$39.5M settlement agreement reached in ERISA 401(k) excessive fee case
Proposed settlement seeks court approval for the deal, which would benefit some 33,000 participants in McKinsey’s retirement plans.
McKinsey & Co. Inc. has agreed to pay $39.5 million to settle a class action lawsuit claiming that it had illegally profited from a subsidiary charging excessive fees to manage expensive investment options packed into its employees’ 401(k) plans.
The proposed settlement seeks court approval for the deal, which would benefit some 33,000 people who had invested in McKinsey’s retirement plans, according to an Aug. 10 filing in the U.S. District Court for the Southern District of New York.
According to court documents, the money would go toward a common fund after accounting for attorney fees and costs, administrative expenses and an award for the class representative, Tushar Bhatia, who sued McKinsey and its subsidiary, MIO Partners Inc., for alleged violations of the Employee Retirement Income Security Act in February 2019.
The deal also included “meaningful prospective relief,” including assurances that McKinsey would hire an independent investment consultant to review its investment options for a period of three years and step up its recordkeeping services associated with its plans.
Under the proposal, class members agreed to release all claims against McKinsey and MIO arising from the alleged wrongdoing.
The deal still needs to be approved by U.S. DIstrict Judge Gregory H. Woods of the Southern District of New York. The judge on Aug. 13 directed the parties to submit filings in support of the agreement and its allocation among class members.
If approved, it would put to rest claims for breaches of fiduciary duty, prohibited transactions and equitable restitution under ERISA, which asserted that MIO’s funds had performed worse than alternative, lower-cost investment options, while generating more than $20 to $36 million per year in investment management fees.
The parties last year agreed to mediation, after McKinsey moved to dismiss the complaint and invoked provisions of the plans that required it to be resolved out of the public view. According to the settlement proposal, McKinsey and its subsidiary submitted “several thousand pages” of documents related to the plans, as well as a “significant volume” of class data and investment data.
They reached a settlement-in-principle May 26, following “extensive arms-length negotiations” before mediator Hunter R. Hughes III, who has worked to resolve many such disputes through mediation, the filing said.
According to court documents, the settlement class would include “ all participants and beneficiaries” in the profit-sharing retirement plans from February through the entry of a preliminary approval order.
Woods has not yet ruled on the motion.
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