 9, 2016). This
rate should be in line with the market rate for “lawyers of reasonably comparable skill,
experience and reputation.” Alexander S. v. Boyd, 929 F.Supp. 925, 936 (D.S.C. 1995).
Because 401(k) excessive fee litigation is so complex and specialized, the “market” is nationwide. Indeed, national rates were used by the court in each of the cases cited in the
chart on pages 13 and 14, supra. The “reasonable hourly rate” is “a fee rate based on the
current market or by using the historical fee rate with reasonable interest added.” Marks
Constr. Co. v. Huntington Nat’l Bank, No. 05-73, 2010 U.S.Dist.LEXIS 89186, at *28
(S.D.W.Va. Aug. 27, 2010)(internal quotations and citations omitted).
To date, Class Counsel has spent 3,270.00 hours of attorney time, along with 282.60
hours of legal assistant time, litigating this case. It conservatively estimates spending another 200 attorney hours between now and final approval of the settlement, as well as 200
attorney hours administering and monitoring the settlement. A breakdown of these hours
by attorney experience is attached. O’Gorman Decl., ¶2; Doles Decl. ¶¶18, 25. Class
Counsel works solely on a contingent fee basis. Just four months ago, in a similar 401(k)
excessive fee case handled by Class Counsel, Spano, the Southern District of Illinois
15
made findings of reasonable rates in 2016 for Class Counsel and that national rates
should be used. Doc. 587 at 6–7 (“the reasonable hourly rate for Class Counsel’s services” was $998/hour for attorneys with at least 25 years of experience, $850/hour for
attorneys with 15–24 years of experience, $612/hour for attorneys with 5–14 years of experience, $460/hour for attorneys with 2–4 years of experience, $309/hour for Paralegals
and Law Clerks, and $190/hour for Legal Assistants).12 Given the close similarities between the Spano case and this one, Class Counsel being the same as here, and how recently that fee was awarded, the same rates are appropriate.
These rates are not only in line with Class Counsel’s recent fee awards, but are below
the rates of highly skilled attorneys nationwide. It has become commonplace for leading
attorneys to charge a much higher rate than the highest rate in Spano – $1,000–$1,500 per
hour13 – and rates for attorneys in specialized fields have reached $2,000 per hour.14
ERISA litigation “is a highly complex and quickly-evolving area of the law” that is
12
These rates represent a modest 3% increase from the rates approved the year before in
Abbott v. Lockheed Martin Corp., another 401(k) case handled by Class Counsel. 2015
U.S. Dist.LEXIS 93206, at *12.
13
Martha Neil, Top Partner Billing Rates at BigLaw Firms Approach $1,500 per
Hour,” ABA Journal (Feb. 8, 2016), http://www.abajournal.com/news/article/top
_partner_billing_rates_at_ biglaw_firms_nudge_1500_per_hour (“Although a billable
rate of $1,000 per hour was newsworthy only five years ago, top partners at the nation’s
biggest and best-known corporate law firms are now billing at rates nudging $1,500 per
hour.”).
14
Natalie Rodriguez, Meet the $2,000 an Hour Attorney, Law360 (June 11, 2015),
http://www.law360.com/articles/804421 (“It was just five years ago that the industry was
stunned by the Wall Street Journal revelation that some top-tier attorneys had broken the
$1,000 per hour benchmark. Then, earlier this year, BTI Consulting Group found that a
handful of in-house counsel had paid as much as $2,000 per hour, after discounts, to attorneys in the past year. Several other in-house counsel, meanwhile, had paid highs of
$1,900 per hour or $1,800 per hour.”).
16
“viewed as economically and logistically unattractive to any but the most experienced
and specialized counsel,” Smith, 2007 U.S.Dist.LEXIS 2392, at *5, *8, and thus is one
such field for which the top attorneys command top rates. Class Counsel is the preeminent firm in this field and brought this type of action before anyone else did. The rates are
therefore reasonable, given the specialized area of law, Class Counsel’s creation of the
field of 401(k) excessive fee litigation, and its skill, reputation, and expertise.
Using these rates, the lodestar fee is $2,891,175.70. However, in cases where “the
risks of the litigation are immense and [there is a] risk of receiving little or no recovery,”
like this one, the Court must apply a risk multiplier to compensate the attorneys for the
risk of nonpayment in the event the litigation were unsuccessful. Savani, 121 F.Supp.3d
at 572. Here, Class Counsel assumed an enormous risk of non-payment, particularly in
light of the novel nature of this case when it was filed and adverse precedent such as
Hecker.15
Class Counsel’s requested fee of $10,666,666 is just 3.69 times the lodestar. This is
squarely within the realm of reasonableness, as “[c]ourts have generally held that lodestar
multipliers falling between 2 and 4.5 demonstrate a reasonable attorney’s fee.” Decohen,
299 F.R.D. at 483 (approving lodestar multiplier of 3.9). Courts both within this Circuit
15
Proving breach of fiduciary duty in an ERISA case is inherently difficult. See supra
at 9. Here, Defendants raised numerous defenses in its motion to dismiss, only some of
which the Court actually addressed, leaving the remainder for summary judgment. Doc.
39, at 18 n.8. The Court specifically noted that there were “strong arguments” that could
be raised again following discovery. And Defendants only agreed to settle after Plaintiffs
won a hard-fought motion, followed by mediation and months of protracted negotiations
thereafter. Thus, survival of Defendants’ motion for summary judgment – let alone prevailing at trial – was far from certain.
17
and across the country routinely approve fee awards with higher lodestar multipliers.16
b.
Class Counsel should not be punished for its efficiency
and reputation.
Class counsel should not be penalized for its pioneering work and track record, both
of which played a significant role in settling this case early. The lodestar method has
rightly been criticized for placing too heavy an emphasis on the amount of time spent,
which incentivizes attorneys to “pad” their hours rather than achieving efficient results
for the class. See Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 122 (2d Cir.
2005)(lodestar method “create[s] an unanticipated disincentive to early settlements,
tempt[s] lawyers to run up their hours, and compel[s] district courts to engage in a gimleteyed review of line-item fee audits”)(alterations in original)(citations and internal quotations omitted). Here, Class Counsel’s diligent efforts and sterling reputation in past cases
16
See Nieman v. Duke Energy Corp., No. 12-456, 2015 U.S.Dist.LEXIS 148260, at *4
(W.D.N.C. Nov. 2, 2015)(“A multiplies [sic] of 4.5 would, in the circumstances of this
case, be inappropriately too low.”); Jones, 601 F.Supp.2d at 766 (approving lodestar multiplier up to 4.3); DeLoach v. Philip Morris Cos., No. 00-1235, 2003 U.S.Dist. LEXIS
23240, at *38 (M.S.N.C. Dec. 19, 2003)(lodestar multiplier of 4.45 “represent[ed] a reasonable fee for the services provided”), rev’d on other grounds, sub. nom. DeLoach v.
Lorillard Tobacco Co., 391 F.3d 551 (4th Cir. 2004); see also New Eng. Carpenters
Health Ben. Fund v. First Databank, No. 05-11148, 2009 U.S.Dist.LEXIS 68419, at *10
(D.Mass. Aug. 3, 2009) (multiplier of 8.3); Newby v. Enron Corp., 586 F.Supp.2d 732,
741–42 (S.D.Tex. 2008)(multiplier of 5.2); In re Cardinal Health Inc. Sec. Litigs., 528
F.Supp.2d 752, 768 (S.D. Ohio 2007)(multiplier of six); In re Rite Aid Corp. Sec. Litig.,
362 F.Supp.2d 587, 589 (E.D.Pa. 2005)(multiplier of 6.9); In re AremisSoft Corp. Sec.
Litig., 210 F.R.D. 109, 135 (D.N.J. 2002)(multiplier of 4.3); Maley v. Del Global Techs.
Corp., 186 F.Supp.2d 358, 371 (S.D.N.Y. 2002)(multiplier of 4.65); Ingram v. CocaCola Co., 200 F.R.D. 685, 696 (N.D.Ga. 2001)(multiplier up to four); Conley v. Sears,
Roebuck & Co., 222 B.R. 181, 182 (D.Mass. 1998)(multiplier of 8.9); Roberts v. Texaco,
Inc., 979 F.Supp. 185, 197 (S.D.N.Y. 1997)(multiplier of 5.5); In re RJR Nabisco Sec.
Litig., No. 88-905, 1992 U.S.Dist.LEXIS 12702, at *16, 22 (S.D.N.Y. Aug. 24,
1992)(multiplier of six); Cosgrove v. Sullivan, 759 F.Supp. 166, 167 n.1, 169 (S.D.N.Y.
1991)(multiplier of 8.74).
18
resulted in a tremendous settlement after just two years of litigating. As Karen W. Ferguson, Director of the Pension Rights Center, states: “I am not aware of any other private
law firm that could have obtained the relief secured by [Class Counsel] in this case.” Ferguson Decl. ¶ 26. The class benefits from this speedy resolution in three ways:
First, the class will receive compensation and be able to invest those funds immediately, rather than waiting the better part of a decade as other classes in similar 401(k)
excessive fee cases have had to do. In Spano, for example, the class waited nine years to
see any recovery. Spano, No. 06-cv-743, Doc. 587, at 2 (settlement came after Class
Counsel litigated for over nine years). Reaching the settlement now (as opposed to six to
seven years later) gives the class a “head start” on benefitting from its recovery here.
Second, the affirmative relief (valued at nearly $70 million) will go into effect
now, as opposed to several years from now, allowing the class to achieve remarkable savings in the future.
Third, by settling this case before it entered the formal discovery stage, Class
Counsel avoided significant litigation costs and expenses to the class. These include the
costs of depositions, experts, summary judgment, and trial. To date, Class Counsel has
incurred just over $68,000 in costs and expenses. In Spano, by contrast, it incurred over
$1.8 million in costs, which were ultimately reimbursed out of the settlement fund. No.
06-cv-743, Doc. 587 at 9. By settling when it did, Class Counsel obtained millions of additional dollars for the class.
B. The Court should also award reimbursement of Class Counsel’s costs.
“Reimbursement of reasonable costs and expenses to counsel who create a common
19
fund is both necessary and routine.” Savani, 121 F.Supp.3d at 576. As noted above, Class
Counsel has kept costs to a minimum. The Court should award reimbursement of the
$68,887.43 in costs and expenses Class Counsel has incurred to date.
C. The Court should award named plaintiff case contribution awards.
“At the conclusion of a successful class action case, it is common for courts, exercising their discretion, to award special compensation to the class representatives in recognition of the time and effort they have invested for the benefit of the class.” Smith, 2007
U.S. Dist. LEXIS 2392, at *11–12. “A substantial incentive award is appropriate in [a]
complex ERISA case given the benefits accruing to the entire class in part resulting from
[named plaintiff’s] efforts.” Savani, 121 F. Supp. 3d at 577. In this case, the named plaintiffs provided invaluable assistance to Class Counsel in prosecuting this case. By requesting and obtaining critical documents regarding the Plans, they aided Class Counsel’s investigation and ability to prepare a detailed complaint that survived Defendant’s motion
to dismiss. They took great personal risk in bringing an action against a prominent company in their community. Beesly, 2014 U.S.Dist.LEXIS 12037, at *13–14 (risks of acting
as named plaintiff in ERISA action include “alienation from employers or peers”). Thus,
a case contribution award of $25,000 for each named plaintiff is reasonable and fair.
III.
Conclusion.
For the foregoing reasons, the Court should (a) award Class Counsel attorneys’ fees
in the amount of $10,666,666; (b) award Class Counsel reimbursement of reasonable
costs and expenses in the amount of $68,887.43; and (c) award each named Plaintiff
$25,000 as a case contribution award for their assistance in prosecuting this case.
20
July 25, 2016
Respectfully submitted,
SCHLICHTER, BOGARD & DENTON LLP
Jerome J. Schlichter (MO Bar No. 32225)
Troy A. Doles (MO Bar No. 47958)
100 South Fourth Street, Ste. 1200
St. Louis, Missouri 63102
Phone: (314) 621-6115
Fax: (314) 621-5934
jschlichter@uselaws.com
tdoles@uselaws.com
/s/ Robert M. Elliot
Robert M. Elliot (NC Bar No. 7709)
Elliot Morgan Parsonage, PLLC
426 Old Salem Road
Winston Salem, North Carolina 27101
Phone: (336) 724-2828
rmelliot@emplawfirm.com
Attorneys for Plaintiffs
CERTIFICATE OF SERVICE
I hereby certify that on July 25, 2016, I electronically filed the foregoing with the
Clerk of the Court using the CM/ECF system, which sent notification of this filing to all
counsel of record.
21
Plaintiffs,
v.
Defendants.
DECLARATION OF CARLOS PANKSEP
I, CARLOS PANKSEP, hereby declare that:
1. I am General Manager of CEFEX, Centre for Fiduciary Excellence, LLC (“CEFEX®”). I
was previously with QMI, a division of the Canadian Standards Association, where I was
responsible for Corporate Operations, including registration, certification, continual
improvement, information technology and international operations providing me with the
management skills required to run an independent third party registration program,
similar in design to ISO 9001. This includes the assurance of audit quality control, audit
consistency, customer satisfaction monitoring and information transparency. I hold a
Bachelor of Science in Engineering from the University of Waterloo in Ontario Canada.
My CV is attached as Exhibit A.
2. CEFEX is an independent global assessment and certification organization. It works
closely with investment fiduciaries and industry experts to provide comprehensive
assessment programs to improve risk management for institutional and retail investors.
CEFEX certification helps determine the trustworthiness of investment fiduciaries.
1
Case 1:14-cv-00208-WO-JEP Document 57-1 Filed 07/25/16 Page 1 of 45
3. CEFEX provides an independent recognition of a firm’s conformity to a defined Standard
of Practice. It implies that a firm can demonstrate adherence to the industry's best
practices, and is positioned to earn the public's trust. This certification serves investors
who require assurance that their investments are being managed according to
commonly accepted best practices.
4. CEFEX conducts assessments according to the principles of the international standard
ISO/IEC 17021: Conformity Assessment – Requirements for bodies providing audit and
certification of management systems. Observance of these principles is intended to
ensure that CEFEX operates its management system certification in a competent,
consistent and impartial manner, thereby facilitating the recognition of CEFEX and the
acceptance of its certifications on a national and international basis. The ISO 17021
standard serves as a foundation for facilitating the recognition of CEFEX certification in
the interests of national and international trade.
5. Certification of a management system provides independent demonstration that the
management system of the organization:
1. conforms to specified requirements,
2. is capable of consistently achieving its stated policy and objectives, and
3. is effectively implemented.
6. The assessment thereby provides value to the organization, its customers and interested
parties. The overall aim of certification is to give confidence to all parties that a
management system fulfils specified requirements. The value of certification is the
degree of public confidence and trust that is established through an impartial and
competent assessment by a third-party. Parties that have an interest in certification
include, but are not limited to:
1. the clients of the certification bodies,
2. the customers of the organizations whose management systems are certified,
2
3. governmental authorities,
4. non-governmental organizations, and
5. consumers, and other members of the public.
Principles for inspiring confidence include impartiality, competence, responsibility,
openness, confidentiality, and responsiveness to complaints.
7. CEFEX has an external committee, the CEFEX Advisory Council, to safeguard the
impartiality of the activities of the certification body with the following roles:
1. to assist in developing the policies relating to impartiality of its certification
activities,
2. to counteract any tendency on the part of a certification body to allow commercial
or other considerations to prevent the consistent, objective provision of
certification activities, and
3. to advise on matters affecting confidence in certification, including openness,
public perception and governmental oversight.
8. The CEFEX assessment is based on the international standard, ISO 19011: Guideline
for quality and/or environmental system auditing, and is adjusted so as to align with the
needs of the investment industry.
9. To ensure the consistency and impartiality of the assessment process and of
assessment findings, CEFEX has also established the CEFEX Registration Committee
(“CRC”) which consists of investment industry experts and is charged with reviewing
assessments presented by CEFEX Analysts.
10. Roger Lewis Levy, a CEFEX Analyst, has conducted a fiduciary assessment to
determine whether the measures contained in Article 10 (“Article 10”) of the Class Action
Settlement Agreement in this case (“Settlement Agreement”), taking into account the
matters alleged in the Class Action Complaint (“Complaint”), conform to the practices
3
and criteria as described within the Prudent Practices for Investment Stewards (U.S.
Edition) handbook published by Fi360, Inc. (fi360) (the “Handbook”) and has presented
to the CRC his findings in the form of a Declaration, a copy of which, dated July 18,
2016, is attached hereto as Exhibit “B”.
11. The members of the CRC whose resumes are attached hereto as part of Exhibit “A”,
having had the opportunity to review the Analyst’s Declaration together with the
Settlement Agreement and the Complaint, convened on July 15, 2016, with the Analyst
in attendance, to discuss the Analyst’s assessment findings and, after discussion, the
CRC voted to approve the Analyst’s Declaration as a CEFEX Registered Opinion, that is
an opinion registered in the permanent records of CEFEX which remains in effect for a
period of 36 months.
12. I further declare that the Analyst is an Accredited Investment Fiduciary Analyst® (AIFA®)
as designated by fi360. Upon submission of the Analyst’s Declaration for review by
CEFEX, the Analyst carried a valid and current AIFA designation.
I declare under penalty of perjury that the foregoing is true and correct.
Executed on July 18, 2016 at Toronto, Ontario, Canada
_________________
Carlos Panksep
4
EXHIBIT A
Biographies
of CEFEX Experts
June 10, 2016
5
CEFEX Registration Committee
(Technical Experts)
DAVID VRIESENGA
Dec ‘04 – Present
VriesPort Consulting LLC; Grand Rapids, MI USA; London
Senior Partner
Vriesport was a fiduciary risk consulting company whose major clients included:
the Institutional Money Market Fund Association (IMMFA), where VriesPort
developed best practice standards for European institutional money market
funds; Scope Group, a Berlin-based rating agency developing an analytical
model for assessing Life Settlement service providers; and HSBC Asset
Management, developing a market analysis on the global money market
industry.
May ‘92 – Dec. ‘03
Moody's Investors Service; New York; London; Frankfurt
Oct. ‘98 – Dec. ‘03
Representative Director; Global Fund Ratings
Responsible for development, oversight, assignment and monitoring of Moody’s
European and Asian managed funds business. Responsible for the management
of 10 rating professionals located in London, Paris, Milan and Tokyo.
Responsible for the development of new analytical products for investment
managers and their institutional clients. Actively involved in consulting both
institutions and regulators on risks in the worldwide mutual fund industry.
Nov. ‘94 - Oct. ‘98
Sr. Vice President & Sr. Credit Officer; Global Fund Ratings
Responsible for assigning and monitoring credit and market-risk ratings to
mutual funds, unit trusts and investment trust companies domiciled in Dublin,
France, Italy, Japan, Luxembourg, Spain, Switzerland and the UK. Experienced in
the analysis of portfolio construction, regulatory compliance, and back-office
operations. In addition to traditional fund analysis, responsibilities include
business/product development and the publication of research.
May ‘92 – Nov. ‘94
Senior Analyst - Mutual Funds
Responsible for the development of Moody's mutual fund rating business in the
U.S. and Europe. Developed rating criteria for the evaluation of funds as well as
marketing strategy for developing Moody's fund rating business in both the U.S.
and Europe.
