Fiduciaries of a retirement plan sponsored by DST Systems Inc.—including New York City-based investment management firm Ruane, Cunniff & Goldfarb Inc.—will pay more than $124.6 million to resolve a 7-year-old ERISA lawsuit according to a settlement announced by the Department of Labor on Monday.
The settlement resolves litigation by the U.S. Department of Labor and private plaintiffs against Ruane, Cunniff & Goldfarb, DST Systems and individual defendants, pending court approval of the related class action settlement.
While the original suit was filed back in 2016 by former DST employee and 401(k) participant Clive Cooper, the DOL filed suit in October 2019 in the U.S. District Court for the Southern District of New York alleging that defendants violated the Employee Retirement Income Security Act (ERISA) by failing to diversify the plan’s assets to minimize the risk of large losses and failing to act prudently and loyally in managing these assets when the investment manager invested the plan’s assets on a highly concentrated basis in a select number of securities.
“This settlement restores hard-earned retirement funds for more than 9,000 participants in DST Systems’ retirement plan.”
EBSA’s Lisa M. Gomez
The breach of fiduciary duty claims center around the DST Systems plan’s investment manager investing much of the plan’s assets in the stock of a single pharmaceutical company, Valeant Pharmaceuticals International Inc. The concentration in Valeant stock grew to more than 45% of the plan’s assets. Soon after, Valeant’s stock fell dramatically in price, and the plan’s participants experienced significant losses—tens of millions of dollars—to their retirement savings because of the plan’s concentrated portfolio.
“This settlement restores hard-earned retirement funds for more than 9,000 participants in DST Systems’ retirement plan. The U.S. Department of Labor is determined to investigate and seek remedies for potential violations of the Employee Retirement Income Security Act,” said Assistant Secretary for Employee Benefits Security Lisa M. Gomez.
DST Systems is an information processing software and service provider based in Kansas City, Mo., that was acquired in 2018 by SS&C Technologies Holdings Inc. in Windsor, Conn., for approximately $5.4 billion. It was one of the largest private employers in Kansas City.
An investigation by the department’s Employee Benefits Security Administration identified ERISA violations, and found that Ruane, Cunniff & Goldfarb controlled 100% of the investments of the profit-sharing portion of the plan, and that DST Systems and individual defendants failed to monitor the investment manager’s activities properly. Since the events that gave rise to the Secretary’s complaint, Ruane, Cunniff & Goldfarb has taken steps to limit the investment concentrations of other ERISA-covered plans it manages.
“This resolution protects the rights and benefits of the plan’s participants and shows that we will aggressively pursue appropriate legal action to ensure those rights and benefits,” said Solicitor of Labor Seema Nanda. “Fiduciaries to retirement plans must comply with the Employee Retirement Income Security Act’s safeguards—including diversification—to protect workers’ retirement benefits and fulfill their own fiduciary responsibilities.”
NAPA reports that Class Counsel (Miller Shah LLP and Olivier & Schreiber LLP) may request up to $9,500,000 in attorneys’ fees and expenses “based upon the value of the Settlement, the time they have devoted to these actions, and the expenses they have advanced on behalf of the Settlement Class.”
Arbitration Counsel will ask the Court for an award of attorneys’ fees and expenses of up to $15,500,000 “based upon the work in the arbitrations and the awards of fees and expenses they received in arbitration.” Collectively, the anticipated requests total less than 22% of the relief provided to the plan under the settlement.
The Settlement Proposal notes that given the “calculations of realistic and highly defensible damages, the Settlement recovery of $124,625,000 (including the Civil Penalties assessed by the Department of Labor)—in excess of realistically recoverable damages estimated by Plaintiffs and their experts—is extraordinary.”
SEE ALSO:
• The Arbitrability of ERISA Claims
• DOL Prioritizing ESG, New Fiduciary Rule and SECURE 2.0 Projects, Says Gomez