Compliance May 9, 2023

Aon, Schneider Electric Agree to $200,000 Settlement

Many claims from 2020 complaint were dismissed, leaving settlement subject to final approval at a September fairness hearing.   

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Aon Investment Consultants and Schneider Electric Holdings Inc. have completed the terms of a settlement agreement with retirement plan plaintiffs, closing for $200,000 a 2020 fiduciary breach lawsuit, according to a judge’s order to approve the unopposed March motion from the plaintiffs.

The lawsuit was brought by participants in the Schneider Electric 401(k) Plan alleging plan fiduciaries and Aon (then known as Aon Hewitt Investment Consultants) breached their fiduciary duties and engaged in prohibited transactions in violation of the Employee Retirement Income Security Act. The plaintiffs claimed that instead of acting in the exclusive best interest of plan participants, the defendants selected and retained proprietary Aon collective investment trusts. 

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U.S. District Judge Nathaniel Gorton, presiding in U.S. District Court for the District of Massachusetts, on Friday signed the order to allow the settlement agreement. in Turner et al. v. Schneider Electric Holdings Inc..   

“The settlement agreement is sufficiently fair, reasonable, and adequate to warrant sending notice of the settlement class,” Gorton wrote.

The order directed Schneider Electric or its insurer to deposit $200,000 into an interest-bearing settlement account—The Turner et al. v. Schneider Electric Holdings Inc. et al. Litigation Settlement Funds—and directed the funds be used to compensate members of the class, pay plaintiff’s attorneys’ fees and administrative expenses. Any remainder would be distributed to the plan for related expenses, the judge wrote.

The settlement amount will be spread across some 26,000 total potential class members, with deductions for legal fees, costs and to award nine named plaintiffs $500 each.

Analytics Consulting, selected as the settlement administrator, will be paid an estimated $3,845, according to the order.

Gorton wrote in the approval order that the settlement was executed after the parties engaged in substantial litigation and after settlement negotiations had continued within that period, including a full-day mediation and summary judgment briefing culminating in an order disposing of substantially all the claims adversely to the plaintiffs, he wrote.

The judge’s order appointed class representatives and class counsel; certified the settlement class as applying to all current participants and beneficiaries of the Schneider Electric 401(k) Plan with an active account as of year-end 2022, excluding the defendants; appointed the settlement administrator; defined the class period as running from May 26, 2014, through December 31, 2022; and scheduled a fairness hearing at the Massachusetts District Court on September 19, according to the filing.

At the fairness hearing, the court will consider final approval of the settlement.   

Considering the defendants’ motions for dismissal, Gorton allowed the lawsuit to proceed in March 2021, although he  ruled out several of the plaintiffs’ claims.

The plaintiffs were represented in court by attorneys from the law firm Schlichter Bogard & Denton LLP, based in St. Louis, with local counsel provided by Milton, Massachusetts-based Naumes Law Group. The defendants were represented by Washington, D.C.-based lawyers from the firms McDermott Will & Emery LLP and O’Melveny and Myers LLP.

Representatives for Aon said the firm is “pleased the court previously granted Aon’s motion for summary judgment and has now granted the motion for preliminary approval of class settlement to fully resolve this matter. We will continue serving our client to maximize [its] employees’ retirement savings.” 

Schneider Electric did not return requests for comment on the lawsuit. 

In another case involving some of the same parties, Aon and plan sponsor Astellas Pharma US Inc. have settled a complaint brought by current and former participants in the pharmaceutical company’s 401(k) plan over Aon’s selection of its own proprietary CITs in the plan, according to a Friday court filing.

Terms of the settlement were not disclosed but should be filed before June 9, according to the filing in U.S. District Court for the Northern District of Illinois, Eastern Division.

The plaintiffs in the Astellas case were also represented by the Schlichter firm. Astellas was represented by Chicago-based Morgan, Lewis & Bockius LLP and Aon was represented by New York-based O’Melveny and Myers and Chicago-based Foley and Lardner LLP.  