Mar. ‘87- May ‘92
Fidelity Investments; Boston, MA, Dallas, TX.
Jan. ’90 – May ‘92
Fixed Income Analyst
6
Analysis and rating of short-term tax-exempt securities for purchase in Fidelity's
tax-exempt money market funds. Experienced in the tax, legal and regulatory
review and structuring of variable rate instruments, including derivative
products, and financial analysis of state and local municipal issuers, hospitals
and universities. Responsibilities included administrative coordinator of the
money market analytical group and its support staff.
Jan. ‘89 – Dec. ‘90
Director of Fixed Income Operations
Responsible for the pricing, bookkeeping, settlements, financial and tax
reporting of approximately 250 mutual funds with assets in excess of US$ 150
billion. Supervised staff of 150 employees as well as managing custodian bank
relationships and relationships with other Fidelity companies.
July ‘88 – Dec. ‘88
Director of Shareholder Operations
Directed a group of 40 employees responsible for the accounting and control of
retail shareholder operations for 140 Fidelity mutual funds.
March ’87 – June ‘88
Accounting Manager - Fidelity Select Fund Portfolios
Managed a staff of 20, responsible for the hourly pricing, book and tax
accounting and informational reporting of 36 industry-specific Select portfolios.
Implemented changes in the accounting, tax and regulatory control
environment as well as automation of the audit process.
1984 to 1987
Coopers & Lybrand, Certified Public Accountants; Boston, Ma.
1980 to 1984
Peat Marwick, Mitchell & Co., Certified Public Accountants; Rockford, Ill.
EDUCATION
1980
Northern Illinois University, De Kalb, Ill. Masters in Accounting Science.
Quantitative, theoretical and business courses in accounting methodologies.
Graduate Teaching Assistant.
1977
Calvin College, Grand Rapids, Mi., B.A. major in accounting and
economics
OTHER
CPA, taught various courses at college level as well as professional development
courses. Presented various speeches, worldwide on risks in mutual funds and
asset management companies.
Advisory board of London School of Economics’ “Analyzing Finance” publication
Advisory board of the London based Institutional Money Market Fund
Association (IMMFA)
7
BLAINE F. AIKIN, AIFA®, CFA, CFP
Executive Chairman, Fi360
Blaine Aikin is Executive Chairman of fi360 and a recognized thought-leader in the field of financial
advice and fiduciary responsibility. Mr. Aikin joined fi360 in 2005 as Chief Knowledge Officer, became
Chief Executive Officer in 2007, and was named Executive Chairman in 2015. He led the rise to
prominence of the company’s professional development capabilities, investment management platform
for advisors, and business research and practice management services that help advisors and financial
institutions to gather, grow, and protect investor assets. His rich experience includes having been a
financial planning practitioner, Chief Investment Officer, and corporate executive responsible for the
design, delivery, and management of investment products.
Mr. Aikin is a well-known speaker and author of numerous articles on the subjects of fiduciary
responsibility and investment management. He is the author of the monthly Fiduciary Corner column
in InvestmentNews magazine. He has been named to Investment Advisor magazine's IA25 list of the
most influential people in the investment advisory community and one of the ten most influential
individuals in the 401(k) industry by RIABiz. He is Chair-elect of the Board of Directors for the CFP Board
of Standards and will serve as CFP Board’s Chairman in 2017.
Mr. Aikin received a Bachelor Degree in Economics and Political Science from Allegheny College and his
Master of Public Management and Policy degree from the Heinz School of Carnegie-Mellon University.
Upon graduation from CMU, he was selected for the prestigious Presidential Management Intern
Program. He is a Certified Financial Planner® (CFP®) professional, Chartered Financial Analyst® (CFA®)
charterholder, and Accredited Investment Fiduciary Analyst® (AIFA®) designee.
An avid outdoorsman, Mr. Aikin serves on the Steering Committees of the Pennsylvania Forest Stewards
program and the Pennsylvania Center for Private Forests.
8
J. RICHARD LYNCH
Director, Fi360
Rich Lynch is a Director of Fi360. As a member of the Board he oversees the strategic direction of the
organization and specifically provides direction with respect to fiduciary developments and their impact
on the financial services industry and fi360. He is also a member of the CEFEX – Centre for Fiduciary
Excellence Board of Directors and CEFEX Registration Committee.
As the primary instructor for fi360 Training, he is instrumental in providing investment education and
training programs that award the Accredited Investment Fiduciary® (AIF®) and Accredited Investment
Fiduciary Analyst® (AIFA®) professional designations. As a CEFEX Registration Committee member, he
oversees and approves the assessment and certification of all CEFEX-certified firms.
Rich assisted with the development of the industry's fiduciary handbook series, Prudent Practices for
Investment Fiduciaries, and is instrumental in updating them periodically as regulatory and market
developments dictate.
Rich graduated from the United States Coast Guard Academy with high honors in EconomicsManagement, where he received the Superintendent's Award for leadership at graduation. During his
twenty-year Coast Guard career, he served aboard three ships as Operations Officer, Executive Officer
and Commanding Officer respectively. In addition, he held various senior-level financial management
positions, including an assignment to the National Pollution Funds Center, a newly established Coast
Guard unit responsible for managing the $1 billion Oil Spill Liability Trust Fund. Rich received his MBA
degree (Magna Cum Laude) with an emphasis in Operations Research from George Washington
University.
9
CARLOS PANKSEP
Managing Director, CEFEX
Carlos Panksep is General Manager of the Centre for Fiduciary Excellence, LLC (CEFEX). CEFEX is an
independent certification organization which works closely with industry experts to provide
comprehensive assessment programs to improve the fiduciary practices of investment stewards,
advisors, recordkeepers, administrators and managers. CEFEX has offices in Toronto, Canada, and
Pittsburgh, PA.
Carlos is from QMI, a division of the Canadian Standards Association, where he was responsible for
Corporate Operations, including registration, certification, continual improvement, information
technology and international operations. CEFEX is managed as an independent third party registration
organization, similar to ISO (International Organization for Standardization) certification bodies.
10
EXHIBIT B
Plaintiffs,
v.
Defendants.
DECLARATION OF ROGER L. LEVY
I, ROGER LEWIS LEVY, hereby declare that:
1. I hold a Masters of Law degree from Temple Law School (1977) and the professional
designation of Accredited Investment Fiduciary Analyst (AIFA®) awarded by the Center
For Fiduciary Studies in association with the Center For Executive Education, Joseph M.
Katz School of Business, University of Pittsburgh (2009).
I have previously practiced
law as an English solicitor (1970-1985) and as a member of the Pennsylvania Bar (19771985).
I am currently CEO of Cambridge Fiduciary Services, LLC (“CFS”) and an
Analyst appointed by CEFEX, Centre for Fiduciary Excellence. LLC (“CEFEX®”). My
Curriculum vitae is attached as Exhibit A.
2. CEFEX, formed in 2006, is an independent global assessment and certification
organization dedicated to assisting investment fiduciaries (investment committees,
investment advisors and asset managers) in adhering to the highest standards of
fiduciary excellence in their particular investment function. Its process and procedures
are described in the Declaration of Carlos Panksep, General Manager of CEFEX, to be
filed in these proceedings in support of this Declaration.
11
3. The CEFEX assessment of a qualified retirement plan, including 401(k) plans, is based
on the fiduciary standard of care defined in the handbook - Prudent Practices for
Investment Stewards (US Edition) published by fi360, Inc. of Pittsburgh, Pennsylvania
(“Handbook”)1. That standard is defined as a Global Fiduciary Standard of Excellence
for improving an Investment Steward’s decision-making process, Investment Stewards
being those who have legal responsibility for managing investment decisions, such as
trustees plan sponsors, and investment committee members. The “excellence” is
established by twenty-one Prudent Practices (“Practices”) which provide the framework
of a disciplined investment process. The Practices are further supported by Criteria,
which represent the details of the Global Fiduciary Standard of Excellence. The
Practices and Criteria are organized under a four-step Fiduciary Quality Management
System.
The steps are consistent with the global ISO 9000 Quality Management
System standard, which emphasizes continual improvement to a decision-making
process:
Step 1: Organize
During the organize stage, the investment fiduciary identifies laws, governing
documents, and other sources of guidance for fiduciary conduct.
Step 2: Formalize
During the formalize stage, the investment fiduciary identifies the substantive
investment objectives and constraints, formulates asset allocation strategies, and
adopts an investment policy statement to guide the investment decision-making
process.
Step 3: Implement
The implement stage is when investment and services provider due diligence is
performed and decisions about investment safe harbors are made.
Step 4: Monitor
During the monitoring stage, the investment fiduciary engages in periodic reviews
to ensure that the investment objectives and constraints are being met and that
the Prudent Practices are consistently applied.
1
A copy of the Handbook can be found at the CEFEX website: http://www.cefex.org/steward/standard
12
4. Each of the Practices is substantiated by the Employee Retirement Income Security Act
of 1974 (“ERISA”), the Uniform Prudent Investor Act, the Uniform Prudent Management
of Institutional Funds Act, the Uniform Management of Public Employee Retirement
Systems Act and the Investment Advisors Act of 1940.
A copy of the Practices is
attached to this Declaration as Exhibit B.
5. CEFEX certification results from assessments performed to verify whether an entity
conforms to the Practices, representing “best practices”, and are performed by analysts
appointed by CEFEX. Such analysts hold the Accredited Investment Fiduciary Analyst®
or AIFA® designation awarded by fi360 (a founding CEFEX member) after a period of
study and examination and must demonstrate prior investment industry experience.
Today, there are some 40 CEFEX analysts, including the Declarant.
6. Over 8,000 designations as Accredited Investment Fiduciary ™ or AIF® have been
awarded by fi360 to investment advisors who are committed to applying the Practices in
their advisory activities. CEFEX has certified over 65 advisory firms as conforming to the
Practices. These advisory firms are collectively responsible for over $190 billion in
assets, of which $81 billion represents ERISA defined contribution plan assets. These
advisory firms have, in turn, provided counsel with respect to the Practices to their plan
fiduciary clients, which include some 6,000 defined contribution plans.
7. I have been providing fiduciary best practices consulting services for over 30 years,
initially on behalf of Cambridge Financial Services, Inc., a registered investment adviser
with over $24 billion in assets under care at the time of the sale of its business in 2013,
and, more recently, as CEO of Cambridge Fiduciary Services, LLC, a fiduciary
consulting and assessment company, contracted with CEFEX for the provision of my
services as CEFEX Analyst since 2009. I currently perform CEFEX assessments on an
annual basis for over 25 entities who act in a fiduciary capacity involving in excess of
$62.5 billion in assets.
13
8. For the purposes of this Declaration and of the opinions expressed herein, I have
reviewed the Class Action Complaint in this action which is dated March 12, 2014
(“Complaint”), and the conclusions and opinions which I express in this Declaration are
based on the facts and allegations stated in the Complaint.
Further, I have not
conducted any independent investigation related to the accuracy of these facts or of the
allegations, which the Defendants have denied. For the same purpose, I have also
reviewed the Class Action Settlement Agreement in this action dated November 9, 2015,
(“Settlement Agreement”). In particular, I have reviewed Article 10 of the Settlement
Agreement (“Article 10”). Such review and the assumptions on which they are based
are sufficient in my view to assess whether compliance with Article 10 would conform to
the Practices and to the Fiduciary Standard of Excellence which the Practices, in
combination, support. In this context, it is important to point out that the 21 Practices
and their Criteria apply to an investment process which addresses all of the elements in
the Fiduciary Quality Management System described in paragraph 3 above, whereas the
fiduciary breaches alleged in the Complaint and the remediation addressed in Article 10
concern only part of that investment process and accordingly call in to play only those
Practices which apply to those alleged breaches and to Article 10 remediation. The
opinions expressed in the paragraphs of this Declaration that follow represent my expert
opinion as a CEFEX Analyst with more than 30 years of experience in counseling plan
sponsors and others on matters of prudence and fiduciary best practices.
For the
purposes of this Declaration, I have used the terms as defined in the Settlement
Agreement.
9. With respect to Article 10.2, paragraph 35 of the Complaint alleges that Derrick L. Davis
& Company, Inc. (“Davis”) is a brokerage company founded by Derrick L. Davis, its CEO
and president, and that Derrick Davis at relevant times has been a registered broker of
MML Investors Services, LLC, a subsidiary of Mass Mutual Life Insurance Company.
14
Paragraphs 120 to 132 of the Complaint contain allegations that Davis received
excessive compensation directly from the Plans in the form of “commissions” for limited
marketing and enrollment services described in paragraph 117 of the Complaint.
Paragraphs 133 to 137 of the Complaint contain allegations that, in addition to direct
compensation received from the Plans, Davis received payments from the managers of
the Plans’ investments. In practice, such additional compensation represents “revenue
sharing”, where a portion of a fund’s expense ratio is ceded to a plan’s service provider
and constitutes indirect compensation, so far as the service provider is concerned.
Paragraphs 141 and 142 of the Complaint contain allegations that Davis received
additional compensation from Novant’s health and welfare plans and from its defined
benefit pension plan.
Paragraphs 143 to 147 of the Complaint describe other
relationships, generally of a business nature, established between Derick Davis and
Novant and/or its affiliates.
10. Article 10.2 seeks to redress the alleged matters described in the foregoing paragraph 9
by requiring, in effect, Novant and (as appropriate) the Plan Fiduciary (as defined in the
Settlement Agreement) to permanently sever Davis’ relationship and involvement with
the Plans and with any other Novant defined contribution plans, and, for a period of time,
to terminate Davis’ relationship and involvement with all other Novant benefit plans,
including defined benefit and health and welfare plans. The prohibition includes the
receipt by Davis of any remuneration, payment or benefit as a result of any retirement or
other benefit plan provided or offered by Novant, other than as a plan participant or
beneficiary.
11. Based on the foregoing, I am of the opinion that the remedies afforded by Article 10.2
are prudent and consistent with the Practices because they address alleged conflicts of
interest and self-dealing represented by a service provider, in this case Mr. Davis,
benefiting materially from a relationship with a client, in this case the Plans, by receiving
15
excessive and undisclosed compensation. The relevant Practices and criteria are as
follows:
Practice 1.4
Criteria:
1.4.2
Practice 4.4
Criteria:
4.4.2
4.4.3
The Investment Steward identifies conflicts of interest and addresses conflicts in
a manner consistent with the duty of loyalty.
Conflicts of interest are avoided when possible and always when required by law,
regulation, and/or governing documents.
Periodic reviews are conducted to ensure that investment-related fees,
compensation and expenses are fair and reasonable for the services provided.
Fees, compensation, and expenses paid from the portfolio or from plan or trust
assets are periodically reviewed to ensure consistency with all applicable laws,
regulations, and service agreements.
assets are periodically reviewed to ensure such costs are fair and reasonable
based upon the services rendered and the size and complexity of the portfolio or
plan.
12. Article 10.3 contains further measures to address the allegations contained in paragraph
35 and paragraphs 117 through 147 of the Complaint, by prohibiting Novant, during the
Settlement Period, from entering into new real estate or business relationships with Mr.
Davis and entities with which he is affiliated, but permitting various acts concerning
existing agreements between the parties while they unwind or otherwise extinguish their
respective obligations to each other. Further, the prohibitions of Articles 10.2 and 10.3
are not to apply to existing life or disability insurance policies for which Mr. Davis and
affiliates served as an agent or broker.
13. The measures set forth in Article 10.3 represent a further exercise of prudence to
address the allegations of conflicts of interest, self-dealing and excessive compensation
on the part of Mr. Davis as set forth in the Complaint and to prevent their recurrence,
while protecting interests that are untainted by the alleged breaches. In my opinion,
such measures are supported by the Practices and criteria set forth in paragraph 11 of
this Declaration and are consistent with a fiduciary standard of care.
16
14. Article 10.4 provides that within nine months after Final Approval and for the remainder
of the Settlement Period, Novant and the Plan Fiduciary shall not offer any fund or
investment provided by Mass Mutual and shall not knowingly permit and shall use their
best efforts to ensure that no other fund or investment from any other company is
included in the Plans that provide Davis any form of remuneration, payment, or any other
benefit.
15. From a best practice perspective, plan sponsors establish quantitative and qualitative
criteria to guide investment selection and monitoring, as formalized in an investment
policy statement, and will search a variety of available funds before winnowing down
their selection to those funds which best meet their criteria. Without considering funds
from a particular fund family, such as Mass Mutual, the plan sponsor does not know how
those funds rate compared to others within the same asset class and might deprive plan
participants of access to funds which meet the plan sponsors’ selection and monitoring
criteria. Under certain circumstances, absent some compelling reason consistent with a
fiduciary standard of care, it would be imprudent to exclude from consideration the funds
of a particular fund family. In this case, however, the continuing use of Mass Mutual
funds may permit the payment of additional indirect compensation from the Plan to Davis
based on Mr. Davis being a broker of MML Investors Services, LLC, a broker/dealer,
which is a subsidiary of Mass Mutual, and would thereby perpetuate the fiduciary
breaches alleged in the Complaint.
Accordingly, in light of the allegations in the
Complaint involving the receipt by Davis of excessive remuneration from the Plans, it
would be prudent of Novant and the Plan Fiduciary to remove from the Plans’ investment
menu Mass Mutual funds and other funds from which Davis could derive indirect
compensation.
16. The specific Practices which support my opinion as to the measures contained in Article
10.4 are as follows::
17
Practice 1.2
Criteria:
1.2.2
Practice 1.4
Criteria:
1.4.2
Practice 2.6
Criteria:
2.6.5
2.6.7
Practice 3.3
Investments and investment services under the oversight of the
Investment Steward are consistent with applicable governing documents.
Investments are managed and investment services are retained in
accordance with governing documents, including the investment policy
statement.
The Investment Steward identifies conflicts of interest and addresses
conflicts in a manner consistent with the duty of loyalty.
Conflicts of interest are avoided when possible and always when
required by law, regulation, and/or governing documents.
The investment policy statement contains sufficient detail to define,
implement, and monitor the portfolio’s investment strategy.
The investment policy statement defines due diligence criteria for
selecting investment options.
The investment policy statement defines monitoring criteria for
investment options and service vendors.
Decisions regarding investment strategies and types of investments are
documented and made in accordance with fiduciary obligations of care.
Criteria:
3.3.1
A documented due diligence process, consistent with prudent practices
and generally accepted investment theories, is used to select
investments and third-party Investment Managers.
3.3.2
Decisions regarding the selection of investments consider both
qualitative and quantitative criteria.
3.3.3
The documented due diligence process used to select investments and
third-party Investment Managers is consistently applied.
17. Article 10.5 requires the Independent Consultant, Innovest Portfolio Solutions, Inc., a
registered investment adviser, at the end of the first, second, third and fourth year of the
Settlement period, to: (1) audit and benchmark the Plans’ existing investment options
and recordkeeping fees and services; and (2) review a list of the Plans’ existing service
providers along with the compensation paid to these providers. Novant is to provide all
plan-related materials on request. Thereafter, the Independent Consultant is to report
18
with a written assessment of its findings and of the Defendants compliance with Article
10 and may also provide its recommendations regarding the Plans’ investment Options
and/or recordkeeping fees and services. The Plan Fiduciary must then respond with its
observations or recommendations, including any plan of action.
18. In my opinion, the monitoring represented by the measures called for by Article 10.5
fulfills an important element of a fiduciary standard of care and comports with the fourth
element of the Quality Management System represented by the Practices, as discussed
in Paragraph 3 above.
