Analysis of Settlement Terms in Deutsche Bank ERISA Litigation

The bank has agreed to pay $21.9 million to settle charges it benefited from including proprietary funds in its 401(k) plan.

Terms of the settlement agreement reached between Deutsche Bank and participants in the firm’s own retirement plan have been filed with the U.S. District Court for the Southern District of New York.

The settlement agreement follows a previously issued partial decision for summary judgement, reached after the district court first ruled the lawsuit claims, filed in December 2015, should not be time-barred by ERISA’s various statutes of limitation. Subsequent to that decision, the court approved class action status for the complaint in September 2017.

The case history of the litigation offers a prime example of the incredible complexity of Employee Retirement Income Security Act (ERISA) challenges. In the run-up to the settlement agreement, while plaintiffs’ motion for class certification was still pending, the plaintiffs filed a third amended complaint, adding additional allegations regarding defendants’ alleged failure to adhere to plan documents as required by ERISA and the U.S. Code.

In sum, the underlying allegations were that Deutsche Bank and other defendants violated their fiduciary duties by offering in the company’s own 401(k) plan proprietary, high-cost investments that profited the bank. According to the plaintiffs’ amended complaints, the Deutsche Bank Matched Savings Plan, as of 2009, had roughly $1.9 billion in assets and offered participants 22 “designated investment alternatives,” 10 of which were “proprietary Deutsche Bank mutual funds.” The core of the complaints’ allegations concerned the inclusion of Deutsche Bank proprietary mutual funds among the plan’s offerings. According to the complaints, “Deutsche Bank earned millions of dollars in investment management fees by retaining [these proprietary mutual funds] in the plan.”

Important to note, the Deutsche Bank defendants still deny all liability to the class representatives; deny all of the claims made in the action; deny all allegations of wrongdoing made in any of the complaints in this action; and deny that the class representatives, the plan, or any of the plan’s current or former participants suffered any losses. Defendants further maintain that they acted prudently and loyally at all times when acting in any fiduciary capacity with respect to the plan.

Details from the settlement

As stipulated by the settlement agreement, within 20 business days after the date the court’s preliminary approval order is entered, Deutsche Bank or its insurers shall deposit 33% of the gross settlement amount ($7,300,000) into the qualified settlement fund. Subsequently, within 20 business days after the settlement effective date, Deutsche Bank or its insurers shall deposit the remainder of the gross settlement amount ($14,600,000) into the qualified settlement fund.

Then, within 120 calendar days after the settlement effective date, the gross settlement amount will be distributed from the qualified settlement fund as follows: “(a) first, all attorneys’ fees and costs approved by the court shall be paid to class counsel within five business days after the settlement effective date; (b) second, any class representatives’ compensation approved by the Court shall be paid within five business days after the settlement effective date; (c) third, all administrative expenses approved by the court shall be paid within five (5) business days after the settlement effective date; (d) fourth, a contingency reserve not to exceed an amount to be mutually agreed upon by the settling parties and approved by the court shall be set aside by the settlement administrator for: (1) administrative expenses incurred before the settlement effective date but not yet paid, and (2) administrative expenses estimated to be incurred after the settlement effective date but before the end of the settlement period; and (e) fifth, the net settlement amount will be distributed pursuant to the plan of allocation.”

After this process, no later than February 15 of the year following the calendar year in which Deutsche Bank makes a transfer to the qualified settlement fund pursuant to the terms of the settlement agreement, the firm “must timely furnish a statement to the escrow agent, or the settlement administrator on its behalf, that complies with Treasury Regulation 1.468B-3(e)(2), which may be a combined statement under Treasury Regulation 1.468B3(e)(2)(ii), and shall attach a copy of the statement to their federal income tax returns filed for the taxable year in which Deutsche Bank, its insurers, or agents make a transfer to the qualified settlement fund.” After setting out this groundwork, the settlement agreement presents a 10-page “plan of allocations,” describing in detail how class members will be compensated in due course.

Prospective relief also included

Beyond the monetary settlement terms already outlined, the settlement agreement includes substantial description of prospective relief to be provided by Deutsche Bank.

“All decisions regarding the selection, retention, removal, or evaluation of any Deutsche fund in the plan shall be delegated to an independent fiduciary appointed pursuant to ERISA,” the agreement states. “Deutsche Bank shall retain the independent fiduciary to provide a written opinion, within six months of the settlement effective date, regarding whether any of the existing Deutsche funds or non-Deutsche funds in the plan should be replaced with alternative investment vehicles (e.g., separate accounts or collective trusts).”

Also notable is this description of the establishment of a “settlement website” to help distribute relevant information to stakeholders: “On or before the date that the settlement notices are mailed, the settlement administrator will establish a settlement website on which it will post the following documents or links to the following documents: the third amended complaint, settlement agreement and exhibits thereto, settlement notices, former participants claim form, preliminary approval order and any other court orders related to the settlement, and any other documents or information mutually agreed upon by the settling parties in writing. When filed, the settlement administrator will also post or include links to the motion for attorneys’ fees and costs, administrative expenses, and class representatives’ compensation (and any documents submitted in support). … The settlement administrator will take down the settlement website at the conclusion of the settlement period.”

The full text of the decision is available here