M&T Bank 401(k) Lawsuit Settlement Agreement Includes Review of Investments

Defendants in a lawsuit alleging self-dealing by fiduciaries of the M&T Bank 401(k) plan have reached a settlement agreement.

According to the complaint, in 2010, eight of the plan’s 23 designated investment alternatives were M&T Bank proprietary mutual funds that cost significantly more than similar funds and performed worse. Rather than remove these overpriced and underperforming funds, the defendants expanded their proprietary funds offerings in 2011, after M&T purchased Wilmington Trust and added six of Wilmington’s expensive, poor-performing mutual fund offerings.

The suit also alleges the plan failed to use its bargaining power as a large institutional investor to obtain the lowest-cost class of shares available, and in several instances, failed to prudently monitor the plan to determine whether it had invested in the cheapest possible share class. The plaintiffs also claim the defendants were aware of the benefits of alternative investment vehicles such as collective trusts but failed to offer them to plan participants.

Under the terms of the proposed settlement, M&T Bank or its insurers will pay a gross settlement amount of $20,850,000 into a common fund for the benefit of class members. “This is a significant recovery for Class Members, and falls well within the range of negotiated settlements in similar ERISA cases,” the Memorandum in Support of Plaintiffs’ Motion for Preliminary Approval of Class Action Settlement says.

The settlement also includes a number of non-monetary terms. Specifically, M&T Bank has agreed that:

1. an independent investment consultant will review the proprietary mutual funds in plan (i.e., funds affiliated with M&T Bank) and provide a written opinion regarding whether those funds should be retained;
2. an independent investment consultant also will provide a written opinion regarding whether any of the existing mutual funds (both proprietary and non-proprietary funds) should be replaced with alternative investment vehicles such as collective investment trusts or separate accounts for the same or equivalent mutual funds;
3. in the event that any proprietary funds are retained, those mutual funds shall rebate to the plan (or its recordkeeper) the same percentage of investment management fees rebated to other retirement plans (or their recordkeepers) that hold the same share class of such proprietary funds; and
4. the defendants will issue a request for information to multiple potential recordkeepers to obtain the best combination of recordkeeping pricing and services available to the plan.

In a previous court decision, several defendants, including M&T Bank and certain Wilmington Trust subsidiaries, were found not to be fiduciaries and dismissed from the case; however excessive fee allegations and a prohibited transaction claim were moved forward against the bank’s retirement plan committee.