Supported by the Handbook, in my opinion, the prudent
management of a retirement plan is never on “auto-pilot” and a plan fiduciary must be
vigilant as to changes in the pricing of investment services, retirement plan
arrangements, and in the circumstances directly impacting the financial situation or
outlook of the portfolio, in addition to traditional monitoring of investment performance.
Such monitoring should include assessment of plan fiduciaries’ performance and
conformity with best practice and the process should be documented to facilitate future
monitoring and assessment. Such monitoring and assessment should be performed with
the frequency dictated by facts and circumstances affecting the plan in question and an
investment review performed annually would be satisfactory given the background of
litigation and settlement discussions in this case.
19. The specific Practices which support my opinion as to the measures contained in Article
10.5 are as follows:
Practice 4.1
Criteria:
4.1.1
Practice 4.2
Periodic reports are used to compare investment performance against
appropriate index, peer group, and investment policy statement
objectives.
The performance of each investment option is periodically compared
against an appropriate index, peer group, and any other performancerelated due diligence criteria defined in the investment policy statement.
Periodic reviews are made of qualitative and/or organizational changes of
Investment Advisors, Investment Managers, and other service providers.
19
Criteria:
4.2.1
Periodic evaluations of the qualitative factors that may impact the results
or reliability of Investment Advisors, Investment Managers, and other
service providers are performed.
4.2.2
Negative news and other material information regarding an Investment
Advisor, Investment Manager, or other service provider are considered
and acted on in a timely manner.
4.2.3
Deliberations and decisions regarding the retention or dismissal of
Investment Advisors, Investment Managers, and other service providers
are documented.
4.2.4
Qualitative factors that may impact service providers are considered in the
contract review process.
Practice 4.4
compensation and expenses are fair and reasonable for the services
provided.
Criteria:
4.4.1
A summary of all parties being compensated from the portfolio or from
plan or trust assets and the amount of compensation has been
documented.
4.4.2
Fees, compensation, and expenses paid from the portfolio or from plan or
trust assets are periodically reviewed to ensure consistency with all
applicable laws, regulations, and service agreements.
4.4.3
Fees, compensation, and expenses paid from the portfolio or from plan or
trust assets are periodically reviewed to ensure such costs are fair and
reasonable based upon the services rendered and the size and
complexity of the portfolio or plan.
Practice 4.5
There is a process to periodically review the Steward’s effectiveness in
meeting its fiduciary responsibilities.
Criteria:
4.5.1
Fiduciary assessments are conducted at planned intervals to determine
whether (a) appropriate policies and procedures are in place to address
all fiduciary obligations, (b) such policies and procedures are effectively
implemented and maintained, and (c) the investment policy statement is
reviewed at least annually.
4.5.2
Fiduciary assessments are conducted in a manner that promotes
objective analysis and results are documented and reviewed for
reasonableness.
20. Article 10.6 recites the completion by the Plan Fiduciary of an RFP bidding process for
education, recordkeeping and investment consultant services for the Plan in which, in
response to each RFP, at least three vendor proposals were obtained. Article 10.6
20
further recites that the Independent Consultant (1) reviewed all of the vendor proposals
submitted during the RFP process; (2) provided recommendations arising from its
review for consideration by the Plan Fiduciary prior to the Plan Fiduciary’s decisions on
which vendors to retain; (3) approved the RFP process conducted; and (4) reviewed the
vendor selection decisions made by the Plan Fiduciary. Appropriate parties have been
or will be apprised by the Independent Consultant of its review, recommendations and
approval of the RFP process and review of the Plan Fiduciary’s vendor selection
decisions. Article 10.6 then provides that, within six months after Final Approval, the
Plan Fiduciary shall transition all education, recordkeeping, and investment consulting
services to the Approved Service Providers retained by the Plan Fiduciary on behalf of
the Plans, based on the RFP process described above. Within three months after the
Plans are transitioned to the selected investment consultant, the Plan Fiduciary shall
review all investment options then offered in the Plans. In considering new/replacement
options, the Plan Fiduciary, with the assistance of the investment consultant to the
Plans, shall consider, without limitation, (1) the lowest-cost share class available for any
particular mutual fund considered for inclusion in the Plans; (2) collective trusts and
separate account investments, to the extent such investments are permissible under
IRC § 403(b); and (3) passively managed funds for each category or fund offering that
will be made available under the Plans. For any style or class of investment, the
investment consultant to the Plans shall provide the Plan Fiduciary with at least three
finalists to consider in making its selection. There then follows an approval process
between interested parties of the resulting investment consultant’s report and
recommendations.
21. In my opinion, when selecting service providers, including investment consultants, plan
fiduciaries must first conduct appropriate due diligence so that they can make an
informed and reasoned selection.
Such due diligence encourages the use of
21
competitive bidding to permit plan fiduciaries to evaluate the nature and quality of the
services available from the market place and applicable costs. Further, it is prudent to
have an oversight process to review whether plan fiduciaries are meeting their fiduciary
responsibilities. I have not seen the report of the Independent Consultant referred to in
Article 10.6 and therefore express no opinion as to the recommendations, selections and
approvals which resulted from the process described. However, it is my opinion that the
process itself and the remaining actions proposed by Article 10.6, including oversight of
those actions, conform to a fiduciary standard of care and to applicable Practices.
22. The specific Practices which support my opinion as to the process described in Article
10.6 are as follows:
Practice 3.1 A reasonable due diligence process is followed to select each service
provider in a manner consistent with obligations of care.
Criteria:
3.1.1
Reasonable criteria are identified for each due diligence process
used to select service providers.
3.1.2
The due diligence process used to select each service provider is documented.
3.1.3
Each due diligence process used to select service providers is consistently
applied.
Practice 3.3
Decisions regarding investment strategies and types of investments are
Criteria:
3.3.1
A documented due diligence process, consistent with prudent
practices and generally accepted investment theories, is used to
select investments and third-party Investment Managers.
3.3.2
Decisions regarding the selection of investments consider
both qualitative and quantitative criteria.
3.3.3
The documented due diligence process used to select
investments and third-party Investment Managers is
consistently applied.
Regulated investments are preferred over unregulated
investments when all other characteristics are comparable.
3.3.4
3.3.5
Investments that are covered by readily available data sources are
22
preferred over similar investments for which limited coverage is
available when all other characteristics are comparable.
3.3.6
Decisions regarding passive and active investment strategies are
documented and made in accordance with obligations of care.
3.3.7
Decisions regarding the use of separately managed and commingled
accounts, such as mutual funds, unit trusts, exchange-traded products,
and limited partnerships, are documented and made in accordance with
obligations of care.
Practice 4.5 There is a process to periodically review the Steward’s effectiveness in meeting its
fiduciary responsibilities.
Criteria:
4.5.1
Fiduciary assessments are conducted at planned intervals to determine whether
(a) appropriate policies and procedures are in place to address all fiduciary
obligations, (b) such policies and procedures are effectively implemented and
maintained, and (c) the investment policy statement is reviewed at least annually.
4.5.2
Fiduciary assessments are conducted in a manner that promotes objective
analysis and results are documented and reviewed for reasonableness.
23. Article 10.7 establishes a process for conducting due diligence and oversight in the
event that Novant or the Plan Fiduciary wishes to issue other RFPs for education,
recordkeeping or investment consulting services during the Settlement Period.
The
process allows for review of RFPs, RFP responses, recommendations and service
provider selections by the Independent Consultant, and ultimately by the Independent
Fiduciary, who will determine whether there is compliance with the Settlement
Agreement.
24. The process established by Article 10.7 is, in my view, consistent with the process
established by Article 10.6 and conforms to a fiduciary standard of care as established
by the Practices, in particular, Practices and Criteria 3.1, 3.3 and 4.5, as set forth in
paragraph 22 above.
25. Under Article 10.8, Novant is to receive no compensation from the Plans for services it
provides, but it may seek reimbursement for costs incurred on behalf of the Plans to the
extent that such costs would be appropriately charged to the Plans under applicable law.
23
26. In my opinion, under the Practices and an applicable ERISA prohibited transaction
exemption, it would be permissible for Novant, as a party in interest under ERISA, to
provide services necessary for the operation of the plans for no more than reasonable
compensation. However, accepting as true the allegations in paragraphs 148 to 153 of
the Complaint of fraud and concealment on the part of Novant with respect to the
fiduciary breaches alleged elsewhere in the Complaint (all of which I emphasize is
denied by the defendants), it would be prudent, in my view, to protect the Plans from a
future conflict of interest, which the payment of excessive compensation represents,
and, therefore, to preclude Novant from receiving compensation from the Plans in the
future.
27. The Practices and Criteria which support my opinion concerning Article 10.8 are as
follows:
Practice 1.4
Criteria:
1.4.2
The Investment Steward identifies conflicts of interest and addresses conflicts in a
manner consistent with the duty of loyalty.
Conflicts of interest are avoided when possible and always when required
by law, regulation, and/or governing documents.
Practice 4.4 Periodic reviews are conducted to ensure that investment-related fees,
Criteria:
4.4.2
4.4.3
plan.
28. Article 10.9 provides that fees paid to the Plans’ recordkeeper will not be set or
determined on a percentage-of-assets basis.
In this context, it is alleged in the
Complaint that Great-West, the Plans’ (now former) recordkeeper, received excessive
fees directly from the Plans for its services and that, in addition, it received excessive
24
indirect compensation in the form of revenue sharing (see complaint paragraphs 108 to
111, for example). In my view, there is nothing inherently imprudent about the use of
revenue sharing and it is not inconsistent with the Practices.
However, in my
experience, some plan fiduciaries who establish revenue sharing arrangements fail to
perform prior due diligence to establish a reasonable cost for recordkeeping services
and to monitor the payments made to the recordkeeper through revenue sharing to
ensure that such payments do not exceed the previously determined reasonable cost
for their services. This monitoring is particularly important because, as the volume of
plan assets grows through contributions and investment returns, so too can the amount
paid to the recordkeeper through revenue sharing. Left unchecked, these payments to
the recordkeeper can quickly grow out of proportion to the reasonable cost of services,
particularly if they are paid in addition to direct fees, and are an imprudent charge on
participant investment earnings. These are the circumstances alleged in the Complaint.
Accordingly, as a prophylactic against the payment of excessive recordkeeping fees, it
is prudent, in my opinion, that such fees shall not be set or determined on a
percentage-of-assets basis.
29. The specific Practices and Criteria which support my opinion as to the process
described in Article 10.9 are as follows:
Practice 3.1 A reasonable due diligence process is followed to select each service
Criteria:
3.1.4
Reasonable criteria are identified for each due diligence process
used to select service providers.
3.1.5
The due diligence process used to select each service provider is documented.
3.1.6
Each due diligence process used to select service providers is consistently
applied.
Practice 4.4 Periodic reviews are conducted to ensure that investment-related fees,
25
Criteria:
4.4.2
4.4.3
plan.
30. Article 10.10 requires the Plan Fiduciary to continue to contract with the Plans’
recordkeeper to obtain participant statements that comply with all applicable DOL
participant-disclosure requirements.
In this context, paragraphs 148 to 153 of the
Complaint include allegations of fraud and concealment, including allegations that Plan
participants were misled as to who was paying Great-West and as to the
appropriateness of the share class of mutual funds offered by the Plans.
Misrepresentation and concealment are antithetical to a fiduciary standard of care and
to the Practices and, once revealed, it is incumbent upon plan fiduciaries, in my opinion,
to rectify the misrepresentation and concealment and to ensure that future
communications accord with a fiduciary standard of care and applicable regulation,
such as DOL regulation governing 401(k) plan participant statements and disclosures.
The preparation and distribution of participant statements and disclosures are plan
obligations typically delegated by contract to a plan’s recordkeeper. Accordingly, in my
opinion, the provisions of Article 10.10 are consistent with a fiduciary standard of care
and the Practices.
Practice 1.5
The Investment Steward requires agreements with service providers to
be in writing and consistent with fiduciary standards of care.
Criteria:
1.5.1
The Investment Steward requires each service provider to make full
written disclosure of the services to be provided and the
compensation arrangements, affiliations, and fiduciary status of the
service provider.
26
1.5.2
Agreements are periodically reviewed to ensure consistency with
the objectives of the investment portfolio and/or the needs of
beneficiaries.
32. Article 10.11 requires Novant and the Plan Fiduciary to provide accurate participant
communications throughout the Settlement Period and to submit generic participant
communications intended for all participants to the Independent Consultant for
review before dissemination to participants so that the independent Consultant may
then notify the Plan Fiduciary of suggested changes, edits or concerns. The
requirements of Article 10.11 address the same issues raised by Article 10.10 and, in
my view, are appropriate to address the allegations discussed in paragraph 30 above
and are consistent with a fiduciary standard of care as supported by same the
Practice and Criteria as set forth in paragraph 31 above.
33. Article 10.12 provides that any portion of the Net Settlement Amount remaining after
distributions, including costs and taxes, shall be paid to the Plans. However, no part
of the Settlement Fund is to be used to reimburse any Defendant or otherwise offset
settlement-related costs incurred by any Defendant, except as to certain third-party
expenses permitted by the Settlement Agreement. Nothing in Article 10.12 prohibits
Novant from paying for the Plan’s administrative expenses and obtaining only
reasonable reimbursement from plan assets. Any costs paid in this manner shall be
stated in any required disclosures or reporting as costs paid by the Plans, not costs
paid by Novant.
34. From the perspective of a fiduciary standard of care, it is appropriate, in my opinion,
that the Net Settlement Amount remaining after distributions, costs and taxes should
not inure to the benefit of parties who are alleged to have committed breaches of
fiduciary duty and that such amount should be treated as a plan asset and be paid to
the Plans.
Further, plan fiduciaries have a responsibility to account for all plan
27
expenses and ensure that only reasonable costs are paid from plan assets.
Accordingly, it is my opinion that the measures contemplated by Article 10.12 are
consistent with a fiduciary standard of care and the Practices.
Practice 4.4
Criteria:
4.4.1
provided.
documented.
4.4.2
Fees, compensation, and expenses paid from the portfolio or from plan
or trust assets are periodically reviewed to ensure consistency with all
4.4.3
or trust assets are periodically reviewed to ensure such costs are fair and
36. Article 10.13 prohibits any broker from providing brokerage services or receiving any
compensation for brokerage services either directly or indirectly from the Plans,
during the Settlement Period.
In this regard, the Complaint alleges (see Complaint
paragraphs 120 to 137) that excessive compensation was paid to Davis, described in
paragraph 35 of the Complaint as a brokerage company.
37. In my experience, plan fiduciaries are able to prudently manage a 401(k) plan
without engaging or paying direct or indirect compensation to a broker. The services
typically required by a plan consist of trust and custody services, recordkeeping and
administration, education and communication services for plan participants, and
investment consulting services, all of which can be obtained on a level fee basis,
without the involvement of brokers who are typically compensated through
commissions, which represent non-level compensation. The payment of fees on a
28
level basis is important in determining the reasonableness of service provider
compensation in relation to the services provided and in avoiding conflicts of interest
and ERISA prohibited transactions.
Accordingly, in my opinion, in light of the
allegations in the Complaint concerning the payment of excessive compensation to
brokers, i.e. Davis, it is prudent to foreclose the opportunity for the Plans to employ
or compensate a broker during the Settlement period.
Practice 1.4
The Investment Steward identifies conflicts of interest and addresses
conflicts in a manner consistent with the duty of loyalty.
Criteria:
1.4.1
Policies and procedures for overseeing and managing conflicts of
interest, including self- dealing, are defined.
1.4.2
Conflicts of interest are avoided when possible and always when
required by law, regulation, and/or governing documents.
1.4.3
The Investment Steward discloses, and requires service providers to
disclose, all unavoidable conflicts of interest in writing and to manage
such unavoidable conflicts in the best interest of the participants or
beneficiaries.
Practice 3.1
Criteria:
3.1.1
A reasonable due diligence process is followed to select each service
Reasonable criteria are identified for each due diligence process used
to select service providers.
3.1.2
The due diligence process used to select each service provider is
documented.
3.1.3
Each due diligence process used to select service providers is
consistently applied.
39 Article 10.14 provides a mechanism for oversight of the recommendations and
reports to be delivered by the Independent Consultant to the Independent Fiduciary
under Articles 10.5, 10.6, and 10.7. Article 10.14 provides that, if the Independent
Fiduciary determines, based on such reports and any additional reports specifically
29
requested by the Independent Fiduciary during the Settlement Period, that
Defendants have materially failed to comply with Article 10 of this Agreement, it
shall promptly notify Class Counsel, Novant, and the Plan Fiduciary of such
disapproval. If Novant or the Plan Fiduciary does not obtain the written approval of
the Independent Fiduciary within 60 days of such determination, Class Counsel may
initiate a dispute pursuant to Paragraph 13.7 of this Settlement Agreement.
40 In my opinion, the oversight afforded by the Independent Consultant and
Independent Fiduciary in this case, is important to the interests of participants in the
Plans and as part of the remediation afforded by the Settlement Agreement. Further,
it is my opinion that such oversight is consistent with a fiduciary standard of care and
the Practices. The fiduciary duty to monitor, in my opinion, requires a look back by
plan fiduciaries at decisions and actions previously made or taken on behalf of a plan
to verify that they remain consistent with the interests of participants and
beneficiaries, based on the facts and circumstances then obtaining. Such monitoring
is no less applicable to the roles of the Independent Consultant and Independent
Fiduciary in this case and, in light of the prior litigation, it is prudent, in my opinion, for
a dispute resolution mechanism to be in place if a determination is made that there
has been a failure to comply with the terms of the Settlement Agreement.
Practice 4.2
Periodic reviews are made of qualitative and/or organizational changes
of Investment Advisors, Investment Managers, and other service
providers.
Criteria:
4.2.1
4.2.2
30
4.2.3
are documented.
4.2.4
Qualitative factors that may impact service providers are considered in
the contract review process.
Practice 4.4
provided.
Criteria:
4.4.1
documented.
4.4.2
or trust assets are periodically reviewed to ensure consistency with all
4.4.3
or trust assets are periodically reviewed to ensure such costs are fair and
Practice 4.5
Criteria:
4.5.1
4.5.2
There is a process to periodically review the Steward’s effectiveness in
Fiduciary assessments are conducted at planned intervals to determine
whether (a) appropriate policies and procedures are in place to address
all fiduciary obligations, (b) such policies and procedures are effectively
implemented and maintained, and (c) the investment policy statement is
reviewed at least annually.
Fiduciary assessments are conducted in a manner that promotes
objective analysis and results are documented and reviewed for
reasonableness.
42. Article 10.15 provides a process for terminating and replacing the Independent
Consultant if the Plan Fiduciary, or Independent Fiduciary based upon its review of
reports received from the Independent Consultant as described in this Article 10,
determines that continued retention of the particular Independent Consultant
identified in the Settlement Agreement will disadvantage the Plans or participants in
the Plans.
In my opinion, it is consistent with a fiduciary standard of care, as
supported by the Practices, to have in a place a process to replace a service
31
provider, if plan fiduciaries determine that a change in service provider should be
made in the best and exclusive interests of a plan and its participants.
43. The specific Practice and Criteria which support my opinion as to the process
Practice 4.2
Periodic reviews are made of qualitative and/or organizational changes of
Criteria:
4.2.1
4.2.2
4.2.3
are documented.
