The Contingency 'Plan'

So, how much should the plaintiffs’ attorneys who wrangled a $12 million settlement receive for their time, effort and trouble?

Well, if you’ve been keeping up with such things, you’ll do some quick math and arrive at a figure of $4 million since, after all, these class action suits[i]—undertaken on a contingent fee basis—generally produce a pay day of somewhere between 25% and 30% of the settlement amount.[ii]

In this case, that’s the settlement amount requested by the law firm of Schlichter Bogard & Denton for their work in a suit involving Oracle Corp. and its 401(k) plan (over 6,300 hours—5,631.10 hours of attorney time & 696.5 hours of non-attorney time—according to the filing (Troudt v. Oracle Corp., D. Colo., No. 1:16-cv-00175, motion for attorneys’ fees 5/8/20). That’s aside from the requested reimbursement of what those same attorneys characterize as “reasonable out-of-pocket expenses of $410,501.60,[iii] and $25,000 for each of the named class representatives.”

The filing states that that fee “would not even provide the lodestar[iv] amount that the attorneys who handled this case would have generated on an hourly rate charge, and would provide no compensation or multiplier to Class Counsel for the substantial risk of nonpayment they undertook.” Specifically, those 6,327.60 hours add up to a combined lodestar of $4,316,867.00—only 92% of the hourly rate of the Schlichter lawyers and staff in working on this case.

Par for the course in such motions, the plaintiffs take pains to justify settlement in lieu of a full adjudication of the issues by pointing out the uncertainty of the result. Here they not only note that “even if Plaintiffs prevailed at trial the aggressive defense presented the possibility that Class Members would have to wait over a decade to receive any compensation pending multiple appeals,” explaining that both Tussey v. ABB, Inc. and Tibble v. Edison took more than a dozen years and involved multiple appeals.

The filing cites the “fact-intensive nature of the remaining imprudent investment claims,” the “adverse findings” in the case of Sacerdote v. New York Univ. “…on similar imprudent investment claims, including the court’s rejection of Plaintiffs’ expert, who was the same expert here.”

The petition makes two other obvious but seldom acknowledged points. First, that the named plaintiffs “…would not have been unable to pursue this litigation other than on a contingency fee basis and no competent plaintiffs’ lawyer or law firm would take on such risky representation for less than one-third of any monetary recovery.”

Second—and perhaps just as importantly—they acknowledge that “as a plaintiffs’ law firm that works solely on a contingency basis, the decision to pursue this class action and commit significant resources and potentially thousands of attorney hours to obtain a successful recovery impacts Class Counsel’s ability to handle other actions.”

And that, it seems fair to say, was always the contingency “plan.”

- Nevin E. Adams, JD

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[i]This settlement, as have several in this genre, notably those brought by the Schlichter law firm, are more than just monetary, of course. This one in particular imposes limitations on the recordkeeper (current and over the next three years) in terms of soliciting plan participants for non-retirement plan related services.

[ii]Indeed, according to the filing, when you take into account the benefit of the tax deferral on the settlement amount once its restored to the 401(k), the requested fee is 28% of the settlement’s full value.

[iii]According to the filing, the “vast majority of these fees were incurred for necessary experts and to conduct critical depositions.”

[iv]Basically, the lodestar method involves multiplying the number of hours reasonably devoted to the case by a reasonable hourly rate—the latter may, of course, vary based on the geographical area, the nature of the services provided, and the experience of the attorneys. And, of course, what’s deemed “reasonable.”

A Bad Example

You have to hand it to the Washington Post. At a time when millions of working Americans are finding a financial lifeline in their retirement savings, they managed to find in the questionable life choices of a half dozen individuals a condemnation of the nation’s private retirement system.

The piece, laboriously titled “Millions of baby boomers are getting caught in the country’s broken retirement system” is light (and selective) on data (they managed to get hold of a 2016 report by the Economic Policy Institute subtitled “How 401(k)s have failed most American workers,” some datapoints from the National Institute on Retirement Security (for those who have forgotten some of the issues with their database, see Data ‘Minding’” and a couple of quotes from none other than Teresa Ghilarducci). Indeed, the article isn’t really about factual data; rather it’s mostly reliant on the anecdotes of six individuals the author has somehow stumbled upon.

Weirdly, the article’s author (who is said to cover energy as his regular beat) does manage to find a kind of silver lining in these individuals’ predicaments, noting that “the coronavirus pandemic has scrambled the lives of these six boomers just as it has everyone else’s, though with no savings to worry about at least it hasn’t directly hurt them financially.”

And while the article claims that “none of these stories is an outlier,” well—judge for yourself.

One 70-year-old “had some good jobs over the years,” but her two divorces “involved lawyers, the need to set up new households, and a general drain on savings.” She admits that “I would rather be happy today than miserable 25 years from now. And so I made choices based on that rather than on the economics, which, you know, one could argue fairly successfully that I made some pretty stupid decisions.”

Another says he came down with non-Hodgkins lymphoma, figured he didn’t have long to live and was fed up anyway with life in “corporate America”—and so “retired”… at age 52. Thereafter he says he sold his house and cashed in his 401(k), which had about $100,000 in it, wound up stuck with back taxes, penalties and the like, but also bought a new car, gave some money to family members who needed it and, yes, went on a cruise because he thought he’d die soon. He admits, “I went through a lot of money very quickly.”

