Compliance October 4, 2022

Class Settlement Approved for AAA Carolinas ERISA Lawsuit

The lawsuit alleged fiduciary breaches to retirement plan participants from high fees and underperforming investments.  

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A $500,000 class settlement between AAA Carolinas and former employees has received early approval in a North Carolina federal court. The plaintiffs brought a lawsuit that alleged retirement plan fiduciaries breached their duties to retirement plan participants.

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Under the terms of the settlement agreement, signed by defendants Carolina Motor Club Inc. and the Auto Club Group, over 2,000 current and former workers who receive benefits through the AAA Carolinas 401(k) plan will be covered.

The agreement received early approval from Judge Max O. Cogburn, Jr., United States District Court Judge for the Western District of North Carolina, Charlotte Division. The defendants denied any wrongdoing but agreed to settle the case in part to avoid the substantial costs of litigation, according to the settlement and stipulation.

Judge Cogburn defined the class period as beginning July 6, 2014, through the date the court grants preliminary approval of the settlement. Approval of class settlement resulted from negotiations between the parties to the lawsuit, judge Cogburn wrote in the class settlement order.  

“Plaintiffs and defendants, through counsel, conducted extensive, arm’s-length negotiations concerning a possible compromise and settlement of the action, including a day-long mediation,” Judge Cogburn, Jr., stated. “The parties exchanged mediation statements, which included argument, analysis, and damages calculations of consulting experts. Following negotiations, the parties reached agreement on material terms of the settlement, including the amount of the settlement fund and non-monetary relief, as set forth herein.”

By agreeing to a class settlement, defendants did not admit to fiduciary breach resulting in alleged harm to participants for retirement plan losses or any wrongdoing. 

“The Court has not decided in favor of either side in the action,” Cogburn stated.

“The settlement agreement, and these proceedings related to the approval of the settlement agreement, and this order are not evidence of any liability, responsibility, fault, or wrongdoing on the part of any party including any party receiving a release,” according to the settlement agreement and stipulation.

By the terms of the class settlement, defendants will pay or cause their insurance carrier to pay $500,000 into an account at a financial institution identified by class counsel, comprising the ‘Settlement Fund.’

The settlement amount includes expenses for administering the settlement, taxes, expenses and fees incurred for an independent fiduciary’s review of the settlement for the plan as well as court-approved attorney’s fees, expenses and compensation to the plaintiffs, the order states. 

“The net amount of the settlement fund, after payment of the aforementioned costs and expenses, will be allocated to the settlement class members according to the approved plan of allocation, if and when the court enters an order finally approving the settlement,” judge Cogburn stated.  

Plaintiffs brought the original lawsuit in 2021. The lawsuit alleged plan fiduciaries mismanaged the 401(k) plan, caused fiduciary breaches and failed to review the plan’s recordkeeping expenses through the request for proposal process periodically. Specifically, plaintiffs argued the retirement plan caused harm to participants, and was filled with high-priced and underperforming investment options.  

By the terms of the class settlement, defendants must agree that within two years of complete settlement approval, the Auto Club, directly or through its plan fiduciary committee, will conduct a request for proposal for recordkeeping services for the 401(k) plan.

AAA Carolinas did not respond to a request for comment on the class settlement.

Data & Research October 4, 2022

Study Finds Best Stock Gains Are Made Overnight

Although difficult to navigate the after-hours markets, a Bespoke study finds equities' returns are superior after hours.

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Overnight trading is often seen as treacherous turf, where even many investing pros don’t tread and only the swiftest and bravest can survive, but a recent study suggests after-hours stock trades have a much better record than daytime trades.

According to a Bespoke Investment Group study, over the past three decades through 2021, which encompasses three recessions and as many roaring bull markets, after-hours trading returned 853%. Trading during normal market hours lost 10.3%.

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Overnight trading—defined in the U.S. as between 4 p.m. and 9:30 a.m. eastern time—forces traders to face lower liquidity, wide bid-ask spreads and requirements for limit orders only, which crimp flexibility.

But money can be made there, albeit with difficulty. Using the SPDR S&P 500 ETF Trust as a proxy for the stock market, the firm tracked the exchange-traded fund’s performance since its 1993 inception. To measure the difference between night and day, its analysts set up a theoretical conceit.

Suppose since 1993, someone continuously bought the index ETF at the market close each day and sold it at the next day’s opening price, scoring big—thus gauging the market’s behavior outside of standard trading hours. Then Bespoke ran the numbers for the opposite sequence—buying at the open, selling at the close—and lost money. Now, even the most adventurous hedge fund likely wouldn’t have the stamina to follow that path. Nevertheless, the exercise allows Bespoke to prove its point.

Sure, the after-hours superiority isn’t always ascendant. Look at what has happened lately, during this year’s crazy market gyrations. The index ETF’s enormous rally off its June low and its rout since the August high both occurred during regular trading hours. The overnight performance was flat, says Bespoke.

Why do stocks do so well overnight? Because a lot of stock-sensitive information is released after the trading day, Bespoke’s report explains. In most cases, earnings are made public right before the open or right after the close. The same goes for economic indicators. When most big news breaks in Europe or Asia, it’s daytime over there and night in the U.S., after the close or before the open.

Also, the firm says, economic indicators are mostly delivered an hour before the open (other than Federal Reserve actions, which often are telegraphed far ahead of their release). After-hours news in the U.S. spurs equity index futures to move up or down. “When futures are trading up 1% pre-market, it causes SPY to open higher by 1% versus the prior day’s close,” the report says, referring to the index ETF’s ticker symbol.

For some reason, the overnight preeminence holds for crypto, which trades around the clock, but likely less at night. Another anomaly: For a mere two sectors, consumer staples and utilities, out of the S&P 500’s 11, buying at the close and selling at the open was a loser. For the other sectors, nighttime was the right time to score gains. 

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