4.2.4
Qualitative factors that may impact service providers are considered in the
contract review process.
44. Article 10.16 provides that, within six months after Final Approval, the Plan Fiduciary,
with the assistance of the Plans’ investment consultant, shall adopt a new investment
policy statement(s) for the Plans.
Article 10.16 further allows for review and
recommendations by the Independent Consultant.
45. In my opinion, adoption of an investment policy statement (“IPS”) is an essential
obligation of plan fiduciaries, as the IPS is intended to represent the business plan or
“roadmap” that guides the investment process. Among other matters, it will include
criteria that guide the selection and monitoring of investments and service providers
and it will include procedures to control and account for investment expenses. The
IPS should be sufficiently detailed that a competent third party could implement the
investment strategy but not so detailed that it requires constant amendment.
Accordingly, in my opinion, adoption of an IPS supports a fiduciary standard of care
and is consistent with the Practices.
32
46. The specific Practice and Criteria which support my opinion as to the process
Practice 2.6
The investment policy statement contains sufficient detail to define,
Criteria:
2.6.1
The investment policy statement identifies the bodies of law governing the
portfolio.
2.6.2
The investment policy statement defines the duties and
responsibilities of all parties involved.
2.6.3
The investment policy statement specifies risk, return, and time horizon
parameters.
2.6.4
The investment policy statement defines diversification
and rebalancing guidelines consistent with risk, return,
and time horizon parameters.
2.6.5
The investment policy statement defines due diligence criteria
for selecting investment options.
2.6.6
The investment policy statement defines procedures for
controlling and accounting for investment expenses.
2.6.7
The investment policy statement defines monitoring criteria for
investment options and service vendors.
47. In conclusion, it is my opinion that Article 10 contains measures that are consistent
with a fiduciary standard of care and those of the Practices cited in this Declaration
and that, in combination, such measures are in the best interests of the Plans and of
the Plans’ participants.
Executed on July 18, at Phoenix, AZ
/S/ Roger Lewis Levy
Roger Lewis Levy
33
EXHIBIT A
Curriculum Vitae
Roger L Levy, LLM, AIFA®
Managing Director
Cambridge Fiduciary Services, LLC
Academic Background
College of Law
Non-degree Courses for Solicitors Qualifying
Examinations Part I and II
London, England
Philadelphia, Pennsylvania
Temple Law School
LLM, 1977
Professional Designations
Center For Fiduciary Studies
Pittsburgh, Pennsylvania
Accredited Investment Fiduciary Analyst™ (AIFA), 2008
Centre For Fiduciary Excellence (CEFEX)
CEFEX Analyst, 2009
Pittsburgh, Pennsylvania
Professional Experience
2009 – Present
Cambridge Fiduciary Services, LLC
Managing Director
Scottsdale, AZ
Provide consulting and assessment services regarding prudent investment
practices and conformity with a fiduciary standard of care for investment
advisors, plan sponsors and other investment stewards.
1985 – 2013
Cambridge Financial Services Group
Greenwich, Connecticut
Executive Vice President (Managing Director and Principal until 1998)
Responsible for regulatory matters and overseeing the firm’s conformance with
best practices in its investment advisory division, including oversight of asset
allocation, and investment manager selection and monitoring practices;
validating the fiduciary conformity of the firm’s proprietary manager monitor
methodology; and acting as branch manager for the firm’s broker/dealer (until
1998).
34
Responsible for assisting advisory clients (defined benefit/defined contribution
plans/ foundations and endowments) with their conformity with fiduciary best
practices, developing and managing their investment policy statements, and
attending investment committee meetings when requested.
1983 – 1985
York
Kleinberg, Kaplan, Wolff & Cohen, PC
New
York,
New
Of Counsel
1979 – 1983
Law Offices of Robert M. Gottschalk
Of Counsel
1977-1979
Law Offices of Roger L. Levy
Sole practitioner:
Philadelphia, PA
1975 – 1977
Saul Ewing Remick & Saul, now Saul Ewing LLP
Associate lawyer
Philadelphia, PA
1972 – 1977
Taylor & Humbert, now Taylor Wessing
Partner
Assistant Solicitor
London, England
Victor Mishcon & Co., now Mishcon De Reya
Solicitor’s Articled Clerk (Apprenticeship)
London, England
1970 – 1972
1962 - 1970
New York, New York
Fiduciary Publications
•
Obama's Opportunity: To Be Keeper of the Fiduciary Flame
o Investment News
o September 6, 2009
The fiduciary implications of government investment in private enterprise
•
401(k) Plans: Achieving the Lake Wobegon effect
o Employee Benefit News
o September 25, 2009
35
Removing employees from the asset management business in managing their
individual accounts
"I Made a Terrible Mistake...!"
o AdvIsorOne
o October 12, 2009
•
Commentary on the sentencing of Bernard L. Madoff and whether those who lost
their fortune were victims or volunteers
Adviser Offers Lessons on Hecker v. Deere
o Employee Benefit News
o March 17, 2010
•
How courts are poor interpreters of the Prudent Expert Rule.
A Dangerous Leap Through the Brokerage Window
o Workforce
o April 28, 2010
•
Letting 401(k) plan participants jump through the brokerage window is
tantamount to giving the inmates run of the asylum.
Donating to Community Foundations: Fiduciary Best Practices
o AdvIsorOne
o August 5, 2010
•
The pitfalls of allowing wealth managers to continue managing donors' funds
after they have been given to a community foundation.
Trust But Verify: How do you test fiduciary conformity
o Plan Sponsor Council of America
o June 2010
•
Comparison of methodologies for benchmarking fees and investment practices
•
Disclosure of processing errors not enough
o Pension & Investments
o March 18, 2013
The profits from service provider “processing errors” should belong to the plan
and not be treated as additional compensation
•
Turning the light on at Edison about Consultants
o July 8, 2013
36
Plan Sponsors should ensure that their pension consultants accept fiduciary
status
•
Challenges of delegating fiduciary management
o January 6, 2014
Outsourcing investment management is a useful technique but is not a fiduciary
panacea
•
Challenges from 401(k) fiduciary breach litigation
o October 13, 2104
Supreme Court has opportunity to reinforce ERISA’s fiduciary standard of care
•
US Supreme Court amicus brief in Tibble v. Edison
o December 9, 2014
o http://www.americanbar.org/content/dam/aba/publications/supreme_court
_preview/BriefsV4/13-50_amicus_pet_cfs.authcheckdam.pdf
•
Plan sponsors must face up to Tibble Ruling
o Pension & Investment
o July 27, 2015
Tools exist for those concerned about oversight shortcomings
•
Your 401k - The Danger Within
o Amazon March 19, 2016
o Authors: Roger Levy, LLM, AIFA®, and Dr. Peter Roland
A guide for 401K plan participants regarding their employer's fiduciary
responsibilities coupled with helpful financial planning tips.
•
Greater Transparency by Plan Sponsors Worth More Than Fiduciary Rules
o June 13, 2016
The DOL's new fiduciary rule does not improve 401(k) participant retirement
readiness. It would be better for plan sponsors to open up the selection of the
plan's investments to the view of participants so that they can better judge the
quality and suitability of the plan. Transparency will repair trust eroded by
fiduciary litigation and noise about who is a fiduciary.
37
Fiduciary Speaking engagements
•
Institutional Investor: Alpha Hedge Conference April 2009
“Fiduciary Best Practices”
•
Investment Management Institute (IMI): Fall Congress 2010
“Competing in the 401(k) Market”
•
IMI: Consultants Spring Congress 2011
“Winning the Finals – Recognizing a Manager’s Fiduciary Role”
•
IMI: Consultants Fall Congress 2011
“Solutions Oriented Consulting – Managing Fiduciary Risk”
•
Made in America: Taft-Hartley Summit February 2014
“Is OCIO the Right Strategy for You?”
•
Sovereign Investment Conference: American Indian Tribes April 2014
“Make Fiduciary Excellence a 2014 Resolution!”
•
Fi360 National Conference – April 2014
“OCIO - The New Face of Investment Advisory Services - What’s Good for the
Client?”
•
Sovereign Investment Conference: American Indian Tribes April 2014
“Make Fiduciary Excellence a 2014 Resolution!”
•
Made in America: Taft-Hartley Summit January 2015
“Outsourcing CIOS: The Good, the Bad, and the Ugly!?”
•
Fi360 Global Insights Conference April 2015
“ERISA Litigation Update – Lessons for Plan Fiduciaries from Tibble v. Edison
•
Southern Employee Benefits Conference, September 2015
“Legal Update: DOL Fiduciary Standard for Investment Advisors & Recent Fee
Litigation Cases & Legal Developments”
•
Investment Management Institute, 33rd Consultants Congress, March 2016
Presentation on building trust in 401Ks and how prudent practices protect unwary
plan sponsors from issues arising from post Tibble v. Edison fiduciary breach
lawsuits.
•
fi360 Insights 2016 Conference, April 2016
Panel discussion of the new fiduciary rule and fiduciary breach claims
38
EXHIBIT B
Prudent Practices for Investment
Stewards
Copyright © fi360, Inc. 2003-2016. Used by CEFEX, Centre for Fiduciary Excellence with permission.
Step 1: Organize
Practice 1.1 - The Investment Steward demonstrates an awareness of fiduciary
duties and responsibilities.
Criteria:
1.1.1 ― The Investment Steward complies with all fiduciary laws and rules that apply
to the Steward’s responsibilities.
1.1.2 ― The Investment Steward complies with all applicable PracƟces and Procedures
defined in this Prudent Practices handbook.
1.1.3 ― The Investment Steward adheres to the professional standards of conduct and
code(s) of ethics required by law, regulation, their organization or employer, and all
applicable organizations in which they are a member.
Practice 1.2 ― Investments and investment services under the oversight of the Investment
Steward are consistent with applicable governing documents.
Criteria:
1.2.1 Investments held in trust are managed in accordance with the documents
governing the trust.
1.2.2 Investments are managed and investment services are retained in
accordance with governing documents, including the investment policy
statement.
1.2.3 Documents pertaining to the investment management process, including records of
decisions made by the Investment Steward, are organized and retained in a
centralized location.
Practice 1.3 ― The roles and responsibilities of all involved parties (fiduciaries and nonfiduciaries) are defined and documented.
Criteria:
1.3.1 The roles and responsibilities of all involved parties are documented in the
investment policy statement.
1.3.2 All involved parties have acknowledged their fiduciary or non-fiduciary status in writing.
39
1.3.3 Investment committees have a defined set of by-laws or operating procedures to
which they adhere.
1.3.4 The Investment Steward has a documented disaster recovery plan that is
reviewed and tested periodically.
Practice 1.4 ― The Investment Steward identifies conflicts of interest and addresses conflicts
in a manner consistent with the duty of loyalty.
Criteria:
1.4.1 Policies and procedures for overseeing and managing conflicts of interest,
including self- dealing, are defined.
1.4.2 Conflicts of interest are avoided when possible and always when required
by law, regulation, and/or governing documents.
1.4.3 The Investment Steward discloses, and requires service providers to disclose, all
unavoidable conflicts of interest in writing and to manage such unavoidable conflicts
in the best interest of the participants or beneficiaries.
Practice 1.5 ― The Investment Steward requires agreements with service providers to be in
writing and consistent with fiduciary standards of care.
Criteria:
1.5.1 The Investment Steward requires each service provider to make full written
disclosure of the services to be provided and the compensation arrangements,
affiliations, and fiduciary status of the service provider.
1.5.2 Agreements are periodically reviewed to ensure consistency with the objectives
of the investment portfolio and/or the needs of beneficiaries.
1.5.3 Comparative reviews of service agreements are conducted and
documented approximately every three years.
Practice 1.6 ― Portfolio assets are protected from theft and embezzlement.
Criteria:
1.6.1 The Investment Steward has a reasonable basis to believe assets are within the
jurisdiction of a viable judicial system.
1.6.2 ERISA fiduciaries have the required fidelity bond, if applicable.
1.6.3 The Investment Steward ensures that appropriate insurance, internal
controls, and physical security measures reasonably protect against theft and
embezzlement.
1.6.4 The Investment Steward verifies that service providers that custody assets
have appropriate insurance.
1.6.5 Appropriate procedures are in place to secure beneficiary or plan data.
Step 2: Formalize
40
Practice 2.1 ― An investment time horizon has been identified for each investment
portfolio.
Criteria:
2.1.1 Sources, timing, distribution, and uses of portfolio cash flows are documented.
2.1.2 In the case of a defined benefit retirement plan, an appropriate asset/liability
study has been factored into the time horizon.
2.1.3 In the case of a defined contribution retirement plan, the investment options provide
for a reasonable range of participant time horizons.
2.1.4 In the case of a foundation or endowment, a schedule of expected receipts and
disbursements of gifts and grants has been factored into the time horizon to the
extent possible and an estimated equilibrium spending rate has been established.
2.1.5 In the case of a trust or retail investor portfolio, an appropriate needs-based
analysis has been factored into the time horizon.
Practice 2.2 ― An appropriate risk level has been identified for the portfolio.
Criteria:
2.2.1 The level of volatility the portfolio is exposed to is understood by the Investment
Steward, and the quantitative and qualitative factors that were considered are
documented.
2.2.2 “Large loss” scenarios have been identified and considered in establishing
the risk tolerance level of the portfolio.
2.2.3 Expected disbursement obligations and contingency plans have been considered in
order to establish liquidity requirements for the portfolio.
2.2.4 In the case of a defined contribution retirement plan, the investment options provide
for a reasonable range of participant risk tolerance levels.
Practice 2.3 ― An expected return to meet each investment objective for the
portfolio has been identified.
Criteria:
2.3.1 The expected return for each portfolio is consistent with the risk level and
investment goals and objectives established for the portfolio.
2.3.2 The expected return assumptions for each asset class are based on
reasonable risk- premium assumptions.
2.3.3 For defined benefit plans, the expected return values used for modeling are
reasonable and are also used for actuarial calculations.
2.3.4 For defined contribution plans, the expected return assumptions for prediversified options, such as target date funds or model portfolios, are based on
reasonable risk/premium assumptions.
2.3.5 For endowments and foundations, the expected return values used for
modeling are reasonable and are consistent with distribution requirements or
the projected equilibrium spending rate.
41
Practice 2.4 ― Selected asset classes are consistent with the portfolio’s time horizon and risk
and return objectives.
Criteria:
2.4.1 Assets are appropriately diversified to conform to the portfolio’s time
horizon and risk/return profile and to reduce non-systemic risk.
2.4.2 For participant-directed plans, selected asset classes provide each participant the
ability to diversify their portfolio appropriately given their time horizon and
risk/return profile.
2.4.3 The Investment Steward, either directly or with the support of a designated
service provider, assures that the methodology and tools used to establish
appropriate portfolio diversification are prudent and consistently applied.
Practices 2.5 ― Selected asset classes are consistent with implementation and monitoring
constraints.
Criteria:
2.5.1 The Investment Steward, either directly or with the support of a designated service
provider, has the time, resources, and requisite knowledge and skills to implement
and monitor all selected asset classes for the portfolio.
2.5.2 The process and tools used to implement and monitor investments in the selected
asset classes are appropriate.
2.5.3 Appropriate investment products are accessible within each selected asset class.
Practice 2.6 ― The investment policy statement contains sufficient detail to define,
Criteria:
2.6.1 The investment policy statement identifies the bodies of law governing the portfolio.
2.6.2 The investment policy statement defines the duties and responsibilities of all
parties involved.
2.6.3 The investment policy statement specifies risk, return, and time horizon parameters.
2.6.4 The investment policy statement defines diversification and rebalancing
guidelines consistent with risk, return, and time horizon parameters.
2.6.5 The investment policy statement defines due diligence criteria for selecting
investment options.
2.6.6 The investment policy statement defines procedures for controlling and
accounting for investment expenses.
2.6.7 The investment policy statement defines monitoring criteria for investment
options and service vendors.
Practice 2.7 ― When socially responsible investment strategies are elected, the strategies are
structured appropriately.
Criteria:
42
2.7.1 The goals and objectives established for the portfolio are evaluated to determine
whether socially responsible investing is appropriate and/or desirable.
2.7.2 If a socially responsible investment strategy is elected, the investment policy
statement documents the strategy, including appropriate implementation and
monitoring procedures.
Step 3: Implement
Practice 3.1 ― A reasonable due diligence process is followed to select each service provider
in a manner consistent with obligations of care.
Criteria:
3.1.1 Reasonable criteria are identified for each due diligence process used to select
service providers.
3.1.2 The due diligence process used to select each service provider is documented.
3.1.3 Each due diligence process used to select service providers is consistently applied.
Practice 3.2 ― When statutory or regulatory investment safe harbors are elected, each
investment strategy is implemented in compliance with the applicable provisions.
Criteria:
3.2.1 Applicable ERISA safe harbor requirements pertaining to the delegation of
investment responsibility are implemented in compliance with regulatory
requirements, when elected.
3.2.2 For participant-directed qualified retirement plans, applicable 404(c) safe
harbor requirements are implemented in compliance with ERISA
requirements, when elected.
3.2.3 For participant-directed qualified retirement plans, applicable fiduciary adviser safe
harbor requirements are implemented in compliance with ERISA requirements, when
elected.
3.2.4 For participant-directed qualified retirement plans, qualified default investment
alternatives (QDIA) are implemented in compliance with ERISA requirements,
when elected.
3.2.5 For non-ERISA services, safe harbors and exemptions are implemented in
compliance with regulatory requirements, when elected.
Practice 3.3 ― Decisions regarding investment strategies and types of investments are
Criteria:
3.3.1 A documented due diligence process, consistent with prudent practices and
generally accepted investment theories, is used to select investments and thirdparty Investment Managers.
3.3.2 Decisions regarding the selection of investments consider both qualitative
43
and quantitative criteria.
3.3.3 The documented due diligence process used to select investments and thirdparty Investment Managers is consistently applied.
3.3.4 Regulated investments are preferred over unregulated investments when all
other characteristics are comparable.
3.3.5 Investments that are covered by readily available data sources are preferred over
similar investments for which limited coverage is available when all other
characteristics are comparable.
3.3.6 Decisions regarding passive and active investment strategies are documented and
made in accordance with obligations of care.
3.3.7 Decisions regarding the use of separately managed and commingled accounts, such
as mutual funds, unit trusts, exchange-traded products, and limited partnerships,
are documented and made in accordance with obligations of care.
3.3.8 Decisions to use complex investments or strategies, such as alternative
investments or strategies involving derivatives, are supported by documentation
of specialized due diligence conducted by individuals who possess knowledge and
skills needed to satisfy the heightened obligations of care.
3.3.9 When socially responsible investment strategies are elected, the
strategies are implemented appropriately.
Step 4: Monitor
Practice 4.1 ― Periodic reports are used to compare investment performance against
appropriate index, peer group, and investment policy statement objectives.
Criteria:
4.1.1 The performance of each investment option is periodically compared against an
appropriate index, peer group, and any other performance-related due diligence
criteria defined in the investment policy statement.
4.1.2 “Watch list” procedures for underperforming Investment Managers are
documented, and consistently applied.
4.1.3 Rebalancing procedures are reasonable, documented, and consistently applied.
Practice 4.2 ― Periodic reviews are made of qualitative and/or organizational changes of
Criteria:
4.2.1 Periodic evaluations of the qualitative factors that may impact the results or
reliability of Investment Advisors, Investment Managers, and other service
providers are performed.
