Recently, the global auditing giant, KPMG, found itself in the midst of a lawsuit related to its retirement plan. This legal battle, which was filed under the Employee Retirement Income Security Act, better known as ERISA, reached a conclusion with a significant settlement. In this article, we will take you through the key aspects of this lawsuit and its outcome. We will explore what led to it, the allegations made, and the terms of the settlement.
ERISA Lawsuit Against KPMG Background
The lawsuit against KPMG came into the limelight because of alleged missteps in handling its 401(k) retirement plan. This plan, which is a benefit provided to the company’s employees, was supposedly not managed with the best interests of its participants in mind. This resulted in a group of employees taking legal action against the company under ERISA.
ERISA is a federal law in the United States that sets minimum standards for retirement and health benefit plans offered by private-sector employers. It is designed to protect the rights of participants in these plans, and it includes requirements for the fiduciary responsibilities of those managing the plans. In this case, KPMG was accused of failing to meet these responsibilities.
Key Allegations In The KPMG ERISA Case
At the heart of the lawsuit was the claim that KPMG did not use the cheapest share classes for many of the mutual funds within its retirement plan. The employees argued that this resulted in higher fees, which had a detrimental impact on their retirement savings. As a “”jumbo plan”” with substantial assets, they believed that KPMG should have been more assertive in negotiating competitive rates for investment and administrative services.
This was seen as a breach of the fiduciary duties of prudence and loyalty under ERISA. The plaintiffs claimed that KPMG failed to act solely in the interest of the plan’s participants and beneficiaries, as required by this law. This alleged failure is what led to the legal action and subsequent settlement.
Details Of The Settlement Amount & Terms
In response to these allegations, KPMG agreed to a settlement of $650,000. This figure was given final approval by Magistrate Judge Michael A. Hammer. While the settlement represents a significant financial cost to KPMG, it only accounts for about 17% of the maximum possible damages that could have been awarded to the employees involved.
It’s important to note that the settlement affects approximately 50,000 employees who have participated in KPMG’s retirement plan since October 2015. These individuals are the ones who will benefit from the settlement, although it is not a complete resolution of the claims made against KPMG.
The details of the settlement are not just about the money though. It also includes changes to the management of the retirement plan. The goal is to ensure that the alleged missteps are not repeated and that the plan is managed in line with the requirements of ERISA moving forward.
Affects On KPMG Employees & Class Members
The settlement brought a significant impact to the KPMG employees and class members involved in the lawsuit. With approximately 50,000 employees participating in the retirement plan since October 2015, the settlement directly benefits these individuals. Despite the settlement not being a full resolution, it’s a considerable step towards addressing the raised concerns.
It’s a relief, especially to those employees who felt their retirement savings were being eroded due to higher mutual fund fees. The lawsuit’s resolution sends a strong message to the management and indirectly benefits all employees by ensuring better oversight and management of the 401(k) plan going forward.
Legal Fees & Awards
As part of the settlement agreement, the court granted nearly $275,000 in legal fees and expenses to the class counsel. This allocation of funds is significant, as it covers the legal costs incurred during the lawsuit, which can often be substantial and a deterrent for many who wish to seek justice.
Moreover, the three plaintiffs named in the lawsuit each received $10,000 in case contribution awards. These awards are a recognition of their efforts and the risks they took in launching the lawsuit against a global giant like KPMG. It reinforces the principle that no company, regardless of its size, should be allowed to breach its fiduciary duties under ERISA without facing consequences.
Comparison To Other ERISA Settlements
When we compare the KPMG ERISA settlement to other similar cases, it’s clear that such lawsuits are not uncommon in the corporate world. Large corporations, due to the sheer size of their 401(k) or retirement plans, often face such allegations.
However, the $650,000 settlement of KPMG is considerably lower compared to some other ERISA settlements. For instance, companies like Boeing and Lockheed Martin have settled ERISA lawsuits for $57 million and $62 million respectively. The settlement amount in the KPMG case represents only about 17% of the maximum possible damages that could have been awarded to the employees.
This comparison is not to belittle the KPMG settlement but to put it into perspective. The key takeaway here is not just about the amount, but the commitment to rectify the alleged missteps and ensure the retirement plan is managed in compliance with ERISA. Hence, the real victory for the employees lies in the future changes this lawsuit will bring to the management of the retirement plan.
What This Means for KPMG’s Future Retirement Plans?
The resolution of the lawsuit has indeed brought about significant implications for KPMG’s future retirement plan management. The settlement doesn’t just touch on the monetary aspect but also includes substantial changes in the management of the retirement plan. This is an effective step towards ensuring the alleged missteps don’t happen again and that the plan aligns with the ERISA requirements moving forward.
Among the changes, KPMG has to ensure that they use the lowest-cost share classes for the mutual funds within their plan. This is an important aspect as the lawsuit had centered around this issue. The employees had claimed that the firm’s failure to use the cheapest share classes resulted in higher fees, thereby reducing their retirement savings.
Additionally, KPMG will have to be more assertive in negotiating competitive rates for the investment and administrative services for their retirement plan. The plaintiffs argued that KPMG, with its “”jumbo plan””, should have leveraged its position to negotiate better rates, and their failure led to the lawsuit.
Lessons Learned From The KPMG ERISA Settlement
There are several lessons to learn from the KPMG ERISA settlement. One of the key takeaways is that no company, irrespective of its size or reputation, is immune to legal issues if they fail to adhere to ERISA’s requirements. This lawsuit serves as a wake-up call to other organizations, reminding them to ensure their retirement plans are managed in the best interest of the participants.
Another lesson is the importance of providing clear and comprehensive information about the retirement plan to the employees. Transparency is key in ensuring employees understand their plan and its management. This settlement underlines the fact that employees can and will take action if they believe their interests are not being served.
Finally, this lawsuit reinforces the importance of fiduciary responsibility. Companies like KPMG have a legal obligation to act in the best interest of their employees when managing retirement plans. Failure to meet this responsibility can lead to serious legal consequences, as seen in this case.
Conclusion
The KPMG ERISA settlement is a significant event that highlights the importance of proper retirement plan management. While the financial outlay in the settlement was substantial, perhaps the bigger impact is the changes KPMG will have to implement in managing their retirement plan in the future.
This lawsuit serves as a reminder to all private-sector employers that they must uphold their fiduciary responsibilities when managing employee retirement plans. Companies must do their due diligence in ensuring their plans are managed in accordance with ERISA to avoid potential legal issues.
Looking forward, companies should use this event as a learning experience, taking steps to ensure their retirement plans are managed properly. By doing so, companies can avoid potential lawsuits, protect their reputation, and most importantly, ensure the best interests of their employees are served.
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