Teva Pharma Excessive Fee Case Reaches Sizable Settlement

The pharmaceutical company has agreed to pay more than $2.5 million to settle an ERISA excessive fee lawsuit, out of which up to $850,000 can be paid to the plaintiffs’ attorneys.

A joint settlement agreement motion has been filed in the Employee Retirement Income Security Act (ERISA) excessive fee lawsuit targeting Teva Pharmaceuticals USA.

News of the settlement comes nearly eight months after the U.S. District Court for the Eastern District of Pennsylvania rejected the defense’s motion to dismiss the suit. The agreement includes no admission of wrongdoing on the part of the Teva defendants, but the firm will pay $2.55 million to end the litigation. The agreement also includes an upper limit on the attorneys’ fees that can be paid to the plaintiffs’ legal representatives, set at $850,000.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

In the underlying suit, the plaintiffs—three former employees of Teva Pharmaceuticals USA—claimed that the defendants breached their ERISA fiduciary duties by imprudently managing the company’s retirement plan. Distinguishing this challenge from other ongoing fiduciary breach lawsuits is the fact that the plaintiffs did not challenge the performance of any plan investment. Rather, their claims focused more on the fees paid by the plan’s participants, alleging the defendants violated ERISA’s duties of prudence and loyalty by failing to select the least expensive investment options and permitting participants to pay excessive recordkeeping fees.

As is often the case in such settlements, the agreement stipulates that the settlement administrator shall, at the written direction of class counsel, cause the settlement fund’s escrow agent to invest the money in short-term United States agency or Treasury securities (or other instruments backed by the full faith and credit of the United States government or an agency thereof). The agent is further directed to reinvest the proceeds of these investments as they mature in similar instruments at their then-current market rates.

The settlement is a victory for the increasingly well-known law firm Capozzi Adler, which has filed numerous lawsuits in the past several years that echo the claims leveled against Teva. The full texts of the settlement agreement and accompanying orders and documents are available here

How Human Capital Should Dictate Asset Allocation

One's age should determine proper asset allocation, as well as retirement savings rates, speakers at DCIIA's Academic Forum said.

At the Defined Contribution Institutional Investment Association (DCIIA)’s Academic Forum held Thursday, speakers discussed the impact of age on savings and diversification in a session called “Human Capital: Impact on Retirement Savings.”

“Human capital refers to an individual’s skills and abilities over the course of their life,” said Dale Kintzel, senior financial economist, Ginnie Mae. One’s age should determine proper asset allocation, with younger people able to take more risk and having more flexible human capital, Kintzel says. This guides the approach to target-date and lifecycle funds, which scale back equity, or risk, exposure as a person nears retirement, he said.

Get more!  Sign up for PLANSPONSOR newsletters.

“More and more people are following asset allocation advice,” Kintzel said, noting that assets in target-date funds (TDFs) have soared from $4.8 billion in 2000 to $942 billion in 2019.

He said that incorporating longevity annuities into a TDF or lifecycle account for those in retirement would not only guarantee them income but allow them to allocate a portion of their portfolio to riskier assets.

“The average person is not saving enough for retirement, and we estimate that three-quarters of Americans enrolled in defined contribution [DC] plans are not saving enough,” said Francisco Gomes, a professor of finance at the London School of Business.

Gomes said studies have explored whether a mandatory savings of 5% made a difference and found that it didn’t. A better alternative is to start people out at a 4.5% savings rate and to increase that by 0.25 percentage points each year up to a 15% cap, he noted.

Looking at the prospects for late Baby Boomers, those born between 1960 and 1964, and how macroeconomic shocks impact their retirement savings, Anqi Chen, assistant director of savings research at the Center for Retirement Research at Boston College (CRR), said the Great Recession decreased their wealth significantly, with many members of this group losing their jobs and not being able to find new employment.

“Today, half of U.S. households are at risk of not maintaining their standard of living in retirement,” she said. “Late Boomers were not behind earlier in their work cycle, but they were hit by the Great Recession.”

It is too early to tell how COVID-19 will impact Generation X, but Chen said she expects to see the same patterns emerge.

«