4.2.2 Negative news and other material information regarding an Investment Advisor,
Investment Manager, or other service provider are considered and acted on in a
timely manner.
4.2.3 Deliberations and decisions regarding the retention or dismissal of Investment
Advisors, Investment Managers, and other service providers are documented.
44
4.2.4 Qualitative factors that may impact service providers are considered in the contract
review process.
Practice 4.3 ― Control procedures are in place to periodically review policies for trading
practices and proxy voting.
Criteria:
4.3.1 Control procedures are in place to periodically review each Investment Manager’s
policies for best execution.
policies for special trading practices such as “soft dollars”, directed brokerage, and
commission recapture.
policies for proxy voting.
Practice 4.4 ― Periodic reviews are conducted to ensure that investment-related fees,
Criteria:
4.4.1 A summary of all parties being compensated from the portfolio or from plan or trust
assets and the amount of compensation has been documented.
4.4.2 Fees, compensation, and expenses paid from the portfolio or from plan or trust
4.4.3 Fees, compensation, and expenses paid from the portfolio or from plan or trust
assets are periodically reviewed to ensure such costs are fair and reasonable based
upon the services rendered and the size and complexity of the portfolio or plan.
Practice 4.5 ― There is a process to periodically review the Steward’s effectiveness in
Criteria:
4.5.1 Fiduciary assessments are conducted at planned intervals to determine whether
(a) appropriate policies and procedures are in place to address all fiduciary
obligations, (b) such policies and procedures are effectively implemented and
maintained, and (c) the investment policy statement is reviewed at least annually.
4.5.2 Fiduciary assessments are conducted in a manner that promotes objective
analysis and results are documented and reviewed for reasonableness.
45
Karolyn Kruger, M.D., et ah
Plaintiffs,
v.
Case No. l:14-cv-208
Novant Health, Inc., et ah
Defendants.
DECLARATION OF MARY ELLEN SIGNORILLE
I, MARY ELLEN SIGNORILLE, hereby declare that:
1.
I make this declaration of my personal knowledge, and if called as a
witness, I could and would testify competently to the facts stated herein. I am not being
compensated for my time in providing this declaration and I do not have any financial
stake in the outcome of the above-referenced litigation.
2.
I am a senior staff attorney with AARP Foundation Litigation, located in
Washington, D.C. I received my law degree from The Catholic University of America,
Columbus School of Law, and I hold a Masters (LLM) in Labor Law from Georgetown
University Law Center. I am a member in good standing of the Bars of the District of
Columbia and the State of Maryland. In addition to these state bar memberships, I am
admitted to practice before the U.S. District Court for the District of Columbia and
Maryland, as well as the First, Third, Fourth, Fifth, Seventh, Ninth, Tenth, and Eleventh
Circuit Courts of Appeals, and the U.S. Supreme Court.
1
3.
Since 1993, 1 have worked at AARP and its affiliated AARP Foundation
Litigation, practicing almost exclusively in the area of pension and employee benefit
litigation under the Employee Retirement Income Security Act (ERISA). I have prepared
over 100 amicus curiae briefs on employee benefits issues on behalf of AARP and its
millions of members in cases before the U.S. Supreme Court, and federal and state courts.
I also provide substantive and technical guidance to individuals, employers, and attorneys
on complex issues arising under the ERISA and the Internal Revenue Code. I also work
with AARP's Government Affairs office to prepare AARP's comments to the regulatory
agencies charged with enforcing ERISA including our comments to the Department of
Labor on fees.
4.
In addition to my work with AARP, I was elected to the charter class of the
American College of Employee Benefits Counsel in 2000 and have served as its
President, Vice-President and Treasurer. I am currently a representative to the American
Bar Association's Joint Council on Employee Benefits and am a past Chair. I have also
served as the Plaintiffs Co-Chair to the ABA's Labor and Employment Law's Employee
Benefit Committee, and a Co-Chair and Steering Committee member of the District of
Columbia Bar's Labor and Employment Law Section. I am currently a Senior Editor of
EMPLOYEE BENEFITS LAW, a well-known treatise in the field. I was chosen as one
of the top benefits lawyers in the country by The National Law Journal. I have also
lectured on the subject of employee benefits at the George Washington School of Law,
Chicago-Kent College of Law, John Marshall School of Law, and New York University.
Before joining AARP, I was in private law practice where I represented national and
2
local employee benefit plans, labor organizations and employers in litigation and other
ERISA and employee benefits matters.
5.
My legal work in the pension and employee benefit plan area has included
the litigation of a broad spectrum of employee benefit and ERISA issues. This has
included litigation regarding preemption, benefit claims, breaches of fiduciary duty, and
the scope of relief available under the different subsections of ERISA's civil enforcement
provisions. At present, virtually all of my work is in the employee benefit area.
6.
My duties at AARP Foundation Litigation include keeping apprised of
issues that may affect the financial security of AARP members. This includes keeping
apprised of trends in the retirement plan market and issues arising in ERISA litigation. Of
particular importance are issues involving defined contribution plans such as 401(k)
plans. These plans have become the predominant private vehicle for providing retirement
income in America. As of 2013, more than 92 million Americans participated in defined-
contribution plans.1 As of 2013, those plans held an estimated $5.0 trillion.2
7.
Unlike traditional pension plans, which are required to provide a lifetime
annuity as a distribution option, 401(k) plans do not provide a guaranteed benefit. Rather,
the ultimate benefit received is dependent upon whether plan assets experience
investment growth or suffer losses during the life of the account. If a plan fiduciary
selects investments with poor performance or allows participants to be charged excessive
Employee Benefits Sec. Admin., U.S. Dep't of Labor, Private Pension Plan Bulletin: Abstract
of 2013 Form 5500 Annual Reports 3 tbl. A1 (Sept. 2015), https://www.dol.gov/ebsa/pdf/
20 1 3pensionplanbulletin.pdf.
2 Id.
3
fees, the value of the participants' accounts may be greatly impaired. Because of the
effect of compounding interest, a difference of only 1% over a 35-year career will reduce
the value of the average worker's account by 28% at retirement.3 Accordingly, the
importance of ensuring that investment options are prudent and that expenses are no more
than reasonable cannot be overstated. Consequently, the protections provided by
ERISA's stringent fiduciary duties are more important than ever to the retirement security
of millions of Americans.
8.
ERISA class actions brought by private attorneys are an important vehicle
for enforcing those duties and ensuring the protection of ERISA plan participants'
retirement savings. As the Eighth Circuit Court of Appeals has observed, the Department
of Labor, which is charged with enforcing ERISA, "depends in part on private litigation
to ensure compliance with the statute."4 However, this area of the law is extremely
complex, and requires a willingness to risk significant resources in time and money given
the uncertainty of recovery and the protracted and sharply contested nature of ERISA
litigation. In my experience, consulting with attorneys involved in these cases, very few
in the country have the necessary expertise, resources, and dedication necessary to
effectively pursue ERISA fiduciary breach class actions on behalf of plan participants.
9.
Based on my experience closely following ERISA litigation nationally, it is
my assessment and well-recognized that Schlichter, Bogard, & Denton is at the forefront
3 See, e.g., U.S. Dep't of Labor, A Look at 401 (k) Plan Fees 1-2 (Aug. 2013), http://www.
dol.gov/ebsa/pdf/401kFeesEmployee.pdf.
4 Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 597 n.8 (8th Cir. 2009).
4
of 401(k) excessive fee litigation, and has been since its attorneys first filed excessive fee
cases in fall 2006. In the specific area of claims of excessive fees in 401(k) plans, there
were virtually no cases filed prior to September 2006. Neither private attorneys nor the
regulatory agency, the Department of Labor, had brought claims of excessive fees. At
that point, Schlichter, Bogard & Denton filed a series of cases, alleging excessive fees
and fiduciary breaches on behalf of employees and retirees. Such cases involve even
more risk than other ERISA cases because the area of litigation did not exist; the law was
not developed; very significant investment of resources for document production and
review was needed; the costs of expert witnesses was tremendous; and the risk was
staggering. I have also observed that these cases, and those filed subsequently, have been
vigorously defended by virtually all company defendants. In fact, I know of no other firm
that has invested the amount of resources in these cases that Schlichter, Bogard & Denton
has.
1 0.
Complex ERISA litigation, like that conducted by Schlichter, Bogard, &
Denton, is highly specialized legal work that requires class counsel to invest incredible
amounts of time and very large sums of money. If the plaintiffs are unsuccessful, they
face not only the enormous loss of their own time and resources, but also the possibility
of bearing the defendants' costs and attorney fees under ERISA's fee-shifting provision.5
11.
In fact, for years after the filing of these cases by Schlichter, Bogard &
Denton, Defendants did not settle any cases. Schlichter, Bogard & Denton has conducted
the only full trial of a 401(k) excessive fee case. Tussey v. ABB, No. 06-4305 (W.D. Mo).
5 See 29 U.S.C. § 1132(g)(1).
5
This resulted in a successful judgment for Plaintiffs after a month long trial, and defense
attorneys' fees alone of $42 million. That case, in which AARP filed an amicus brief
supporting Schlichter, Bogard & Denton's position, remains on appeal after being filed
close to ten years ago. Schlichter, Bogard & Denton has also handled the only case which
the U.S. Supreme Court has taken of a 401(k) excessive fee case, Tibbie v. Edison, Intl,
135 S. Ct. 1823 (2015). We at the AARP Legal Foundation also filed a brief in that case
supporting Plaintiffs. The Supreme Court last year issued a unanimous 9-0 victory for
Plaintiffs represented by Mr. Schlichter and his firm.
12.
This case and other similar cases brought by Schlichter, Bogard, & Denton
have contributed to dramatic reductions in fees paid by 401 (k) plan participants
throughout the United States, through heightened awareness and scrutiny of fees, selfdealing, and imprudent investment options in 401(k) plans. Numerous District Court
judges have stated this.
13.
In addition to the significant monetary settlement, the extremely broad and
powerful extent of the affirmative relief required by the Settlement Agreement will
further improve the retirement benefits of Novant's employees and retirees going
forward. Among the highlights of this relief are the following requirements that Novant
has agreed to for a notable length offour years:
(a) conclude a comprehensive request for proposal, led by an outside consultant,
for recordkeeping, investment consulting and participant education services for the
Novant plans; (b) engage an independent consultant to assess the adequacy of the
above request for proposal process and evaluate Novant's anticipated selection of
service providers for the Novant plans; (c) ensure that the Novant plans'
administrative service providers are not reimbursed for their services based on a
percentage-of-plan-assets basis; (d) review all current investment options in the
6
Novant plans and revise the investment options, as needed, ensuring that those
options are selected or retained for the exclusive best interests of the Novant
participants; (e) conduct an annual audit of the Novant plans by the independent
consultant; (f) adopt a new Investment Policy Statement to ensure that the Novant
plans are operated for the exclusive best interests of participants and retirees.
14.
This dramatic affirmative relief sends an important signal to other large
corporations that failure to follow similar standards may be imprudent in light of the
significant reduction in participant returns on investment.
15.
In connection with my amicus work on behalf of AARP, I have been
engaged in litigation in courts in many judicial districts. Because of the highly specialized
and technical nature of this practice and the dearth of attorneys who possess the requisite
skills, experience, and willingness to undertake this type of work, every plaintiffs
ERISA class action firm with whom I have worked extends its practice beyond its local
district to courts throughout the United States. Therefore, the unique nature of this
practice area makes the relevant market for determining reasonable attorney's rates in
these cases a national one.
1 6.
I have reviewed the Motion for Attorney's Fees submitted by Schlichter,
Bogard, & Denton in connection with the firm's representation of the plaintiff classes in
this case. Based on my experience both in private practice and as a senior attorney with
AARP Foundation Litigation, and my knowledge of typical fee arrangements for ERISA
attorneys of similar experience, expertise, and years of practice around the country who
represent plans, employers, and individuals, I believe I am sufficiently well informed to
render an opinion on the reasonableness of fees for representation of a variety of clients
in ERISA matters.
7
17.
In my opinion, this settlement provides an exceptional recovery to the
Novant employees and retirees, and was only made possible by the groundbreaking work
and outstanding reputation of Schlichter, Bogard & Denton as the "preeminent firm in
401(k) fee litigation." Nolte v. Cigna, No. 07-2046, 2013 U.S. Dist. LEXIS 184622 at 8
(C.D. 111. Oct. 15, 2013). "The law firm Schlichter, Bogard & Denton has significantly
improved 40 1 (k) plans across the country by bringing cases such as this one, which have
'educated plan administrators, the Department of Labor, the courts and retirement plan
participants about the importance of monitoring recordkeeping fees." Tussey v. ABB, Inc.,
2015 U.S. Dist. LEXIS 164818, at *7-8 9W.D. Mo. Dec. 9, 2015). "The fee reduction
attributed to Schlichter, Bogard & Denton's fee litigation and the Department of Labor's
fee disclosure regulations approach S2.8 billion in annual savings for American workers
and retirees." Nolte v. Cigna, Corp., No. 07-2046, 2013 U.S. Dist. LEXIS 184622, at *6
(C.D. III. Oct. 15, 2013) (J. Baker). See also Spano v. Boeing, No. 06-743, Doc. 587 (S.D.
III. Mar. 31, 2016).
18.
It is important that, having produced this settlement early in the litigation,
Schlichter, Bogard & Denton receive the benefit of their work by receiving the requested
fee. To do otherwise would be to penalize them for their track record of success. This
early settlement enabled plan participants to avoid substantial expenses by receiving the
funds before the expenses were incurred, and to obtain the substantial benefit of the
affirmative relief for the future at an earlier date.
19.
Schlichter, Bogard & Denton has also committed to devote substantial
additional attorney time to monitor compliance with the extensive prospective relief
8
provisions over the next four years. This enforcement process may result in future
litigation, the cost and time of which will be provided by Schlichter, Bogard & Denton at
no charge to plan participants. This is a substantial additional benefit.
20.
Based on all of these facts, Schlichter, Bogard, & Denton's requested fee of
$10,666,666.00, is well within the range of reasonableness for this extraordinary result.
I declare under penalty of peijury that the foregoing is true and correct.
Executed on July 18, 2016 at Washington, D.C.
jOffiu
Mary E lien Signorilte A
9
Plaintiffs,
v.
Defendants.
I, KAREN W. FERGUSON, hereby declare that:
1. I make this declaration of my personal knowledge, and if called as a witness, I
could and would testify competently to the facts stated herein. I am not being
compensated for my time in providing this declaration and I do not have any financial
stake in the outcome of the above-referenced litigation.
2. I am the Director of the Pension Rights Center (the “Center”). I am a graduate of
Bryn Mawr College and Harvard Law School. Before starting at the Center in 1976, I
was an attorney with the National Labor Relations Board, a private law firm, the Public
Interest Research Group, and the UMWA Health and Retirement Funds. I am also coauthor of Pensions in Crisis: Why the System is Failing America and How You Can
Protect Your Future.
3. The Center is a national Washington, D.C. based nonprofit, nonpartisan consumer
organization that has been working for forty years to protect and promote the retirement
security of American workers, retirees, and their families. The Center provides legal and
strategic advice on retirement income issues, and helps individuals communicate their
1 Case 1:14-cv-00208-WO-JEP Document 57-3 Filed 07/25/16 Page 1 of 8
concerns about these issues to policymakers, courts, and the public. Numerous federal
laws, regulations, and lawsuits are traceable to Center initiatives. The Center has been at
the forefront of efforts to ensure that retirement plan assets are used exclusively for the
benefit of participants and that those assets are maximized in order to ensure a safe and
secure retirement for American workers and retirees.
4. In 1974, a federal private pension law known as the Employee Retirement Income
Security Act (“ERISA) was enacted by Congress. The primary purpose of ERISA at that
time was to protect workers’ and retirees’ expectations that they would receive the
benefits promised by their traditional pension plans.
5. Before the enactment of ERISA, employees and retirees could lose their expected
pension benefits in many different ways, most commonly as the result of unreasonably
restrictive rules, inadequate funding, and mismanagement of plan money.
6. The Center’s early mission in the 1970s was to help people understand their rights
under ERISA. In particular, the Center identified and documented problems related to
protecting employees’ pension benefits. In so doing, the Center used its technical knowhow to develop workable solutions, and it mobilized affected citizens, women’s
organizations, labor unions, and retiree groups in a coalition for passage of laws.
7. Starting in the early 1980’s there was a sea change in the American retirement
system: an explosive growth in the use of 401(k) plans, first alongside traditional pension
plans, and, in the last two decades, in place of pension plans. Today, there are over 5
trillion dollars invested in 401(k) plans, which did not even exist when the Center was
formed. This has presented new challenges to retirement security.
8. Unlike traditional defined benefit pension plans that generally guarantee a
determined amount at the time of retirement, defined contribution plans, like 401(k)
plans, do not provide a guaranteed benefit. Rather, the amount available in a person’s
401(k) retirement plan account is dependent on making sure fees are not excessive and
investments are prudent. In a pension plan the employer’s money is at risk while in a
401(k) plan it is the employee’s money that is at risk. Thus, in a 401(k) plan, if fees are
high or investments are imprudent, the employee pays the price by a loss of retirement
assets.
9. Although individuals can, to some extent, affect the amount of assets in their
retirement plans, such as the level of contributions they decide to make, many factors
beyond their control impact the amount of assets in their retirement plans. Those factors
include, among other things, the fiduciaries’ selection and retention of prudent
investments in the 401(k) plan and the level of fees charged to the 401(k) plans.
10. Including only prudent investments a 401(k) plan and ensuring that fees paid by
participants are no higher than necessary is a vital function of any fiduciary’s duties
under ERISA.
11. Over the last thirty years, the Center has devoted considerable attention to
improving 401(k) plan outcomes. The Center has testified before Congress and federal
agencies concerning 401(k) fees and fiduciary responsibilities. Examples include the
Center’s testimony on disclosure of 401(k) fees before the Senate Health, Education,
Labor, and Pensions Committee, and on fiduciary status before the Department of Labor.
The Center staff have written fact sheets and blogs on 401(k) fee and fiduciary issues,
have been quoted in the national media, and have filed amicus briefs on 401(k)-related
issues in the Supreme Court.
12. Over the past ten years, I have observed with respect and great admiration the
groundbreaking role the law firm of Schlichter Bogard & Denton, LLP has played in
ensuring that 401(k) plan fiduciaries comply with and satisfy their responsibilities under
ERISA to enable plan participants to build their retirement assets.
13. Despite the fact that the 401(k) plan has become America’s predominant private
retirement plan, and, ERISA requires fees to be reasonable, no law firm had ever brought
a case for excessive fees until Jerome Schlichter and his law firm, Schlichter Bogard and
Denton, filed a series of cases in 2006. Up to that time, the Department of Labor had
never brought a case for excessive fees. Mr. Schlichter and his firm made it their mission
to hold fiduciaries accountable for their failures in ensuring that only prudent investments
are included in 401(k) plans and only reasonable fees are charged.
14. The importance of Mr. Schlichter and his firm’s work, in acting as private
attorneys general in ensuring participants are protected under ERISA, cannot be
overstated.
15. For years thereafter, no Defendants in the cases brought by Schlichter Bogard &
Denton settled.
