Edward Jones Self-Dealing ERISA Challenge Leads to $3M Settlement

The plaintiffs accused Edward Jones of favoring its own investments and those of its “preferred partners” in its 401(k) plan, at the expense of performance; they also raised questions about excess recordkeeping fees.

The parties in an Employee Retirement Income Security Act (ERISA) lawsuit alleging self-dealing by Edward Jones in its own 401(k) plan have reached a proposed settlement.

Beyond self-dealing, the defendants are also accused of causing the plan to pay excessive recordkeeping and plan administration fees to the recordkeeper, Mercer HR Services, which is not a defendant in the case.

Prior to the announcement of the détente, the U.S. District Court for the Eastern District of Missouri, Eastern Division, had twice denied the brokerage company’s motions to dismiss.

Following the initial denial, Edward Jones took a different strategy and moved to dismiss all claims relating to the inclusion in the plan lineup of three investment options referred to as the Edward Jones Plan Portfolios, based on an argument that the plaintiffs did not sufficiently state a claim and did not file their complaint timely. Edward Jones also argued that certain claims should be dismissed having to do with committee involvement in the selection or oversight of the plan’s recordkeeper, along with certain claims asserted by one plaintiff (because she was not a plan participant and thus lacked standing).

In response to the defendants’ motion, the plaintiffs amended their complaint by replacing the one questioned plaintiff with another; removing allegations concerning the three Edward Jones managed mutual funds; and adding the Edward Jones Profit Sharing and 401(k) Administrative Committee and its members as defendants.

After this complex set of motions and rulings, the parties have now opted to settle the matter rather than proceed to the full trial.

Details from the proposed settlement

The settlement agreement runs to nearly 70 pages and includes substantial detail; its notes that no parties, by consenting to the agreement, admit wrongdoing under ERISA or the U.S. Code.

In terms of the monetary value of the settlement, Edward Jones will pay $3,175,000 into an account that will subsequently be wired into class members’ retirement accounts. The money will only be paid to participants after the deduction of “reasonable amounts to be approved by the court for case contribution awards to plaintiffs and attorneys’ fees and expenses, administration costs, and taxes and tax-related costs.”

According to the text of the settlement agreement, for participants with an account with a positive balance at the time of distribution of the settlement amount, each participant’s class member’s entitlement amount will be allocated into their 401(k) and profit sharing accounts “in proportion to each account’s contribution to that class member’s entitlement amount.” For participants with an active account in only the 401(k) or profit sharing portions of the plan, the entire class member’s entitlement amount will be allocated to the active account.

For class members with no active account at the time of distribution, a single distribution will be made based on the combined class member entitlement amount.

The full text of the settlement agreement is available here.