Merrill Lynch to Pay $25M in Lawsuit Over Fees in Small 401(k)s

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By Carmen Castro-Pagan

Merrill Lynch, Pierce, Fenner & Smith Inc. will pay $25 million to settle a lawsuit that accused the broker-dealer firm of profiting from excessive fees charged to small 401(k) plans ( Fernandez v. Merrill Lynch, Pierce, Fenner & Smith, Inc. , S.D. Fla., No. 1:15-cv-22782-MGC, motion for preliminary approval of class settlement filed 6/8/17 ).

The settlement will make class members whole by paying them 100 percent of their losses, according to an unopposed motion for preliminary approval of class settlement filed June 8 in federal court in Florida. The deal features a “corrective remediation payment” totaling at least $8.8 million and a “disgorgement payment” of $16.2 million, the motion said. Class counsel will request attorneys’ fees equal to 35 percent of the settlement payment, or $8.75 million, the motion said.

The settlement, if approved by the court, will end a two-year litigation dispute between the broker-dealer and trustees of two retirement plans that held accounts with Merrill Lynch—the LAAD Retirement Plan and the LAAD Corp. S.A. Money Purchase Retirement Plan.

The trustees accused Merrill Lynch of breaching its Employee Retirement Income Security Act fiduciary duties by charging excessive fees on smaller retirement plans in connection with the purchase of mutual fund shares that allegedly should have been purchased at discounted rates. The deal comes months after Judge Marcia G. Cooke issued a one-page order denying Merrill Lynch’s motion to dismiss.

“We think the settlement makes sense for both sides,” class counsel Frank Rodríguez of Rodriguez Tramont & Nunez P.A., told Bloomberg BNA June 9. The proposed settlement balances the risks, costs, and uncertainties of continued litigation with the certainty of benefits that provide substantial, meaningful recovery that makes the class whole while also providing a distribution of millions of dollars of disgorged profits, the motion said. The payments are adequate and very close to, or even more than, what might have been possible to obtain through extended litigation and trial, the motion said.

Approximately 39,000 class members will be made 100 percent whole by the settlement, Rodriguez said.

The trustees’ lawsuit came after Merrill Lynch entered into a letter of acceptance with the Financial Industry Regulatory Authority in which the firm acknowledged its failure to provide appropriate sales charge waivers for mutual fund purchases by small-business retirement accounts. At the time, Merrill Lynch made a remediation payment of $79 million. Believing the payment was insufficient to cover their losses, the LAAD plans’ trustees sued Merrill Lynch.

Merrill Lynch declined to comment.

Levine Kellogg Lehman Schneider & Grossman LLP also represented the class. Morgan Lewis & Bockius LLP represented Merrill Lynch.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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