16. In 2010, Mr. Schlichter and his firm had a first ever trial of an excessive fees case
in Tussey v. ABB, No. 06-4305 (W.D.Mo). That case resulted in the first successful
judgment for Plaintiffs in an excessive fees case. An illustration of the all-out defense of
these cases can be seen from the record which shows that Defendants in that case spent
$42 million on attorney’s fees alone, not including expert witness fees, and expenses.
17. The firm of Schlichter Bogard & Denton has been widely recognized by Federal
Courts as the “preeminent firm in 401(k) fee litigation” Nolte v. Cigna, No. 07-2046,
2013 U.S.Dist.LEXIS 184622 at 8 (C.D.Ill. Oct. 15, 2013).
18. Another District Court judge stated:
Jerome Schlichter, and Schlichter, Bogard & Denton’s work throughout
this litigation illustrates an exceptional example of a private attorney
general risking large sums of money and investing many thousands of
hours for the benefit of employees and retirees. No case had previously
been brought by either the Department of Labor or private attorneys against
large employers for excessive fees in a 401(k) plan….Litigating the case
required Class Counsel to be of the highest caliber and committed to the
interests of the participants and beneficiaries of the General Dynamics
401(k) Plans.
Will v. General Dynamics, No. 06-698, 2010 U.S.Dist.LEXIS 123349 at 8–9 (S.D.Ill.
Nov. 22, 2010).
19. In the Tussey v. ABB, supra,case, the Honorable Judge Laughrey summed up the
work of Mr. Schlichter and his firm with the following observation:
Of special importance is the significant, national contribution made by the
Plaintiffs whose litigation clarified ERISA standards in the context of
investment fees. The litigation educated plan administrators, the
Department of Labor, the courts and retirement plan participants about the
importance of monitoring recordkeeping fees and separating a fiduciary’s
corporate interest from its fiduciary obligations. (emphasis added)
Tussey v. ABB, Inc., No. 06-4305, 2015 U.S.Dist.LEXIS 164818 at 7–8 (W.D.Mo. Dec.
9, 2015).
20. In Abbott v. Lockheed Martin Corp., No. 06-701 (S.D. Ill.) the District Court
stated:
Since filing this case on September 11, 2006, Class Counsel has been committed
to the interests of the participants and beneficiaries of the Lockheed Martin 401(k)
plans in pursuing this case and several other 401(k) fee cases of first impression.
The law firm Schlichter, Bogard & Denton has had a “humongous” impact over
the entire 401(k) industry, which has benefited employees and retirees throughout
the country by bringing sweeping changes to fiduciary practices. Linda Stern,
Stern Advice – How 401(k) Lawsuits Are Bolstering Your Retirement Plan,
REUTERS, Nov. 5, 2013 (quoting Mike Alfred, co-founder and CEO of
Brightscope, an independent firm that provides data about retirement plans); see
also Nolte v. Cigna, Corp., Case 07-2046, Doc. 413 at 3-4 (C.D.Ill. Oct. 15,
2013)(in which Judge Baker stated that nationwide, “fee reductions attributed to
Schlichter, Bogard & Denton’s fee litigation and the Department of Labor’s
disclosure regulations approach $2.8 billion in annual savings for American
workers and retirees.”); Gretchen Morgenson, A Lone Ranger of the 401(k)’s, THE
NEW YORK TIMES (March 29, 2014) (Schlichter’s cases have been “good news
for all 401(k) holders”).
21. In my opinion, it was because of this unparalleled record of success and
perseverance over 10 years (including successfully handling the only full 401(k)
excessive fee trial in the U.S. (Tussey v. ABB) and the only Supreme Court case involving
a claim of excessive 401(k) fees (Tibble v. Edison, Int’l, 135 S. Ct. 1823 (2015)) that Mr.
Schlichter’s firm was able to obtain the early very favorable settlement in this case.
22. This produced a result for Novant employees and retirees which avoided the
substantial expense of trial and pre-trial outlays which would have reduced the net
amount of their recovery; will put money in their accounts much earlier than would
otherwise have been the case; and vastly improved the plan years before the
improvements would have come if there had been a later settlement or judgment. In fact,
the Tussey v. ABB case is still continuing and remains on appeal.
23. In my opinion it is important for a firm not to be penalized because such a record
of success produces a settlement early.
24. In addition to a substantial monetary recovery, the future relief obtained by Mr.
Schlichter and his firm is extraordinary. That relief includes the following:
a. concluding a comprehensive request for a proposal process, conducted and led
by an outside consultant, for recordkeeping, investment consulting and
participant education services for the Novant plans;
b. engaging an independent consultant to assess the adequacy of the RFP process
and assess Defendants’ anticipated selection of service providers for the
Novant plans;
c. ensuring that the administrative service providers are not reimbursed for their
services based on a percentage-of-plan-assets basis;
d. reviewing all current investment options in the Novant plans and revision of
the investment options, as needed;
e. an annual review, for each of four years, by the independent consultant
regarding Novant’s management of the plans;
f. providing accurate communications to participants in the Novant plans; and,
g. adopting a new Investment Policy Statement to ensure that the Novant plans
are operated for the exclusive best interests of participants.
25. Based on my 40 years’ experience as Director of the Pension Rights Center and
my knowledge of the tremendous efforts by Mr. Schlichter and his firm, I am convinced
that the above significant relief for the benefit of all Novant employees and retirees is
directly a result of the experience and expertise of the Schlichter firm.
26. I am not aware of any other private law firm that could have obtained the relief
secured by in this case.
Executed on July 15, 2016 at Washington, DC
/s/ Karen W. Ferguson
Karen W. Ferguson
KAROLYN KRUGER, M.D., et al.,
Plaintiffs,
v.
No. 1:14-cv-208
NOV ANT HEAL TH, INC., et al.,
Defendants.
DECLARATION OF STEWART BROWN, PHD., CFA
1~
I hold a PhD. in finance from the University of Florida (1974) and the professional
designation of Chartered Financial Analyst (charter# 5831 ). I am currently Professor
Emeritus of Finance at Florida State University. I am author or co-author of three law
review articles on mutual fund investment advisory fees. My vita is included at Appendix
A.
2. I have reviewed the
S~ttlement
Agreement (herein "Settlement") between
Plaintiffs and Novant Health Inc. (herein "Novant") and it provides for substantial
monetary benefits to plan participants. In addition, the Settlement provides for significant
affirmative and future relief including substantial changes to the operation and
administration of the N ovant Plans. 1 The duration of this affirmative relief is for a period
of four years.
1
I understand that, as defined in the Settlement, the Novant retirement "Plans" means the
Savings and Supplemental Retirement Plan ofNovant Health, Inc. ("SSRP") and the Tax
Deferred Savings Plan ofNovant Health, Inc ("TDSP"); the Franklin/Upstate 401(k) Plan; the
Presbyterian Women's Care Corp. 401(k) Plan; the Lakeside/Q-Neck 401(k) Plan; the 457(b)
Retirement Plan ofNovant Health, Inc.; and the Retirement Plus Plan Wrap Nonqualified
457(b)/457(f) Plan ofNovant Health, Inc. My understanding is that for the purposes of this
settlement, the Plans were operated and managed similarly.
3. My assignment was to calculate the economic value of certain changes to the
operation and administration of the Novant Plans. In particular, I understand from my
review of the Settlement and from discussions with Class Counsel that Novant will
implement significant changes to the Plans including the transition of all education,
recordkeeping, and investment consultant services from the incumbent providers, Great
West and DL Davis, Inc., to Fidelity Investments and Mercer Consulting. In addition, I
understand that Novant shall review all investment options currently offered in the Plans.
As part of this review of the Plans' investment options, Novant will be required to
consider, among other things, (1) the lowest-cost share class available for any particular
mutual fund considered for inclusion in the Plans; and (2) passively managed funds for
each category or fund offering that will be made available in the Plans.
4. My analysis considers the effect of these changes on two categories of Plan costs:
(i) the anticipated reduction of investment option fees, and (ii) the reduction of the fee for
administrative services, including recordkeeping. For each of these categories, I have
compared the costs paid by the Plans during the relevant time period compared to those
anticipated costs to be paid effective 2016 and for a period of four years thereafter as a
result of this Settlement. 2
2
My analysis does not attempt to quantify the value of every change to the Plans or to Novant's
business conduct as agreed in the Settlement. Novant's additional measures to improve the Plans
and its business conduct and the corresponding value of those changes would be an added value
in addition to the cost savings discussed in this declaration.
2
I.
Reduction of investment option fees.
5. As referenced above, effective this year (2016), Novant reviewed all investment
options currently offered in the Plans. Among other requirements, Novant considered (1)
the lowest-cost share class available for any particular mutual fund considered for
inclusion in the Plans; (2) and passively managed funds for each fund offering that will
be made available in the Plans.
a.
The revised investment option line-up for the Novant Plans
6 After considering the factors above, Novant selected a new array of new
investment options for the Novant Plans. The revised investment option line-up,
including expense ratios for the Novant Plans, is detailed below:
Manager
Asset Class
Vehicle
MF Net
Expense
Ratio
CIT Net
Expense
Ratio
State Street Target Ret. Income
Fund
State Street Global Advisors (SSgA)
MFand CIT
0.13%
0.07%
State Street Target Ret. 2015 Fund
MF and CIT
0.13%
0.07%
MF and CIT
0.13%
0.07%
MF and CIT
0.13%
0.07%
MFand CIT
0.13%
0.07%
MFand CIT
0.13%
0.07%
MF and CIT
0.13%
0.07%
MF and CIT
0.13%
0.07%
MFand CIT
0.13%
0.07%
MFand CIT
0.13%
0.07%
MF and CIT
0.13%
0.07%
US Fixed Income Passive
MF and CIT
0.09%
0.052%
US Large Cap Core Passive
MFand CIT
0.06%
0.013%
US Small/Mid Cap Core Passive
MFand CIT
0.08%
0.052%
International Equity Passive
MFand CIT
0.15%
0.11%
Money Market
Vanguard
MF
0.11%
Short Duration
PIMCO
MF
0.50%
TIPS
Dimensional Fund Advisors (DFA)
MF
0.12%
MFand CIT
0.43%
MF
0.66%
MF
0.37%
MF and CIT
0.86%
Core Fixed Income
Prudential Fixed Income
Large Cap Core
Columbia Management Investment
Advisers
Small Cap Core
Dimensional Fund Advisors (DFA)
International Equity
AQR Capital Management
0.15%
0.70%
3
7. Based on my review of the investment options offered in the TDSP and the SSRP
from 2012 to 2014, I calculated the savings to these two Plans in light of the revised
investment option line-up, effective 2016.
8. Recently as a part of this redesign, Plan fiduciaries informed participants that if
participants do not select new investment options from the new line-up, their savings will
be mapped to the Plan's default investment options, which is the appropriately dated
State Street Target Retirement fund.
-9. In determining the savings to participants in these two Plans alone, I used a multistep process. 3 First, I calculated the weighted average fee for the investment options in
these two Plans from 2012-2014. For the TDSP, the average weighted expense ratio for
2012-2014 is 82.7 basis points. For the SSRP, the average weighted expense ratio for
2012-2014 is 82 basis points.
9. Because participants.' savings will not be moved to the new options until later this
month, I have calculated the savings for these two Plans based on three different
scenarios: ( 1) all of the assets transfer to the default State Street Target Retirement funds;
(2) all of the assets transfer to the categorically similar passively managed option; (3) half
of the assets transfer to a categorically similar passive option and half of the assets
transfer to a categorically similar actively managed option of the same investment style.
10. Under scenario one, I calculated the weighted average expense ratio of the TDSP
assets mapping 100% to the default State Street Target Retirement fund, which is 13 bps.
3
Obviously, these savings do not take into account the additional savings in the other Novant
Plans.
4
This results in a savings of over 69.7 bps or $36,217,804 for the 2016-2019 time frame. 4
For the SSRP, the weighted average expense ratio for the default, target date funds is 7
bps, which results in a savings of 75 bps or $36,402,591. Combined, under this scenario,
the Plans saved over $72 million as a result of the Settlement and utilizing the new
investment line-up. 5 If the Plan fiduciaries decide to charge Plan participants for the fees
paid to Fidelity and Mercer (see below), my calculated savings will be reduced by the
total amounts paid to Fidelity and Mercer from 2016-2019 (which I calculate to be
approximately $6.7 million). Even with this potential reduction, these two Plans saved
almost $66 million.
11. Under scenario 2, I calculated the weighted average expense ratio of the TDSP
and SSRP assets mapping 100% to passively managed options in the same investment
style. This results in a weighted average expense ratio of 8.3 bps for the TDSP and 5 bps
forthe SSRP, resulting in.savings of$38,660,037 and $37,373,326 respectively.
Combined, under this scenario, the Plans saved over $76 million as a result of the
Settlement and utilizing the new investment line-up. 6 If the Plan fiduciaries decide to
charge Plan participants for the fees paid to Fidelity and Mercer (see below), my
calculated savings will be reduced by the total amounts paid to Fidelity and Mercer from
4
I projected the growth of assets from 2016-2019 by applying the same growth rate that
occurred for the options in the Plans from 2012-2014. For the TDSP, the growth rate averaged
19.7%. For the SSRP, the growth rate averaged 15.7%. Growth in plan assets is the result of new
contributions of funds by plan participants and investment returns on existing assets.
5
This number would increase if I considered the additional 5 plans that are also part of the
settlement.
6
settlement.
5
2016-2019 (which I calculate to be approximately $6.7 million). Even with this potential
reduction, the Plans saved over $69 million.
12. Finally, under scenario 3, I calculated the weighted average expense ratio for the
TDSP and the SSRP assets mapping evenly between passively managed and actively
managed options of the same investment category. The weighted average expense ratio
for the TDSP would be 33.6 bps and 26.7 bps for the SSRP. The savings realized by both
Plans under this scenario is $25,513,546 for the TDSP and $26,840,843 for the SSRP.
Combined the Plans saved over $52 million as a result of the Settlement and utilizing the
new investment line-up. 7 If the Plan fiduciaries decide to charge Plan participants for the
fees paid to Fidelity and Mercer (see below), my calculated savings will be reduced by
the total amounts paid to Fidelity and Mercer from 2016-2019 (which I calculate to be
approximately $6.7 million). Even with this potential reduction, the Plans saved over $45
million
II.
Savings from decrease in recordkeeping fees.
18. As referenced above, as part of the Settlement, effective year 2016, N ovant will
transition all education, recordkeeping, and investment consultant services from the
incumbent providers, Great West and DL Davis, Inc. to Fidelity Investments and Mercer
Consulting.
19. In addition, and as to recordkeeping, those fees cannot be set on a percentage of
assets basis. Indeed, from discussions with Class Counsel, it is my understanding that
7
settlement.
6
Fidelity will be providing recordkeeping services on a fixed-dollar basis based on the
number of participants in the Plans.
20. In addition to Fidelity providing recordkeeping and administrative services,
including robust participant education and participant communications, Mercer
Consulting will be providing Novant investment consulting and advice related to the
investments offered in the Plans. The fees for these services will also be fixed.
21. In valuing the cost savings obtained through the competitive request for proposal
process undertaking by Novant in selecting Fidelity and Mercer, I compared the fees for
these service paid by the Plans to Great-West and DL Davis from 2010 to 2014 to those
fees to be paid for those services for the next four years to Fidelity and Mercer.
22. In particular, for the time period referenced above, I found the annual average of
the Great-West and DL Davis fees to be $4,090,372. The annual fee for those services
provided by Fidelity and t\:1ercer will be $1,679,114. This results in a four-year savings
for these services of $9,645,033.
23. These value of these savings is conservative given that the level of services
provided by Fidelity and Mercer will be significantly more robust that those services
provided by the incumbent providers.
Executed on July 21, 2016.
~
Stewart L. Brown
7
Plaintiffs,
v.
Defendants.
I, Thomas R. Theado, for my declaration pursuant to 28 U.S.C. § 1746 in the abovecaptioned action, state the following on my own personal knowledge thereof, except for
those matters set forth on information and belief and as to those matters I am informed and
believe them to be true. If called upon to testify on the matters set forth herein, I could and
would competently so testify.
1.
I am a graduate of Oberlin College with honors in economics. I received my
law degree with honors from Case Western Reserve University where I earned the American
Jurisprudence award in business organization as well as the Phi Delta Phi award for my
graduating class, and I merited membership in both the Order of Barristers and the Order of
the Coif.
2.
I was admitted to the practice of law on November 2, 1979. I have been
admitted to permanent practice throughout the courts and agencies of the State of Ohio, and
in the Northern and Southern Districts of Ohio, the Circuit Courts of Appeals for the Sixth
and Tenth Circuits, and the United States Supreme Court. In addition, I have been admitted
-1-
pro hac vice in various State Courts and United States District Courts. I have never been
reprimanded, sanctioned, or otherwise disciplined with respect to any aspect of my
uninterrupted practice of law since November 2, 1979. The national publication LAWYERS
WEEKLY included me in its 1995 series of articles featuring the country’s top trial lawyers.
I have presented at many legal seminars throughout the nation and I have authored numerous
publications.
3.
My practice now primarily focuses on the management of class actions and
other complex civil litigations that require me to coordinate the work of lawyers from a
number of different firms from throughout northern Ohio and nationally.
4.
Courts have appointed me to serve as a Class Counsel, or I have served or am
serving as a lead counsel for the plaintiffs, in numerous class-action lawsuits, of regional
and national scope, including the following: Brandmeier v. Copper Kettle Marina, Inc.,
Lorain Cty. [Ohio] C.P. No. 89CV102320; Costantino v. TRW, Inc., N.D. Ohio No. C863368; DeSario v. Industrial Excess Landfill, Stark Cty. [Ohio] C.P. No. 89-0570; Hill v.
Moneytree of Ohio Inc., Lorain Cty. [Ohio] C.P. No. 06CV148815; Lintner v. AK Steel
Corp. Ret. Accumulation Pension Plan, S.D. Ohio No. 1:09-CV-0231; McClendon v.
Challenge Financial Investors Corp., Lorain Cty. [Ohio] C.P. No. 07CV153497; Mikulski v.
Centerior Energy Corp., Cuyahoga Cty. [Ohio] C.P. No. CV-01-457866; Mikulski v. The
Cleveland Electric Illuminating Co., Cuyahoga Cty. [Ohio] C.P. No. CV-02-490019;
Mikulski v. Centerior Energy Corp., Cuyahoga Cty. [Ohio] C.P. No. CV-02-449020;
Mikulski v. The Toledo Edison Co., Lucas Cty. [Ohio] C.P. No. G-4801-CI-200206364;
-2-
Murdocco v. Marathon Oil Co., Summit Cty. [Ohio] C.P. No. CV-95-06-2283; Murray v.
Sunset Mortgage Co., L.P., Lorain Cty. [Ohio] C.P. No. 07CV152784; Pikas v. The
Williams Cos., Inc., N.D. Okla. No. 4:08CV0101; Rybarczyk v. TRW, Inc., N.D. Ohio No.
1:95CV21800; Satterfield v. Ameritech Mobile Communications Inc., Cuyahoga Cty. [Ohio]
C.P. No. CV-03-517318; Smith v. Allied Home Mortgage Capital Corp., Lorain Cty. [Ohio]
C.P. No. 07CV153202; Strickler v. First Ohio Banc & Lending, Inc., Lorain Cty. [Ohio]
C.P. No. 07CV151964; US Bank NA v. Schubert, Lorain Cty. [Ohio] C.P. No.
