Compliance

Sponsor Reaches Settlement Agreement with Merrill Lynch

Plaintiffs say the settlement agreement “provides an excellent recovery” for class members, paying them “100% of their losses.”

By John Manganaro editors@plansponsor.com | June 20, 2017
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Merrill Lynch has reached a proposed settlement with trustees of retirement plans that filed suit over the calculation of sales charges and fee waivers.

The retirement plans in question are run by the LAAD Corporation, short for the Latin American Agribusiness Development Corporation. Trustees of the LAAD Corp filed their suit in the U.S. District Court for the Southern District of Florida.

The case itself is relatively straightforward in retirement industry standards and is being resolved following related action by the Financial Industry Regulatory Authority (FINRA). About a year before plaintiffs filed their lawsuit, Merrill entered into a letter of acceptance, waiver and consent with FINRA, acknowledging its failure to provide appropriate sales charge waivers for mutual fund purchases by “RCMA 05 small business retirement accounts,” including the ones held by the LAAD plans and settlement class members. As the settlement agreement lays out, Merrill made two sets of remediation payments, one voluntary and another pursuant to the FINRA letter—totaling about $79 million.

Plaintiffs in their lawsuit called the remediation insufficient and sued for breaches of fiduciary duty under Section 404(a) of the Employee Retirement Income Security Act (ERISA). In addition to a “complete remediation,” plaintiffs sought under ERISA 409(a) the disgorgement of profits derived by Merrill of the result of the practices in question.

Two years of litigation and negotiation later, the parties have reached a preliminary agreement to settle the class action, valued at an additional $25 million. Plaintiffs say the settlement agreement “provides an excellent recovery” for class members, paying them “100% of their losses” and including “accounts that were incorrectly excluded from the [initial] remediation.” The remediation also gives the class members additional millions in disgorged profits.

NEXT: Merrill’s arguments fell flat 

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