Zachry Group to settle suit over workers’ 401(k) plan
Most current and former employees of San Antonio engineering and construction firm Zachry Group won’t see a big windfall from a settlement reached in a lawsuit over its retirement plan.
Zachry has agreed to pay about $1.9 million to resolve the dispute, a settlement that still requires a San Antonio federal judge’s approval.
Lawyers for the four plaintiffs who filed the complaint in August 2020 as a proposed class action called the settlement a “substantial recovery” for class members in a Friday court filing.
But the average settlement would work out to less than $100 if every member of the proposed class — which could exceed 16,000 — participates. That’s assuming the plaintiffs’ lawyers receive a third of the settlement, or $624,275, for attorneys’ fees. The four named plaintiffs also will each receive a maximum award of $15,000.
Settlement proceeds are slated to be allocated on a pro rata basis relative to the plan’s losses attributed to each partici
pant and beneficiary’s account.
The four plaintiffs, all former employees, alleged the company’s 401(k) plan suffered “enormous losses” as a result of imprudent investments and excessive fees.
An expert for the plaintiffs had calculated losses of about $13.6 million in present value after applying a “reasonable interest rate,” a court document indicates. The expert had calculated the losses at about $8 million using a more conservative method.
In an email Monday, Philadelphia attorney Alec J. Berin, one of the lawyers for the plaintiffs, said the settlement represents a substantial recovery based on the plan’s losses and the lawyers’ assessment of the range of potential recoveries in light of the risks of litigation.
‘Compares very favorably’
“The litigation was contested vigorously and the settlement was reached after extensive negotiations with the assistance of a mediator,” Berin said. “In our experience, the proposed settlement compares very favorably with recent settlements in similar ERISA litigation.”
The suit was brought under the Employee Retirement Income Security Act, or ERISA, which provides protections for individuals in retirement plans.
Similar lawsuits have been filed against other companies across the country in recent years.
In 2019, San Antonio grocery store chain H-E-B was sued for allegedly
failing to monitor and control its plan expenses, “making it one of the most expensive plans in the country with over $1 billion in assets,” that suit said. HE-B disputed the allegations in the case, which has been stayed pending a judge’s ruling on various motions.
Zachry Group is one of two successors to H.B. Zachry Co., a global construction company that reorganized into two entities in 2008. Zachry Corp. is the other.
Zachry Group took over industrial projects in the power and petrochemical sectors, industrial engineering and maintenance. It has more than 20,000 employees in about 400 locations nationwide.
The lawsuit named Zachry Holdings Inc. as the lead defendant, identified as the 401(k) plan sponsor and a fiduciary. The plan had 16,832 participants and $919 million in account balances and assets at the end of 2019, according
to an amended petition filed in August. The plan ranks in the top 0.2 percent of all 401(k) plans based on asset size.
Fidelity Management Trust Co. has served as the plan trustee.
Suit’s allegations
The suit alleged that the plan offered “riskier and more costly” actively managed target date mutual funds through Fidelity rather than a suite of Fidelity index target date mutual funds with lower expenses and risk.
“Active funds paid for the majority of the relevant period, represents an annual cost to investors that is over eight times higher than what shareholders of the corresponding Index fund pay,” the suit said. “The impact of such high fees on participant balances is aggravated by the effects of compounding, to the significant detriment of participants over time.”
The suit also cited excessive record-keeping costs. The $60 annual administrative cost per person as of 2019 was 71 percent higher than smaller plans, the suit said.
The plaintiffs’ causes of action included breach of fiduciary duty and failure to monitor fiduciary duties.
In a September court filing, Zachry disputed the allegations and that the plaintiffs’ claims were appropriate for class treatment.
Zachry sought to dismiss an amended version of the lawsuit, a request denied in April by Senior U.S. District Judge David Alan Ezra.
In September, the parties filed a motion to stay the case pending mediation. Then, in November, they notified the court they had agreed in principle to resolve the litigation.
The four former employees who brought the suit are Justin Rozelle of La Porte, Jared Munson of Livingston, Eric A. Myers of Gautier, Miss., and James R. Blackmon of Lexington, N.C.
A lawyer for Zachry didn’t immediately respond to a request for comment.