10CV170414; Walker v. Asea Brown Boveri Inc. Cash Balance Pension Plan, D. Conn. No.
3:02-CV-0550; and West v. AK Steel Corp. Ret. Accumulation Pension Plan, S.D. Ohio No.
1:02-C V-0001.
5.
In addition to the class action lawsuits mentioned above, I have participated in
the litigation that has led to the successful conclusions obtained in many other national or
regional class actions, including the following: Davidson v. U.S. Air, Inc., N.D. Ohio No.
1:90CV2071; DeMarco v. Akron Coca Cola Bottling, N.D. Ohio No. C88-6702; Elbert v.
White Ready Mix Concrete, N.D. Ohio No. C76-0445; Insalaco v. Ben Venue Laboratories,
Inc., Cuyahoga Cty. [Ohio] C.P. No. CV-01-450549; Rosen v. Fisher Foods, Inc., N.D.
Ohio No. C80-0079; Lowe v. Sun Refining & Marketing, Lucas Cty. [Ohio] C.P. No.880630; Marx v. Copper Kettle Marina, Inc., Lorain Cty. [Ohio] C.P. No. 88CV100809;
Pelletz v. Weyerhaeuser Co., W.D. Wash. No. 2:08-CV-0334; Ross v. TREX Co., Inc., Santa
Cruz Cty. [CA] Superior Ct. No. 161553; Redington v. Goodyear Tire & Rubber Co., N.D.
Ohio No. 5:07-CV-1999; Streety v. Garfield Alloys, Inc., Cuyahoga Cty. [Ohio] No. CV-04-3-
519385; Taylor v. Amerifoods Companies, N.D. Ohio No. 1:92CV1715; White v. Aztec
Catalyst Co., Lorain Cty. [Ohio] C.P. No. 93CV111025; and in Wolph v. Acer America
Corp., N.D. Cal. No. CV-09-1314.
6.
I have served, or I am currently serving, as Lead Counsel in a number of class
actions asserting ERISA pension-benefit claims, including Costantino v. TRW, Inc., N.D.
Ohio NO. C86-3368; Rybarczyk v. TRW, Inc., N.D. Ohio No. 1:95CV21800; West v. AK
Steel Corp. Ret. Accumulation Pension Plan, S.D. Ohio No. 1:02-CV-0001; Walker v. Asea
Brown Boveri Inc. Cash Balance Pension Plan, D. Conn. No 3:02-CV-0550; Pikas v. The
Williams Cos., Inc., N.D. Okla No. 4:08CV0101; and Lintner v. AK Steel Corp. Ret.
Accumulation Pension Plan, S.D. Ohio No. 1:09-CV-0231.
7.
In addition to appearing as a counsel for plaintiffs-litigants in various class-
action lawsuits, including those set forth above, I have been retained by attorneys to advise
and consult on class-action matters in various litigation matters in which I did not appear as
an attorney of record. I have consulted, and I am presenting consulting, in litigation on
behalf of litigants opposing class-certification efforts.
8.
The attorneys of my law firm, Gary, Naegele & Theado, LLC, have
represented the interests of hundreds of thousands, if not millions, of injured individuals in
state and federal cases nationwide. Those lawsuits have involved various and different areas
of substantive law, including pension benefit law, consumer fraud, environmental injuries,
personal property damage, real estate value diminution, and contract damages.
-4-
9.
In the course of our complex-litigation practice, we have participated in multi-
district litigation proceedings, such as In re Silicone Breast Implant Litigation, M.D.L. No.
926; In re Orthopedic Bone Screw Litigation, M.D.L. No. 1014; In re Medtronic, Inc.,
Sprint Fidelis Leads Products Liability Litigation, M.D.L. No. 1905; In re ChineseManufactured Drywall Products Liability Litigation, M.D.L. No. 2047; and In re Liquid
Aluminum Sulfate Antitrust Litigation, M.D.L. No. 2687. I am presently serving as Ohio
counsel in a mass action involving more than 110 individually named plaintiffs in Baker v.
Tunnell Hill Reclamation, LLC, Licking [Ohio] C.P. No. 2015-CV-00400.
10.
Reported cases in which I was actively involved include the following: Ailiff v.
Mar-Bal, Inc., 62 Ohio App.3d 232, 575 N.E.2d 228 (1990); Board of Educ. of the
Strongsville City School Dist. v. Theado, 57 Ohio St.3d 162, 566 N.E.2d 667 (1991);
DeSario v. Industrial Excess Landfill, Inc., 68 Ohio App.3d 117, 587 N.E.2d 454 (1991);
Duff v. Gary, 87 Ohio App.3d 558, 622 N.E.2d 727 (1993); Turner v. Turner, 67 Ohio St.3d
337, 617 N.E.2d 1123 (1993); Schwochow v. Chung, 102 Ohio App.3d 348, 657 N.E.2d 312
(1995); Yepko v. State Farm Mut. Ins. Co., 79 Ohio St.3d 414, 683 N.E.2d 1090 (1997);
Yepko v. State Farm Mut. Ins. Co., 25 F. Supp.2d 831 (N.D. Ohio 1998); Fine v. America
Online, Inc., 139 Ohio App.3d 133, 743 N.E.2d 416 (2000); Rybarczyk v. TRW Inc., 235
F.3d 975 (6th Cir. 2000); In re: Hechinger Investment Co. of Delaware, 298 F.3d 219 (3rd
Cir. 2002); Walker v. Asea Brown Boveri, Inc. Cash Balance Pension Plan, 214 F.R.D. 58
(D. Conn. 2003); West v. AK Steel Corp. Retirement Accumulation Pension Plan, 318 F.
Supp.2d. 579 (S.D. Ohio 2004); Mikulski v. Centerior Energy Corp., 435 F.3d 666 (6th Cir.
-5-
2006); West v. AK Steel Corp. Retirement Accumulation Pension Plan, 484 F.3d 395 (6th
Cir. 2007); Mikulski v. Centerior Energy Corp., 501 F.3d 555 (6th Cir. 2007) (en banc);
Pikas v. The Williams Cos., Inc., 542 F. Supp.2d 782 (S.D. Ohio 2008); West v. AK Steel
Corp. Retirement Accumulation Pension Plan, 657 F. Supp.2d 914 (S.D. Ohio 2009); and
Pikas v. The Williams Cos., Inc., 822 F. Supp.2d 1163 (N.D. Okla. 2011).
11.
In summary, my firm and I have broad experience in ERISA litigation and
other class actions, having litigated major class actions on behalf of hundreds of thousands
of claimants, resulting in substantial compensation to those claimants through both
settlements and judgments.
12.
Being an ERISA plaintiff-class litigator is very often a situation where the
successful plaintiffs’ counsel has done good more than done well. While the media may
fixate on the size of some recoveries in this area of the law, the real facts are that an ERISA
plaintiff’s class litigator regularly represents groups of individuals whose claims are terribly
difficult to communicate succinctly and convincingly, and whose understanding of the
difficult and complex work being done in their behalf is often marked by misunderstanding
and suspicion. These all-too-often-unavoidable complications make an attorney’s acceptance
of representation of a plaintiff in an ERISA class case a weighty decision, in which there
must be balanced not merely the prospects of success on the merits but also the prospects for
a legitimately sufficient remuneration after years and years of very often hammer-and-tongs
adversarial opposition. As a result of there being so few able attorneys from which to
choose a lawyer who is competent in conducting a class action for ERISA benefits and the
-6-
consequent nationwide scope of their practice, these lawyers constitute a valuable national
market.
13.
In the Summer of 2004 I commenced a focused, professional consideration of
the potentially actionable nature of the disturbing attributes of some 401(k) retirement plans,
such as where a mutual fund makes revenue-sharing payments to vendors who sell
investment products to the fund, and the resulting conflicts of interest or other fiduciary
concerns arising from such arrangements. In tandem with these considerations, I have
attentively followed the ERISA litigation practice of Jerry Schlichter since mid-September
2006. I have never met Mr. Schlichter, but I have paid careful attention to the cases he has
brought, the theories of recovery he has developed and pursued, and the developments in his
ERISA cases. To my knowledge, no one (including the Department of Labor) had brought
suit on fiduciary-based excessive-fee claims against the plans of large employers prior to
Mr. Schlichter. These efforts of Mr. Schlichter and members of his firm have benefitted plan
participants across the United States, including the participants in the Novant Health, Inc.
retirement plans that are the subject of the settlement, as well as the entire ERISA bar as his
cases have been instrumental in shaping the emerging case law pertaining to claims
premised on averments of faultful revenue-sharing arrangements in 401(k) retirement plans.
As such, Mr. Schlichter’s firm has been seen as the pioneer in the field, serving a public
good as a “private attorney general.”
14.
Others have recognized the benefit of these efforts.
For example, the
Honorable Nanette Laughrey, United States District Judge for the Western District of
-7-
Missouri as seven months ago, recently observed the following on the important role that
Mr. Schlichter’s firm has played in this important area of ERISA litigation and rule
enforcement:
Of special importance is the significant, national contribution made by the
Plaintiffs whose litigation clarified ERISA standards in the context of
investment fees. The litigation educated plan administrators, the Department
of Labor, the courts and retirement plan participants about the importance of
monitoring recordkeeping fees and separating a fiduciary’s corporate interest
from its fiduciary obligations.
Tussey v. ABB, Inc., W.D. Mo. No. 06-4305, 2015 U.S.Dist. LEXIS 164818 at *7–*8 (Dec.
9, 2015).
15.
It is likely that Mr. Schlichter would be the advocate accepting representation
of the participants in Novant Health retirement plans in the absence of others willing to take
on such arduous, complex, and arcane litigation. I know of no other law firm in the United
States that has the depth of experience in excessive-fee cases as does Schlichter, Bogard &
Denton.
16.
My firm typically accepts representation of a named plaintiff in a putative
class action with the prospective client acknowledging that a fee award equivalent to at least
one-third of the gross recovery is a fair and reasonable attorney fee.
17.
My experience in litigating ERISA-benefits class actions further confirms that
the prior success, and the resulting gravitas, of plaintiffs’ counsel is an important element in
the probability of a successful conclusion for the class. It thus makes no sense to award a
-8-
seasoned and successful attorney less than a novice on the ground that the experienced
lawyer’s tasks are made easier due to his prior successes.
I declare under penalty of perjury that the foregoing is true and correct to the best of
my knowledge and belief.
Executed on July 18, 2016, at Amherst, Ohio.
/s/ Thomas R. Theado
Thomas R. Theado
-9-
Plaintiffs,
v.
Defendants.
DECLARATION OF JEROME J. SCHLICHTER
I, Jerome J. Schlichter, under penalty of perjury pursuant to 28 U.S.C. §1746,
declare as follows:
1.
I am founding partner of the law firm of Schlichter, Bogard & Denton LLP,
counsel for the Plaintiffs. This declaration is submitted in support of Plaintiffs’ Motion
for Attorneys’ Fees, Reimbursement of Expenses, and Case Contribution Awards for
Named Plaintiffs. I am familiar with the facts set forth below and able to testify to them.
2.
I received my Bachelor’s degree in Business Administration from the
University of Illinois in 1969, with honors and was a James Scholar. I received my Juris
Doctorate from the University of California at Los Angeles (UCLA) Law School in 1972,
where I was an Associate Editor of the UCLA Law Review. I am licensed to practice law
in the states of Illinois, Missouri, and California and am admitted to practice before the
Supreme Court of the United States, the Third, Fifth, Seventh, Eighth and Ninth Circuit
Courts of Appeal and numerous U.S. District Courts. I have also been an Adjunct
1
Professor teaching trials at Washington University Law School, and been repeatedly
selected by my peers for the list of The Best Lawyers in America.
3.
Through over 40 years of practice, I have handled, on behalf of plaintiffs,
substantial personal injury, civil rights class actions, mass torts and fiduciary breach
litigation under the Employee Retirement Income Security Act (ERISA). In 2014, I was
ranked number 4 in a list of the 100 most influential people nationally in the 401(k)
industry in the industry publication 401(k) Wire. Examples of class action cases I have
successfully handled include: Brown v. Terminal Railroad Association, a race
discrimination case in the Southern District of Illinois on behalf of all African-American
and Hispanic employees at a railroad; Mister v. Illinois Central Gulf Railroad, 832 F.2d
1427 (7th Cir. 1987), a failure-to-hire class action brought on behalf of hundreds of
African-American applicants from East St. Louis, Illinois at a major railroad which was
tried to conclusion and successfully appealed to the Seventh Circuit Court of Appeals and
finally concluded with more than $10 million for the class after 12-and-a-half years of
litigation; Wilfong v. Rent-A-Center, No. 00-680-DRH (S.D.Ill. 2002), a nationwide
gender discrimination in employment case on behalf of women, which was successfully
settled for $47 million and substantial affirmative relief to the class of thousands, after
defeating the defendant’s attempt to conduct a reverse auction.
4.
My firm has been named Class Counsel in numerous cases involving claims of
fiduciary breaches in large 401(k) plans. See, e.g. Kreuger v. Ameriprise Fin., Inc., 304 F.R.D.
559, 574 (D.Minn. 2014); Abbott v. Lockheed Martin, No. 06-701, Doc. 403 (S.D.Ill. Aug. 1,
2
2014); Beesley v. Int’l Paper Co., No. 06-703, Doc. 542 (S.D.Ill. Oct. 10, 2013); Nolte v. Cigna
Corp., No. 07-2046, 2013 U.S.Dist.LEXIS 101165, at *6–7 (C.D.Ill. July 3, 2013); Will v. Gen.
Dynamics, No. 06-698, 2010 U.S.Dist.LEXIS 95630 ,at *5–6 (S.D.Ill. Nov. 22, 2010); Martin v.
Caterpillar Inc., No. 07-1009, Doc. 173 (C.D.Ill. April 21, 2010); George v. Kraft Foods Global
Inc., 251 F.R.D. 338, 351–52 (N.D.Ill. 2008); Taylor v. United Techs. Corp., No. 06-1494, 2008
U.S.Dist.LEXIS 43655, at *15 (D.Conn. June 3, 2008); Kanawi v. Bechtel Corp., 254 F.R.D.
102, 111–12 (N.D.Cal. 2008); Tussey v. ABB, Inc., No. 06-4305, 2007 U.S.Dist.LEXIS 88668, at
*32 (W.D.Mo. Dec. 3, 2007); Loomis v. Exelon Corp., No. 06-4900, 2007 U.S.Dist.LEXIS
46893, at *11 (N.D.Ill. June 26, 2007).
5.
My work in plaintiffs’ class action cases has been taken note of by federal
judges. U.S. District Judge James Foreman, in the Mister case, supra, speaking of my
efforts, stated: “This Court is unaware of any comparable achievement of public good by
a private lawyer in the face of such obstacles and enormous demand of resources and
finance.” Order on Attorney’s Fees, Mister v. Illinois Cent. Gulf R.R., No. 81-3006 (S.D.
Ill. 1993). District Judge David R. Herndon wrote, regarding my handling of the Wilfong
class action supra:
Class counsel has appeared in this court and has been known to this Court
for approximately 20 years. This Court finds that Mr. Schlichter’s
experience, reputation and ability are of the highest caliber. Mr. Schlichter
is known well to the District Court Judge and this Court agrees with Judge
Foreman’s review of Mr. Schlichter’s experience, reputation and ability.
Order on Attorney’s Fees, Wilfong v. Rent-A-Center, No. 00-680, Doc. 223 (S.D. Ill.
2002).
3
6.
Judge Herndon also noted in Wilfong that I “performed the role of a
‘private attorney general’ contemplated under the common fund doctrine, a role viewed
with great favor in this Court” and described my action as “an example of advocacy at its
highest and noblest purpose.” Id.
7.
In Beesley v. International Paper, an ERISA excessive fee case similar to
this one, Judge Herndon observed: “Litigating this case against formidable defendants
and their sophisticated attorneys required Class Counsel to demonstrate extraordinary
skill and determination. Schlichter, Bogard & Denton and lead attorney Jerome
Schlichter’s diligence and perseverance, while risking vast amounts of time and money,
reflect the finest attributes of a private attorney general.” Beesley v. Int’l Paper Co., No.
06-703, 2014 U.S.Dist.LEXIS 12037 at 8 (S.D. Ill. Jan. 31, 2014). Similarly, in Abbott v.
Lockheed Martin Chief Judge Reagan observed that “[t]he law firm Schlichter, Bogard &
Denton has had a humongous impact over the entire 401(k) industry, which has
benefitted employees and retirees throughout the country by bringing sweeping changes
to fiduciary practices.” Abbott v. Lockheed Martin Corp., 2015 U.S.Dist.LEXIS 93206, at
*9 (S.D.Ill. July 17, 2015).
8.
In Will v. General Dynamics, another ERISA excessive fee case, Judge
Murphy found that the litigating the case and achieving a successful result for the class
“required Class Counsel to be of the highest caliber and committed to the interests of the
participants and beneficiaries of the General Dynamics 401(k) Plans.” Will v. Gen.
4
Dynamics Corp., No. 06-698-, 2010 U.S.Dist.LEXIS 123349, at* 9 (S.D. Ill. Nov. 22,
2010).
9.
Judge Baker, in Nolte v. Cigna, commented that Schlichter, Bogard &
Denton is the “preeminent firm in 401(k) fee litigation” and has “persevered in the face
of the enormous risks of representing employees and retirees in this area.” Nolte v. Cigna
Corp., No. 07-2046, 2013 U.S. Dist. LEXIS 184622, at *8 (C.D.Ill. Oct. 15, 2013).
10.
I have also spoken on ERISA litigation breach of fiduciary duty claims at
national ERISA seminars as well as other national bar seminars.
11.
In the decades of my private practice, I have never been reprimanded,
sanctioned or otherwise disciplined with respect to any aspect of the practice of law.
12.
Since 2005, my firm and I have been investigating, preparing and handling,
on behalf of plan participants, numerous cases against fiduciaries of large 401(k) plans
alleging fiduciary breaches including excessive fees, conflicts of interests and prohibited
transactions under ERISA. My firm has filed these cases in numerous judicial districts
throughout the United States, including districts within the First, Second, Third, Fourth,
Seventh, Eighth, Ninth, Tenth and Eleventh Circuits.
13.
Very few law firms nationally have brought such cases, and no other law
firm has brought the number of cases our firm has brought, one of which was the first full
trial of such a case, resulting in a judgment for the plaintiffs that was affirmed in part by
the Eighth Circuit. Tussey v. ABB, Inc., No. 06-4305, 2012 U.S.Dist.LEXIS 45240 (W.D.
Mo. Mar. 31, 2012), aff’d in part, rev’d in part, 746 F.3d 327 (8th Cir. 2014). As Judge
5
Laughrey noted in that case, “[i]t is well established that complex ERISA litigation
involves a national standard and special expertise. Plaintiffs’ attorneys are clearly experts
in ERISA litigation.” Tussey v. ABB, Inc., No. 06-4305, 2012 U.S.Dist.LEXIS 157428, at
*9–10 (W.D. Mo. Nov. 2, 2012)(citations omitted).
14.
