Alert December 14, 2011

Settlement in Major 401(k) Fee Case Is Preliminarily Approved

On December 5, 2011, the U.S. District Court of the Western District of Missouri preliminarily approved an agreement by the parties to settle the putative class action claims asserted by participants in Wal-Mart Stores Inc.’s 401(k) plan. 

In Braden v. Wal-Mart Stores, Inc., et al., Case No. 6:08-cv-3109-GAF (W.D. Mo.), a plan participant asserted putative class claims against the plan’s employer-sponsor and the plan’s named fiduciary, alleging, among other things, excessive and undisclosed fees and imprudent selection of investment options, which included 10 retail class mutual funds, most of which were actively managed.  The plaintiff also alleged that the plan’s directed trustee and recordkeeper was a relevant ERISA fiduciary and breached duties by offering retail mutual funds that paid it revenue sharing, allegedly resulting in millions of dollars in undisclosed fees. 

As reported in Goodwin Procter’s June 22, 2010 Financial Services Alert, in 2009, the U.S. Court of Appeals for the Eighth Circuit had reversed the district court’s dismissal of the action under Fed. R. Civ. P. 12(b)(6), holding that the plaintiff had adequately stated claims for breach of fiduciary duty and prohibited transactions against the sponsor and named fiduciary where the complaint alleged that the named fiduciary entered an arrangement with a service provider for “undisclosed amounts of revenue sharing payments in exchange for services rendered to the Plan,” among other allegations addressed to investment options selected for the plan.  

Under the terms of the settlement, the defendants will pay a total of $13.5 million, the net proceeds of which (after the payment of attorneys’ fees and costs and any administrative expenses) will be used to pay plan expenses.  In addition to this monetary payment, the defendants agreed to certain non-monetary relief concerning fund selection and disclosures to plan participants. 

The defendants agreed that for a two-year period following the settlement, plan fiduciaries will retain an investment advice fiduciary to provide independent advice and recommendations on selection and monitoring of plan investments, will continue to make web-based investment education resources available to plan participants, and will continue the plan’s ongoing process of removing from the plan’s lineup retail mutual funds or funds that pay 12b-1 fees or revenue sharing.  Plan fiduciaries also agreed to consider, where and when appropriate, adding low-cost, passively managed investment vehicles to the plan in addition to the two index funds already offered. 

The defendants further agreed to comply with regulations that govern mandated disclosures to participants, and to provide participants access to investment cost calculation tools. 

A final approval hearing is expected to take place on March 7, 2012.