In a remarkably short period, an excessive fee suit involving proprietary funds has settled for what may be the largest monetary settlement among those cases to date.

The suit—filed on Feb. 15, 2019 by plaintiff (and former McKinsey plan participant) Tushar Bhatia against McKinsey and MIO (MIO Partners, Inc., a subsidiary of McKinsey)—asserted claims for breach of fiduciary duty, prohibited transactions, and equitable restitution under ERISA. More specifically, he alleged that McKinsey adopted certain in-house funds for the plans (McKinsey & Company, Inc. (PSRP) Profit-Sharing Retirement Plan and the McKinsey & Company, Inc. (MPPP) Money Purchase Pension Plan) that are managed by MIO, and not offered in any other retirement plan. He further alleged that the MIO funds performed worse than alternative, lower-cost investment options, and that MIO received more than $20 to $36 million per year in investment management fees in connection with these funds.[i] Further, he alleged that the plan fiduciaries “failed to appropriately monitor and control the Plans’ administrative expenses.”

Oh, and the suit—filed on behalf of the plaintiff by Nichols Kaster PLLP[ii]—also alleged that “each participant pays approximately $95 per year or more for recordkeeping services (out of a total $160 annual administrative charge),” which the plaintiff not only claimed was “…more than twice the reasonable market rate for similarly-sized plans (approximately $30 to $40 per participant),” but that “McKinsey improperly retains around 25% of the recordkeeping charge for itself.”

But that, as they say was then—a mere 18 months ago. Now, under the terms of the proposed Settlement (Bhatia v. McKinsey & Co., S.D.N.Y., No. 1:19-cv-01466, motion for preliminary settlement approval 8/10/20), McKinsey (and/or its insurers) will pay a Gross Settlement Amount of $39,500,000 into a common fund for some 33,000 current and former participants.

The agreement notes that this recovery “…measures favorably,” representing approximately 0.65% of the $6.2 billion plan assets. The parties also note that represents approximately 22% of the total amount of fees that MIO received from the plans in connection with MIO Funds during the class period ($180 million), and approximately 21% of the combined sum of these MIO fees plus the alleged recordkeeping excess ($9 million).

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