Several of the 401(k) cases my office filed were dismissed and the
dismissals upheld by the Courts of Appeals. Hecker v. Deere & Co., 556 F.3d 575 (7th
Cir. 2009); Loomis v. Exelon Corp., 658 F.3d 667 (7th Cir. 2011); Renfro v. Unisys
Corp., 671 F.3d 314 (3d Cir. 2011). Others had summary judgment granted against the
plaintiffs in whole or in part. Kanawi v. Bechtel Corp., 590 F. Supp. 2d 1213 (N.D. Cal.
2008); Taylor v. United Techs. Corp., No. 06-3194, 2009 U.S.Dist.LEXIS 19059 (D.
Conn. Mar. 3, 2009), aff’d, 354 Fed. Appx. 525 (2d Cir. 2009); George v. Kraft Foods
Global, Inc., 684 F.Supp. 2d 992 (N.D. Ill. 2010), rev’d in part, 641 F.3d 786 (7th Cir.
2011); Tibble v. Edison Int’l, 639 F. Supp. 2d 1074 (C.D. Cal. 2009), aff’d, 729 F.3d
1110 (9th Cir. 2013), vacated, 135 S. Ct. 1823 (2015), aff’d on remand, 820 F.3d 1041 (9th
Cir. 2016)..
15.
Prior to the filing this lawsuit, my firm spent almost one year researching
the Novant Health retirement plans, investigating claims, and consulting with experts in
the field of 401(k) administration and investment management. On March 12, 2014, we
filed this action. The complaint contains detailed allegations laying out a variety of
fiduciary breaches and conflicted service provider relationships.
6
16.
In this case, my firm has spent and will likely spend significant time and
additional expenses without additional compensation both before and after final approval
and before the end of the four-year settlement period.
17.
The Settlement Agreement provides—as part of its comprehensive
affirmative relief—that Class Counsel will continue to monitor and enforce the terms of
the agreement. Class Counsel will not request an additional award of fee for its future
services to the Novant Health plans.
18.
The parties engaged in over two years of intense and hard-fought litigation
and extended settlement negotiations before finally agreeing to the proposed settlement.
19.
In my opinion, the affirmative relief obtained herein is beyond any
affirmative relief obtained in any prior 401(k) fee case, the value of which is far beyond
the substantial monetary value of the settlement. The declaration of Dr. Stewart Brown,
calculates the benefits to the Novant Retirement Plus Plan alone to be nearly $70 million.
The total value of the settlement is over $100 million which does not include a valuation
of all the affirmative relief obtained in this matter.
20.
As a practical matter, litigants such as Karolyn Kruger, M.D., Candace
Culton, Frances Baillie, Eileen Schneider, Judy Lewis, Linda Christenson, and Teresa
Powell could not afford to pursue litigation against well-funded fiduciaries of a multibillion dollar plan sponsored by a large employer such as Novant Health in federal court
on any basis other than a contingent fee. I know of no law firm in the United States, of
the very few firms which would even consider handling such a case as this or that would
7
handle any ERISA class action, with an expectation of anything but a percentage of the
common fund created.
21.
The contingency fee agreements entered into between my firm and the
Plaintiffs in this case provide for our fee to be one-third of any recovery plus expenses.
The plaintiffs in other ERISA fiduciary breach cases brought by my firm have also signed
similar agreements calling for a one-third contingency fee plus expenses.
22.
These kinds of cases involve tremendous risk, require finding and obtaining
opinions from expensive, unconflicted, consulting and testifying experts in finance,
investment management, and related fields, and are extremely hard fought and welldefended.
23.
Before we filed this case, virtually no firm was willing to bring such a case,
and I know of no other firm that has made the financial and attorney commitment to such
cases to this date.
24.
A law firm that brings a putative class action such as this must be prepared
to finance the case through a trial and appeals, all at substantial expense. For example, in
Tussey v. ABB, supra, seven experts testified at trial, and the two Defendant groups
therein had 15 or more lawyers present in the courtroom throughout the month long trial.
In addition, all parties, including plaintiffs, had a technology team present throughout. In
addition, our firm expended over $2,000,000 in expenses by the conclusion of the trial
therein, and continue to carry them today. That case continues on appeal after being tried
almost 6 years ago. My firm has to this date received nothing.
8
25.
Based on my experience, the market for experienced and competent
lawyers willing to pursue 401(k) ERISA Fee Litigation is a national market, and the rate
of 33 1/3% of any recovery, plus costs is necessary to bring such cases. This is the rate
that a qualified and experienced attorney would negotiate at the beginning of the
litigation, and the rate found reasonable in similar 401(k) ERISA fee cases in numerous
Federal District Courts.

Spano v. Boeing Co., No. 06-743, Doc. 587 (S.D.Ill. March 31, 2016);

Abbott v. Lockheed Martin Corp., 2015 U.S.Dist.LEXIS 93206, at *7 (S.D.Ill. July 17,
2015)

Krueger v. Ameriprise Financial Inc., No. 11-2781, 2015 U.S.Dist.LEXIS 91385, at *8–9
(D.Minn. July 13, 2015);

Beesley v. Int’l Paper Co., No. 06-703, 2014 U.S.Dist.LEXIS 12037, at *7 (S.D.Ill. Jan.
31, 2014);

Nolte v. Cigna Corp., No. 07-2046, 2013 U.S.Dist.LEXIS 184622, at *3–4 (C.D.Ill Oct.
15, 2013);

George v. Kraft Foods Global, No. 07-1713, 2012 U.S.Dist.LEXIS 166816, at *2
(N.D.Ill. June 26, 2012);

Will v. General Dynamics, No. 06-698, 2010 U.S.Dist.LEXIS 123349, at *7–8 (S.D.Ill.
Nov. 22, 2010); and
 Martin v. Caterpillar, Inc., No. 07-1009, 2010 U.S.Dist.LEXIS 145111, at *9–11
(C.D.Ill. Sept. 10, 2010).
9
26.
Schlichter, Bogard & Denton does not bill clients on an hourly basis.
However, in March 2016, based on the national market for complex ERISA fiduciary
breach litigation, Judge Rosenstengel found that a fee rate of up to $998 per hour,
depending on years of attorney experience, was a reasonable national hourly rate for
Class Counsel’s time. Spano v. Boeing Co., No. 06-743, Doc. 587, at 6−7 (finding “that
the reasonable hourly rate for Class Counsel’s services” at that time was $998/hour for
attorneys with at least 25 years of experience, $850/hour for attorneys with 15–24 years
of experience, $612/hour for attorneys with 5–14 years of experience, $460/hour for
attorneys with 2–4 years of experience, $309/hour for Paralegals and Law Clerks, and
$190/hour for Legal Assistants). These approved 2016 rates were based on a 3% increase
of the rates approved by Judge Herndon in a similar 401(k) fee case settled in 2015.
Abbott v. Lockheed Martin Corp., 2015 U.S.Dist.LEXIS 93206 (S.D. Ill. July 17, 2015).
27.
On July 11, 2016, my firm mailed approximately 70,000 notices of the
settlement to class members. Since then, we have received calls from class members
inquiring about the settlement. None of the class members who contacted us expressed
dissatisfaction with the amount of the settlement or the proposed fee award. The deadline
for objections to the settlement is August 24, 2016.
SCHLICHTER, BOGARD & DENTON
Jerome J. Schlichter
10
Plaintiffs,
v.
Defendants.
DECLARATION OF TROY A. DOLES
I, TROY A. DOLES, for my declaration pursuant to 28 U.S.C. § 1746 in the
above-captioned action, state the following on my own personal knowledge thereof,
except for those matters set forth on information and belief; and as to all matters I am
informed and believe them to be true.
1.
I am an attorney in the law firm of Schlichter, Bogard & Denton, LLP
(“SBD”) which represents the Plaintiffs and class in this case.
2.
I am licensed to practice in all Courts of the States of Illinois and Missouri;
the United States Supreme Court, the United States Courts of Appeals for the Seventh
Circuit; the United States Court of Appeals for the Eighth Circuit, the Eastern District of
Missouri, the Central District of Illinois, and the Southern District of Illinois. I am
admitted pro hac vice in this matter.
3.
I received my Bachelor of Arts from Indiana University in 1992 and my
Juris Doctorate from St. Louis University in 1996.
4.
I have been in the private practice of law for almost 20 years and have been
actively engaged in complex litigation, including class actions since 1999.
5.
I have been with SBD since December 2006, and since that, I have worked
almost exclusively on this firm’s 401(k) fee litigation cases.
6.
In my role as a senior attorney at SBD, and in addition to substantial direct
work on all aspects of SBD’s 401(k) fee litigation cases, I assist in the supervision of the
work of numerous SBD attorneys, paralegals, and staff related to its 401(k) fee cases. I
therefore have unique and first-hand knowledge as to the general scope and substance of
all aspects of 401(k) fee cases, including the investigation, litigation, trial, and settlement
of same.
7.
I have been actively involved in this litigation and I am familiar with all
aspects of this proceeding.
A. SBD’s investigation, litigation, and due diligence in this litigation.
8.
SBD spent hundreds of hours conducting a thorough investigation of the
legal and factual issues in this case well before the complaint was actually filed,
leveraging its near-decade-long experience litigating 401(k) fee cases on behalf of
employees and retirees. In particular, SBD spent months reviewing publicly filed
documents related to the Retirement Plus Plan, researched and reviewed communications
provided by participants, analyzed fees paid by the Plan, and extensively researched
business relationships between key service providers to the Plan, including Great-West
and Davis. In addition, SBD, leveraging its unequalled experience in litigating many
401(k) breach of fiduciary cases, employed the services of consulting experts in
analyzing the Plan’s fees. Before filing this lawsuit, Plaintiffs, with the assistance of their
attorneys, also requested (and obtained) the production of a variety of key documents
related to the operation of the Retirement Plus Plan from Defendants. Doc. 1, ¶38.
9.
Plaintiffs filed this action on March 12, 2014. Doc. 1. The complaint
contains detailed allegations setting forth a variety of fiduciary breaches and conflicted
service provider relationships. Id. After the complaint was filed, Defendants filed an
extensive motion, with voluminous attachments, seeking the dismissal of the entire case.
Doc. 19, 20. Defendant strongly asserted arguments based on the decisions in Hecker v.
Deere & Co., 556 F.3d 575 (7th Cir. 2009) and Renfro v. Unisys Corp., 671 F.3d 314 (3d
Cir. 2011), cases SBD litigated. SBD, leveraging its experience in these cases, responded
to this motion with its own extensive opposition, along with a variety of attachments.
Doc. 26. On September 17, 2015, the Court denied Defendants’ motion to dismiss, but
noted it was a “close call” and that many of Defendant’s arguments would be considered
on (and might not survive) summary judgment. Doc. 39 at 14, 18 n.8.
10.
While Defendants’ motion to dismiss was under advisement, the parties
entered into settlement discussions in December of 2014. However, before SBD agreed to
engage in any substantive settlement discussions, SBD requested (and obtained) an
extensive variety of categories of documents that were exclusively in the possession and
control of Defendants. All told, Defendants produced almost twenty thousand pages of
materials. In preparing for mediation, SBD spent hundreds of hours thoroughly reviewing
and extensively analyzing these materials.
11.
SBD also spent hundreds of additional hours thoroughly researching
publicly available documents related not only to the Plans, but all aspects of Novant’s
business operations with key service providers, including Davis. Indeed, SBD visited, in
person, local and regional state and county offices researching records related to these
relationships, business plans, and business developments between Novant and Davis.
Materials obtained from these in-person visits totaled tens of thousands of pages.
12.
With SBD’s due diligence review almost complete, a thorough analysis of
the case was done along with a detailed outline of the evidence supporting liability and
damages. Thereafter, the parties engaged a national mediator, Hunter Hughes, to conduct
settlement discussions. The mediation was an all-day effort that ended without a
settlement. After concluding the mediation, however, the parties continued their
negotiations. These discussions continued for over four additional months and covered
both monetary damages and extensive non-monetary relief. Only on November 9, 2015
did the parties reach an agreement on all issues and sign the Settlement Agreement. The
risk in conducting these hard-fought and protracted settlement discussions was
significant, given that the Court had under advisement at the time Defendants' motion to
dismiss. Though Defendants’ motion was denied, the risk borne by SBD was significant.
13.
The settlement SBD obtained for the class was extraordinary. It provides
for Defendant to make a payment to the class of $32,000,000 in monetary relief. Perhaps
more importantly, it also includes sweeping affirmative relief that will benefit the class
for years to come. Defendant will:
i.
conclude a comprehensive request for proposal (“RFP”) competitive
bidding process, conducted and led by an outside consultant, for recordkeeping,
investment consulting and participant education services for the Plans;
ii.
engage a mutually agreed upon Independent Consultant to assess the
adequacy of the RFP process and assess Defendants’ anticipated selection of service
providers for the Plans;
iii.
ensure that the Plans’ administrative service providers are not reimbursed
for their services based on a percentage-of-plan-assets basis;
iv.
review all current investment options in the Plans and revise the investment
options, as needed, ensuring that those options are selected or retained for the exclusive
best interests of the Plans’ participants;
v.
have a review undertaken by the Independent Consultant of the investment
option selection process and provide recommendations, if necessary;
vi.
have the Independent Consultant conduct an annual review, for four years,
of Novant’s management of the Plans;
vii.
remove Davis, and related entities, from any involvement with the Plans;
viii.
remove Davis and related entities from Novant employee benefit plans;
ix.
not enter into any new real estate or business relationships with Davis and
related entities;
x.
not offer any Mass Mutual investments in the Plans or any other investment
that provides compensation to Davis and related entities;
xi.
provide accurate communications to participants in the Plans;
xii.
not offer any brokerage services to the Plans; and,
xiii.
adopt a new investment policy statement to ensure that the Plans are
operated for the exclusive best interests of the Plans’ participants.
B. SBD will expend substantial time implementing the terms of Settlement
Agreement.
14.
Although SBD is not seeking a lodestar award of its hours in this matter
and will not seek an award based the additional work as described below, the additional
work SBD will expend will be substantial.
i. SBD’s anticipated work related to Defendants’ compliance with the
Settlement
15.
As noted in Article 10 of the Settlement Agreement in this matter,
Defendants have agreed to comprehensive affirmative relief lasting 4 years. In ensuring
that Defendants comply with certain of these affirmative relief provisions, SBD, as Class
Counsel, has committed to devoting additional time and work in this regard.
16.
For instance, SBD will review and analyze the Independent Consultant’s
annual report at the end of the first, second, third, and fourth years of the Settlement
Period. These reports will include an assessment and audit of the Plans’ existing
investment options and recordkeeping fees and services along with an assessment of the
Plans’ existing service providers along with the compensation paid to those providers.
In the event the Independent Consultant provides recommendations in these annual
assessments, the Plan Fiduciary shall provide a written response to same along with any
plan of action addressing those recommendations. SBD will also review and analyze
these Plan Fiduciary responses. Article 10.5 of the Settlement Agreement.
17.
In addition to the above, in the event any requests for proposals (“RFPs”)
are issued during the Settlement Period by Defendants that require, in the opinion of the
Independent Consultant, additional work or revisions, SBD will be required to analyze
those recommendations along with any plan of action proposed by Defendants. With
respect to the responses to the issued RFPs, SBD will be required to analyze any
recommendations provided by the Independent Consultant to Defendants and will also
analyze any responses to those recommendations provided by Defendants. Article 10.7 of
the Settlement Agreement.
18.
Based on my direct experience in this matter including all aspects of
litigation this matter and my experience in 401(k) fee litigation as set forth above, I, on
behalf of SBD, will be primarily responsible for performing the above work and analyses
as described in paragraphs 9−11 above. In my experience, I anticipate devoting at least 50
hours per year, for four years, in conducting this additional work totaling 200 hours.
ii. SBD’s anticipated work in the event of a dispute related to the
enforcement of the Settlement Agreement
19.
In the event there is a dispute with respect to Defendants’ compliance with
Articles 10.5, 10.7 or 10.7 of the Settlement Agreement, SBD, as Class Counsel, may be
required to initiate a dispute resolution process pursuant to Article 13.7 of the Settlement
Agreement. Article 10.14 of the Settlement Agreement.
Article 13.7 provides, in great detail, the process by which any dispute shall
20.
be resolved. This process involves multiple layers including negotiations, mediation, and
possible arbitration. The mediator/arbitrator may, in his discretion, order depositions and
discovery to resolve any dispute.
21.
litigation this matter and my experience in 401(k) fee litigation as set forth above, I, on
behalf of SBD, will be primarily responsible for performing the above work and analyses
as described in paragraphs 13−14 above. I anticipate other members of SBD being
involved in any dispute process as necessary. In my experience, in the event a dispute
results in a full-blown arbitration, I anticipate SBD devoting at least 1,000 hours in
concluding such process, all without any fee. Despite the risk of this amount of time
being required, these 1,000 hours have not been included in the lodestar analysis.
iii. SBD’s additional work after the submission of its Motion for
Attorney’s Fees
22.
After the time SBD files the Motion for Attorney’s Fees and Costs, SBD
will incur substantial time as part of the implementation of the terms of the Settlement
Agreement.
23.
This time includes significant time receiving and responding to all class
member inquires elevated to SBD. Each inquiry will be handled either by an attorney at
SBD or an experienced paralegal experienced in handling such inquires. Given that the
anticipated size of the class is over 70,000 members, SBD anticipates handling a large
volume of inquires requiring various levels of time.
24.
In addition, SBD will expend substantial time with the Settlement
Administrator handling a variety of technical matters related to the implementation of the
terms of the Settlement Agreement. These matters will include elevated class member
inquiries, allocation and distribution questions.
25.
litigation this matter and my experience in 401(k) fee litigation as set forth above, along
with the four year settlement period required in this matter, I reasonably anticipate that
SBD will expend at least 200 hours performing the above work, apart from the other time
outlined.
s/ Troy A. Doles
Troy A. Doles
Plaintiffs,
v.
Case No. l:14-cv-208
Defendants.
DECLARATION OF SHERI O' GORMAN
I, Sheri O'Gorman, under penalty of perjury pursuant to 28 U.S.C. §1746, declare
as follows:
1.
I am the Office Administrator of Schlichter, Bogard, & Denton, LLP and
the Custodian of Records, in charge of payment of expenses in this matter. I have
examined the records and we have incurred case expenses totaling $68,887.43 as of July
25, 2016.
2.
I am also in charge of monitoring attorney and staff time billed. During the
litigation in these cases the following chart shows the amount of hours spent by attorneys
broken down by experience:
Total Hours
Description
17.40
1-4 Years
5-14 Years
1,537.80
15-24 Years
1,326.20
388.40
25 and Above
3,270.00
Total Attorney Hours
1
The following chart shows the amount of hours spent by staff:
Total Hours
Description
281.10
Paralegal
1.50
Law Clerk
282.60
Total Non-Attorney Hours
3.
Below is a list of expenses according to their categories:
Total
Description
21,681.25
Experts and Consultants
836.90
Filing, Transcripts, Subpoena Services and Related Costs
Mediation and Settlement Costs
5,576.35
Copies, Postage, Phone and Fax
6,184.99
Research and Investigation
2,415.73
32,192.21
Travel, Lodging, and Parking
$68,887,43
Total
4.
More detailed billing records can be made available for the Court's review
upon request.
5.
The time above does not include those hours as set forth in the Declaration
of Troy A. Doles.
I declare under penalty of perjury that the foregoing is true and correal.
'$L
Shen O' Gorman
2

Motion for Attorneys Fees, Reimbursement of Expenses and Case

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