Products May 9, 2023

New Firm Seeks to Advise Plan Sponsors on How to Incorporate Annuities

The fiduciary consultant is offering consulting and education for plan sponsors and participants on integrating annuities into 401(k) plans.

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A new registered investment adviser, Annuity Research & Consulting, has entered the market aiming to help plan sponsors that want to offer annuities to their participants and need help with the insurance provider selection process. 

Michelle Richter-Gordon, the executive director at the Institutional Retirement Income Council, and Mark Chamberlain, the founder of the Open Architecture 2020 Group, announced Tuesday the formation of their fee-only consultancy for 401(k) retirement plans and their recordkeepers. 

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ARC’s goal is to “transform the DC industry’s approach to investigating lifetime income options by bringing an outside expert specialist resource to those who seek objective, thorough and analytical annuity advice,” the introductory press release stated.  

After teaching together at the Center for Board Certified Fiduciaries, Richter-Gordon and Chamberlain say they realized there are many RIAs who are unlikely to become annuity experts, so they decided to lead by example. 

Richter-Gordon and Chamberlain have a combined 60 years of experience in both the insurance and asset management industries, which they say makes them unique and enables them to analyze complicated annuity contracts.  

“When you combine an annuity contract, which is considered by most to be pretty complex, with the intricacies of the asset management industry … there’s a need for plan sponsors to understand what’s going on under the hood,” Chamberlain says. “What’s unique about what we’re doing is combining our two experience sets in such a way that we can bring an ERISA-standard solution to sponsors who seek objective information.” 

Chamberlain says ARC’s business model does not involve the firm getting any commissions from insurance products, nor do they receive fees based on assets under management. Instead, the firm charges hourly and project-based fees.  

As a service provider, ARC aims to offer “unbiased search capabilities, a rigorous selection process and/or proper benchmarking capability for measuring the cost/benefit tradeoffs and monitoring them at a prudent expert level,” according to the press release. 

Richter-Gordon adds that ARC is not limited to recommending certain annuity providers; rather, it has access to the “whole universe” of providers. 

Among the main concerns Richter-Gordon sees among plan sponsors and the advisory community when adding annuities into a plan are litigation risk and the credit worthiness of certain insurance companies. 

“We believe that rating agencies do not accurately capture important information about [how] certain insurers are more heavily exposed to private equity ownership or opaque reinsurance transactions, that we think are important to know about to protect oneself as a fiduciary against the possibility that an insurer is not able to deliver on its promises in a plan environment,” Richter-Gordon says. 

Not only does the new firm offer ERISA 3(38) and 3(21) fiduciary capabilities, but it can also provide non-fiduciary consulting and education for both plan sponsors and participants to help them think about ways to integrate annuities with traditional 401(k) investment policy to manage participants’ longevity risk. 

Chamberlain says there is some recent market evidence suggesting that about half of plan sponsors are looking to focus only on a decumulation solution for their participants, while members of the other half are more interested in exploring the turnkey approach to the full retirement lifecycle—a solution for the accumulation phase, the nearing-retirement phase and the decumulation phase.  

“That’s the conversation that needs to happen before you find the right fit on the products side,” Chamberlain says.  

Richter-Gordon says ARC already is equipped with data about the various annuity products and insurers available in the market, and the firm can match plan sponsors with the appropriate products based on the criteria in their plan, using a 10-step process they have developed.  

Their process is engineered to meet or exceed the current safe harbor guidelines in ERISA Section 404(e), according to the press release. Chamberlain says ARC dissects annuity contracts to see who owns the risks: the insurance company or the consumer.  

These risks can include anything from counterparty risks to liquidity risks to an initial return versus an inflation-adjusted return, according to Chamberlain.  

“Counterparty risk management is one of the ten risk factors in our process that explains why most of the research we do is qualitative – thorough annuity due diligence does not lend itself well to data-based computer tools,” Chamberlain says. “We’re trying to change the conversation away from fintech quantitative solutions to more of a boutique research firm that can do institutional quality research the way institutional consultants have traditionally approached asset management.…” 

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