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Merrill to Pay $25M to Settle Excessive Fee Dispute in Retirement Plans

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A Miami court ruled in favor of a multimillion-dollar class action settlement against Merrill Lynch after two years of litigation.

Merrill Lynch must pay $25 million in a class action settlement brought by the trustees of two Miami-area retirement plans in a case filed in the U.S. District Court of the Southern District of Florida.

The plaintiffs — trustees for the LAAD Retirement Plans — asked a federal judge in the Southern District of Florida on Nov. 28 to grant final approval to the settlement. A fairness hearing was then held on Dec. 13, and the judge approved the settlement agreement on Dec. 18.

The suit was filed in 2015 on behalf of two LAAD plans that suspected Merrill’s $79 million refund to thousands of small business retirement customers — a portion of which resulted from a FINRA fine — was insufficient.

In June 2014, Merrill entered into a letter of acceptance, waiver and consent with the Financial Industry Regulatory Authority, in which Merrill acknowledged its failure to provide appropriate sales charge waivers for mutual fund purchases for certain charities and retirement accounts.

Typically, Class A shares of mutual funds have lower fees than Class B and C shares, but charge customers an initial sales charge. Many mutual funds waive their upfront sales charges for retirement accounts and some waive these charges for charities.

According to FINRA, at various times since at least January 2006, Merrill Lynch did not waive the sales charges for affected customers when it offered Class A shares. FINRA found that this resulted in approximately 41,000 small-business retirement plan accounts, and approximately 6,800 charities and 403(b) retirement accounts, either paying sales charges for Class A shares, or paying higher fees and expenses for other share classes.

Merrill made two sets of remediation payments — one voluntary and a second pursuant to the FINRA letter — to most of the accounts of present and former customers affected. The remediation payments totaled about $79 million, according to the suit.

The LAAD Retirement Plan trustees — suspecting their remediation payments were insufficient — asked Merrill to explain the methodology by which their remediation was calculated.

When they did not receive a satisfactory response, they filed suit alleging breaches of fiduciary duty under ERISA. In addition to a complete remediation, they also sought the disgorgement of profits derived by Merrill as a result of the sales.

The settlement agreement they reached with Merrill features a corrective remediation payment of at least $8.8 million, which includes the deficient remediation payments and interest; and an additional recovery of about $16 million in disgorged profits.

The settlement also includes attorney’s fees equal to 35% of the settlement amount ($8.75 million), plus litigation expenses (roughly $223,000), and the case contribution fee ($150,000) — to be paid from the settlement amount.

Vanderbilt Law professor Brian Fitzpatrick says in the motion for final approval of the settlement that he is is “not aware of any class action settlement that has recovered so much more than the class’s damages.”

Fitzpatrick has conducted a comprehensive empirical study of federal class settlements and maintains a large database of class settlement data.


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