Posted October 25th, 2021.
By Lauren Berg
Law360 (October 25, 2021, 8:00 PM EDT) — A certified class of nearly 200,000 participants in a 401(k) plan asked an Illinois federal judge to greenlight their $13.75 million deal resolving claims that the pharmacy chain Walgreens cost workers $300 million by steering their retirement savings into mutual funds that brought subpar returns.
The class of about 195,000 current and former participants in the Walgreen Profit-Sharing Retirement Plan told U.S. District Judge Charles R. Norgle that under the proposed settlement, Walgreens and the other defendants will create a $13.75 million fund, and the Northern Trust Focus Retirement Trusts will be removed from the 401(k) plan.
The plan participants said they reached the deal with the defendants — Walgreens, the retirement plan committee of the 401(k) plan, the trustees of the retirement plan trust and Walgreens’ board of directors — following extensive discovery, a mediation session and months of negotiation.
“This extensive process allowed the parties to fully understand the value of their claims and the risks of litigation,” according to the motion for preliminary approval.
Along with creating the fund and ousting the Northern Trust target-date funds from the plan, the defendants have agreed to use an investment adviser to provide ongoing monitoring services for the plan, according to the motion. An independent fiduciary will also review the settlement for fairness, the class said.
The plaintiffs sued in August 2019, alleging Walgreens loaded its profit-sharing retirement plan with a group of poorly performing target-date retirement funds in 2013 and has refused to remove them “despite a market teeming with better-performing alternatives.”
That has caused the plan’s participants to lose out on nearly $300 million in retirement savings since 2014, according to the suit.
The participants claim the Northern Trust funds performed worse than 70% to 90% of its peer funds for nearly a decade. The funds have also consistently failed to meet their benchmark indexes since Northern Star launched them in 2010, according to the suit, which alleged violations of the Employee Retirement Income Security Act.
Walgreens tried to ditch the suit, calling it an example of “Monday-morning quarterbacking,” and arguing the funds it picked were conservative and inexpensive compared to other options. The company said the plaintiffs didn’t point to any shortcomings in how it picked the investments and oversaw the plan.
But Judge Norgle last March dashed the motion, saying it was too early to tell if the workers’ claims about the 401(k) plan’s underperformance held water.
“Plaintiffs have met the notice-pleading requirements at this stage of the litigation, and discovery should proceed on both counts,” the judge said. “Plaintiffs have alleged that a prudent fiduciary would have acted differently.”
Judge Norgle did, however, agree that the workers can’t challenge two of the funds at issue because they didn’t actually invest in them. That means they can still challenge eight funds.
In February, the judge certified a 240,000-person class, saying there were enough people who could make similar claims, the 15 named plaintiffs pledged to protect the class’ interests, and they had hired counsel well versed in benefits law. In Friday’s motion, the class said further data from the plan’s recordkeepers shows there are roughly 195,000 members.
They urged Judge Norgle to let them move forward with the deal.
The plaintiffs’ counsel said it will apply for attorney fees and costs of about $4.6 million, which is one-third of the settlement fund.
And the named plaintiffs — Michael W. Allegretti, Chandra V. Brown-Davis, Yolanda Brown, Ronald Dinkel, Siobhan E. Fannin, Kristie Kolacny, Dianna J. Martin, Sherri Nelson, Becky S. Ray, Scott C. Read, Timothy M. Renaud, Lisa Smith, Susan Weeks and Andro D. Youssef — will request representative awards of no more than $15,000 each, the motion states.
The class said the settlement provides fair and reasonable compensation, and avoids the “significant risk” of continued litigation. Class counsel’s damage expert calculated damages to be about $34 million, and this settlement compares favorably to other ERISA settlements, according to the motion.
There is currently no opposition to the settlement, the motion states, and all the class representatives support the deal.
Counsel for the class told Law360 on Monday they are “pleased the matter has been resolved.”
Representatives for Walgreens and the other defendants did not immediately respond to requests for comment.
The class is represented by Charles Field, David Tracey, Kevin Sharp and Danielle Fuschetti of Sanford Heisler Sharp LLP and Anthony L. Parkhill and Ben Barnow of Barnow and Associates PC.
Walgreens is represented by Sari M. Alamuddin, Deborah S. Davidson and Abbey M. Glenn of Morgan Lewis & Bockius LLP.
The case is Michael W. Allegretti et al. v. Walgreen Co. et al., case number 1:19-cv-05392, in the U.S. District Court for the Northern District of Illinois.
—Additional reporting by Michael Angell, Lauraann Wood and Adam Lidgett. Editing by Marygrace Murphy.