Merrill Lynch Reaches Tentative Settlement in ERISA Suit

Two years of litigation and negotiation later, the parties have reached a proposed agreement to settle the class action, valued at $25 million.

Merrill Lynch has reached a proposed settlement with trustees of retirement plans that filed suit over the calculation of sales charges and fee waivers.

The retirement plans in question are run by the LAAD Corporation, short for the Latin American Agribusiness Development Corporation. Trustees of the LAAD Corp filed their suit in the U.S. District Court for the Southern District of Florida.

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The case itself is relatively straightforward in retirement industry standards and is being resolved following related action by the Financial Industry Regulatory Authority (FINRA). About a year before plaintiffs filed their lawsuit, Merrill entered into a letter of acceptance, waiver and consent with FINRA, acknowledging its failure to provide appropriate sales charge waivers for mutual fund purchases by “RCMA 05 small business retirement accounts,” including the ones held by the LAAD plans and settlement class members. As the settlement agreement lays out, Merrill made two sets of remediation payments, one voluntary and another pursuant to the FINRA letter—totaling about $79 million.

Plaintiffs in their lawsuit called the remediation insufficient and sued for breaches of fiduciary duty under Section 404(a) of the Employee Retirement Income Security Act (ERISA). In addition to a “complete remediation,” plaintiffs sought under ERISA 409(a) the disgorgement of profits derived by Merrill of the result of the practices in question.

Two years of litigation and negotiation later, the parties have reached a preliminary agreement to settle the class action, valued at an additional $25 million. Plaintiffs say the settlement agreement “provides an excellent recovery” for class members, paying them “100% of their losses” and including “accounts that were incorrectly excluded from the [initial] remediation.” The remediation also gives the class members additional millions in disgorged profits.

NEXT: Merrill’s arguments fell flat 

Background information in the text of the proposed and uncontested settlement agreement should offer some important food for thought for PLANADVISER readers. As part of the proceedings, class counsel “scoured 6.5 years of Merrill’s documentation … as well as the plans’ account statements to confirm the existence of a shortfall. Beyond this, the discovery effort included "six motions to compel, 11 depositions taken or defended and a review of more than 125,000 pages of documents and dozens of complex spreadsheets.”

Class counsel also hired a “data scientist” whose work “confirmed that the shortfall amounted to millions of dollars in unremediated sales charges and unpaid interest.”

Moreover, arguments leveled by Merrill Lynch generally seemed ineffective. Merrill for example initially challenged plaintiffs’ standing on the ground that the plans “did not invest in each of the 106 mutual funds sold by Merrill to class members.” Merrill contended that plaintiffs “could represent only those plans that invested in the same 14 mutual funds purchased by the plans.” If Merrill’s standing argument had prevailed, it would have greatly curtailed the scope of the action and the number of participant accounts receiving relief. The defense also (unsuccessfully) challenged class certification on ascertainability and manageability grounds.

Finally, Merrill failed in its assertion that it was not a fiduciary under ERISA or otherwise. With this, the final argument was made that the firm should be protected by ERISA’s statute of limitations, arguing many of the sales in question took place outside the limitation period anyway. In the end, pending a fairness hearing and the district court’s approval, the company seems to feel it’s arguments along these lines are less certain to reach a positive outcome than simply settling the claims outright.

Read the full settlement proposal here

Financial Security a Prime Concern for Millennials

A recent study finds that out of all generation groups, Millennials are the most likely to choose financial security over vacation, cars and smartphones. 

Being born and raised in the 1980s and 90s—when technological advances commenced—would inherently turn Millennials into tech addicts, engrossed in the habitual use of smartphones and social media. Right?

Not so, according to a study by Voya Financial’s Annuities and Individual Life business, which revealed Millennials are more concerned about their financial security rather than the latest Facebook update. In fact, 56% of Millennials surveyed said they would opt to save their financial security over smartphones, cars or vacations. Even more surprising, Baby Boomers were found to be more attached to their smartphones than Millennials, with 50% selecting financial security over phones, cars and vacation time. Furthermore, 20% of Boomers chose to keep their smartphone over financial security, while 15% of Millennials and 14% of Gen Xers selected their gadgets as well.

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While the majority (53%) of Americans prioritize financial security, on average, 45% of Americans preferred the latest phones, vehicles or retreats over their financial security, according to the survey. Individually, 16% of Americans would keep their smartphones instead; while 15% would stick with vacations; and 14% would favor their cars over financial safety.

“We understand no one wants to sacrifice modern conveniences like our smartphones and cars to plan for retirement. Fortunately, this is where closely working with a financial professional can help every generation create a holistic plan that works for their lifestyle today, while also preparing them for tomorrow,” says Carolyn Johnson, CEO of Annuities and Individual Life at Voya Financial. “A financial professional can suggest solutions to help all Americans see financial security could be within their reach.”

Gen Xers, who are slowly nearing retirement, were the least likely to abandon vacations for financial security, with 20% selecting time off over savings. Boomers came in second, with 14% selecting vacation time, and Millennials at 13%.

The survey included gender differences as well, and found men are more attached to technology than women, with 21% less willing to hand over their smartphones, even if that meant losing financial security. Only 12% of women, on the other hand, would rather utilize their tech devices, and 51% were less disposed to yield financial security than men (56%).

“We all value the things that make our lives easier, more productive and give us joy — like spending vacation time with family and friends,” says Johnson. “And while the goal of achieving financial security may feel daunting or perhaps even unreachable, Americans recognize its importance. The good news is — with some planning and guidance from the right resource — protecting our families, our income and our financial future is something we can all achieve.”

More information about survey findings can be found here.

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