National Commerce Financial Corp. (NCFC) took a hit against earnings this week due to an agreement to settle a lawsuit against its First Mercantile Bank (FMT) subsidiary over 401(k) retirement plans.
As The Memphis Flyer first reported, last December Corky’s Bar-B-Q sued NCF and First Mercantile over fees charged to 401(k) clients. A month later, on January 29, 2003, Corky’s voluntarily withdrew from the lawsuit, leaving Farm & Industrial Supply Company as the plaintiff. The Commercial Appeal never got the news, and on Thursday it reported “NCFC settles suit by Corky’s.”
The settlement, which has not yet been filed in federal court in Memphis, gives the plaintiffs $18 million, including $10.7 million in cash and $7.3 million in future fee reductions. NCFC took a charge of 6 to 7 cents per share against first-quarter earnings because of the settlement.
Although thousands of investors in company retirement plans paid the high fees, they aren’t likely to get much money. The purported class-action suit had originally sought $700 million. Lawyers will get much of the settlement. Richard Glassman, William Burns, and R. Douglas Hanson represent the plaintiffs, while the Glankler Brown law firm represents NCFC. The list of attorneys in the federal court docket jacket takes up more than two pages.
The plaintiffs claimed that First Mercantile charged annual fees of 2.1 to 2.3 percent while leading clients to believe they were paying roughly 1.5 percent. The lawsuit essentially blamed losses in the company’s 401(k) account on the fee structure, although plunging stock prices in the 15-20 percent annual range took a far greater toll.
NCFC acquired FMT, based in Cordova, in 2000 to take over management of retirement plans under its advisement. At the time NCFC was losing a number of accounts, including Contemporary Media, the parent company of this newspaper, because of service problems and other complaints. FMT, on the other hand, has seen assets under management grown nearly seven-fold since 1995.