Other examples cited one individual who chose to pursue passion—and traded full-time employment for part-time—living in Manhattan. Another, a former truck driver, retired at 62—with $10,000 in his 401(k)—opting to retire now “because my body’s been beat up so bad after 40 years of driving.”

Not to demean or dismiss the financial hardships of the individuals chronicled in the article, but it was hard not to see in nearly all of these stories an abundance of personal choices that lead to their post-retirement “plight.” A point that the individuals featured make no bones about.

It’s not like dissing the retirement system or the 401(k) is a new “sport” for the media. And let's be honest - some will run short of money in retirement, and some—like the individuals featured in the article—may well be forced to make the tough decisions late in life that different decisions earlier could have forestalled.

It may not be the lifestyle they might choose, but many will nonetheless be able to replicate a respectable portion of their pre-retirement income levels, certainly if the support of Social Security is maintained at current levels. In fact, an analysis in 2014 by the non-partisan Employee Benefit Research Institute found that current levels of Social Security benefits, coupled with at least 30 years of 401(k) savings eligibility, could provide most workers—between 83% and 86% of them, in fact—with an annual income of at least 60% of their preretirement pay on an inflation-adjusted basis. Even at an 80% replacement rate, a full two-thirds (67%) of the lowest-income quartile would still meet that threshold—and that’s making no assumptions about the impact of plan design features like automatic enrollment and annual contribution acceleration.

It would be naïve to argue that the voluntary nature of the 401(k) design works for everyone, certainly not for those who don’t take advantage of the option, and it most assuredly won’t work for those who don’t have access to its benefits. That said, 401(k)s are working for far more people and in much more varied circumstances than the fear-mongering headlines acknowledge. It’s one thing, after all, to acquiesce to what has become a journalistic “creed”—that “if it bleeds, it leads”—and something else again to wield the knife.

It’s well past time to call out these reports—that “normalize” these “bad” examples—for what they really are: at best a naïve and misinformed parroting of surveys with questionable samplings and methodologies, and at worst serving as the agent of a long-standing and deliberately intentioned “plot” to kill the 401(k). They do so first by undermining its value, discounting and demeaning the modest tax deferrals that encourage most who have access to such programs to set aside their natural preferences for spending—and then discrediting as “rich”[i] those who do take advantage of the option and make thoughtful preparations for retirement (and who, ironically, may well wind up supporting those who didn’t via higher tax burdens because they actually have retirement income).

It’s been said that “a lie unchallenged becomes the truth.” If those of us who know better don’t start speaking up—and speaking out—you can bet that the drumbeat of coverage about the failure of the 401(k) will one day become a self-fulfilling prophecy.

- Nevin E. Adams, JD

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[i]You don’t have to be rich to do so—even among modest income workers ($30,000-$50,000/year), we’ve seen that workers are 12 times more likely to save via a workplace retirement plan than to open that individual IRA.

The Next Chapter

Life has many lessons to teach us, some more painful than others—and some we’d just as soon be spared. But for the graduates of 2020—well, theirs is surely a unique time. So, if you have a graduate—or if you ARE a graduate, here are some thoughts…   

My kids have passed those milestones—but I have two nieces that will graduate this year without an “official” ceremony to commemorate the occasion, no capstone to those years in pursuit of education, and preparation for the next of life’s stages, and—while social media, cell phones, TikTok and Zoom provide some solace—this is a class that will, for the moment anyway, be denied the hugs and warm embraces of classmates, friends and family alike.

That said, those next steps lie ahead—and if the when, where (and how) remains elusive—the if is surely only a matter of time. And as graduates everywhere look ahead to the next chapter in their lives, it seems a good time to reflect on some lessons learned along the way—most of which apply regardless of the times.

The world is made up of introverts and extroverts—learn and respect the difference(s).

You can “social distance” without being socially distant.

Because you’re young(er), people are going to assume you know things you don’t—and assume you don’t know things you do.

Nothing says a video conference has to include video.

There can be a “bad” time even for good ideas.

Emails can be a blunt instrument for (mis)communication.

Be who you are and say what you feel, because those who mind don’t matter and those who matter don’t mind. But not necessarily at work.

Paying the minimum due on your credit cards is dumb.

There actually are stupid questions.

A picture may be worth a thousand words, but sometimes it pays to read the fine print.

Never say you’ll never…

“Bad” people almost always get what’s coming to them. Eventually.

Always sleep on big decisions.

When it seems too good to be true, it’s generally neither good, nor true.

Never let your schooling stand in the way of your education.

Sometimes the grass on the other side looks greener because of the amount of fertilizer applied.

Never miss a chance to say, “thank you.”

Hug your parents—often.

If you wouldn’t want your mother to learn about it, don’t do it.

Bad news generally doesn’t age well.

Your work attitude often affects your career altitude.

Comments that begin “with all due respect” generally aren’t.

Sometimes the questions are complicated, but the answer isn’t.

That 401(k) match isn’t really “free” money—but it won’t cost you a thing.

And don’t forget that you’ll want to plan for your future now—because retirement, like graduation, seems a long way off—until it isn’t.

Congratulations to all the graduates out there. We’re proud of you!

- Nevin E. Adams, JD

Got some to add? Feel free to add in the comments.