401(k) settlements went way up in 2023

investmentnews.com:

The number of new class-action lawsuits involving 401(k) plans dropped last year, but settlements in that line of litigation reached a record high.

In no small part that was due to massive payouts in cases against Ruane Cunniff & Goldfarb ($124.6 million), General Electric ($61 million) and Verizon ($30 million). But the number of settlements also rose considerably, at 42, compared with 31 in 2022, 26 in 2021 and just 12 in 2020, according to a report this week from Euclid Fiduciary President Daniel Aronowitz.

In addition to the extraordinarily big settlements, there were a lot of small ones, part of a trend over the past few years as more plaintiffs’ firms have brought cases seeking quick payouts, Aronowitz noted. That has led to the average settlement amount decreasing.

“This is due to the lower quality of the recent cases and the federal appellate decisions that have demonstrated that certain appellate courts will enforce a meaningful benchmark requirement comparing services for excess record-keeping claims,” Aronowitz wrote. “There is also a perception that the prolific plaintiff firms are willing to take a cost-of-defense settlement in a business model of churning cases.”

In the middle of last year, one plaintiff firm new to 401(k) litigation had a novel approach: contacting plan sponsors before any litigation was filed and implying that they should settle.

There were at least 48 new cases involving fees or investment performance in defined-contribution plans last year, down from 89 in 2022, 60 in 2021 and 101 in 2020, according to Euclid.

“Those filings are very cyclical,” said Ian Morrison, partner at law firm Seyfarth Shaw. “Some of it has to do with capacity at the plaintiffs’ firms. They file new suits when