A term of settlement — and plaintiffs’ attorneys’ fees — in an equity lawsuit may be undermined by the Labor Department’s recent comments on cryptocurrency — specifically, concerns about what those comments mean for the role of self-directed brokerage accounts.
In January, T. Rowe Price settled a lawsuit alleging the company was only offering equity to participants in its own 401(k) plan — one of the terms of the settlement being its agreement to add a feature brokerage window” which will allow plan participants, for the first time, to invest in funds other than T. Rowe Price Funds (within 6 months of the settlement date).
But an April 25 letter from T. Rowe Price’s attorney to Chief Judge James K. Bredar of the United States District Court for the District of Maryland raises “…for consideration by the Court a question regarding the value of the brokerage window provided for in the Agreement settlement that may affect the Court’s assessment of the reasonableness of the plaintiffs’ claim” – in particular the fees and expenses requested for the plaintiffs’ attorneys, which represent more than half of the settlement in cash of $7 million.
Terms of payment
This settlement acknowledges that this is a high percentage based on cash settlement (bearing in mind that these types of fees are usually between 25% and 30%), although they claim that it is to (only) “19% of the $18 million total monetary benefit that could accrue to the class as a result of the proposed settlement (i.e. the sum of the settlement amount – $7 million – and the appreciated value of the payment special – $11 million).The value of adding the brokerage window option was specifically mentioned, which they said at the time “…has the potential to be the most more valuable the settlement to plan participants, as they could potentially use it to mitigate or eliminate the large losses of those funds in the future.
Counsel for T. Rowe Price explains that “…under the terms of the Settlement Agreement, Defendants may remove the Brokerage Window from the Plan prior to the end of the ten-year period otherwise provided if Defendants reasonably conclude that there has been a change in law or regulation relating to fiduciary oversight or reporting requirements for investment offerings available through a brokerage window that makes such oversight or reporting materially more cumbersome or costly than it is ‘is today.
And this, the letter states, may have happened on March 10 when the DOL issued its Compliance Assistance Release No. 2022-01, after which the letter notes, “A number of commentators have suggested that the recent guidance from the Department of Labor (DOL) raises questions about possible changes to the regulatory environment which, if they were to ultimately materialize, could lead defendants to conclude that there has been the type of change contemplated in pursuant to Section 7.4 of the Settlement Agreement.”
The letter goes on to explain that “the DOL has not previously alluded to the possibility that there may be fiduciary screening and monitoring duties with respect to individual investment options – of any kind – that are offered in a brokerage window And while the DOL guidelines focus on cryptocurrencies, industry commentators have observed that it can be difficult to limit a potential obligation to screen and monitor individual investments offered through a brokerage window. brokerage window to investments in cryptocurrencies only.
“If the DOL were to require fiduciary oversight of individual investment options offered through brokerage windows, the oversight obligations associated with maintaining such an offering in the plan would become significantly more onerous and costly than they currently do. were at the time the settlement agreement was reached,” the letter notes.
The letter ends by explaining: “As things currently stand, the Defendants do not believe that the Plan Trustees have a legal duty to select and monitor the individual investment options offered through the brokerage windows. . However, in light of the issues that have been raised based on the DOL’s recent cryptocurrency guidance, Defendants continue to assess DOL’s statements and enforcement activity for any indications that the DOL has changed. its policy in a manner that would affect the fiduciary obligations of the defendants with respect to the offering of a brokerage window in the plan.