$17.5M Settlement Reached Over ‘Too Conservative’ Plan Investments

The plan’s investment policy statement allegedly called for 70% of the plan’s assets to be allocated into domestic fixed income options and 30% to be put into equities.

A settlement agreement has been filed in an Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit filed against DeMoulas Super Markets and several of its top executives.

Among other nonmonetary elements, the settlement calls for a payment of $17.5 million to be made to the plan and its participants, the dispersal of which will be tasked to an independent fiduciary.

This development comes a little more than seven months after a federal district court judge denied the defense’s motion to dismiss the suit, in which the plaintiffs alleged the profit-sharing plan sponsor invested assets of the plan too conservatively for its employee base and failed to prudently manage the plan’s investments. DeMoulas Super Markets and its executives admit no wrongdoing in the settlement, which bars future related claims by settlement class members.

According to court documents, the DeMoulas (Restated) Profit Sharing Plan and Trust had approximately 11,000 to 13,000 participants during the proposed class period, “with a wide range of retirement needs and objectives.” The plan had between $580 million and $756 million in assets between 2013 and 2017, according to the documents, and it contained one investment into which participants were automatically enrolled. According to the plaintiffs, the plan’s investment policy statement (IPS) called for 70% of participants’ assets to be automatically allocated into domestic fixed income options and 30% to be put into equities.

The plaintiffs alleged that the plan’s “one-size-fits-all” default target allocations were inappropriate even for participants nearing retirement, but were especially inappropriate for participants who are decades away from retiring.

The newly filed settlement agreement states that, during the course of the action, the settling parties engaged in substantial discovery, including the production of more than 35,000 pages of documents by defendants. As is often the case in complex and sizable ERISA fiduciary breach disputes reaching such an outcome, several rounds of mediation preceded the settlement agreement. One unique feature in this case is that the plan in question is 100% funded by the employer, showing that fiduciary liability can arise even when employee dollars aren’t at stake. Par for the course, the settlement agreement stipulates that up to a third of the gross settlement amount can be used to pay the plaintiffs’ attorney fees—in this case up to $5,833,333.

Among the nonmonetary provisions in the settlement is a requirement that the defendants “shall not keep more than 10% of plan assets, measured quarterly, in cash or cash equivalents,” and they “shall modify the plan’s investment policy statement to increase the plan’s annual return target by 100 basis points [bps].”

The full text of the settlement agreement is available here